Reverse logistics is one of the sternest challenges for retailers both from an organisational and financial perspective. Where initially the return of goods consisted primarily of repairs, refurbishments and recalls, changes in consumer behaviour have significantly increased the levels of returns that retailers and distributors are having to deal with. However, with the right technology and logistical processes in place, could it actually be profitable to offer free returns?
Reverse logistics – the practice of taking goods that have been sent to the original recipient, and returning them back up the supply chain to the appropriate place in the warehouse – is a costly endeavour.
UK consumers are spending more money online than any other country in the world*, accounting for 15 per cent of total retail sales. Exacerbated by the growth in omni-channel retailing, the levels of items moving back up the supply chain is on the rise, with some companies citing a rate of up to 45% of all goods dispatched.
Free return policies and expedited delivery have led consumers to intentionally purchase a larger number of products, with the expectation they will return several. For example, the same item of clothing in different colours and sizes.
Total cost of service
This change in behaviour is a relatively new problem for logistics to deal with. But once the total cost of service is considered (transport costs, packaging, right through to customer services and environmental impact), it’s clear that this isn’t something that can be ignored.
Processes for most retailers, suppliers and third party logistics companies are already in place for sending goods out, but receiving them back in is often less clear.
When goods do come back, they need to be checked. Some will be suitable for placing back in the supply chain immediately. Some will need to be repackaged. Some will need to go back to the manufacturer.
On average, it costs eight times as much to take goods back in a controlled manner into a distribution centre, compared with the cost of sending it out, and in many cases the cost of doing so means it’s cheaper just to write it off.
The business opportunity
It’s no surprise, therefore, that more and more retailers are considering charging consumers to send goods back. Whilst this may stem the flow of products returning to the distribution centre, it comes at the detriment of customer satisfaction, and forces consumers to be more selective in their purchases.
Perhaps the answer to reverse logistics is not to focus on customer behaviour, but to instigate new and more flexible processes.
Ecommerce has opened up levels of globalisation and increased competition never seen before. With that, the cost and difficulty of generating new business leads has become tougher than ever. The process of returns can be a real business opportunity in this regard.
By offering a level of service that the newer generations of consumers are coming to expect, the chances of repeat business are far greater, and factored into pricing, can be a real competitive difference.
In making the move to omni-channel retailing more profitable, flexibility in warehouse processes is key to controlling the cost of return logistics. The reality is that today’s warehouse infrastructure isn’t well designed for returns. But through technology, more fluid workflows and error-free processes can be implemented, without the need for warehouse re-builds or full automation systems.
Today we see technology deployed to utilise the same staff member across different workflows depending on the state of goods and the workload. Scaled out, this will enable the organisation to remain fluid enough to cope with an unplanned flow of inventory.
Exploiting mobile devices, such as scanning and voice solutions, can significantly speed up workflows and enable retailers to capitalise on changing consumer behaviours, without significant investment in additional workforce.
Connected to the warehouse management system, this also adds an additional layer of accuracy in the picking process. In a world of reverse logistics, the cost of a mis-pick cannot be ignored. Through voice, the verbal confirmation of orders has resulted in close to 100%+ picking accuracy in many cases.
A well-managed returns process ultimately will become part of the service. Rather than resisting or penalising, the trick will be to adapt to these consumer behaviours quicker.
Now is the time for retail organisations to look to optimise their reverse logistics processes, whilst ensuring they can continue to offer these services for free.
* According to Ofcom