Sustainable Supply Chain Strategy – Reverse Logistics in E-Retail

The logistics industry has worked hard over many years to improve supply chains to deliver products quickly, accurately and as cost-effectively as possible.  However, companies often haven’t put the same priority on planning for customer returns.  But now, from both a financial point of view and also to maintain customer satisfaction, this aspect of the retailer’s offer is being given increased attention since it is recognised that the cost of not dealing effectively with returns can be extremely high.

The rapid expansion of e-retail has also contributed to the increased awareness of the importance of reverse logistics.  Customers buying over the internet do not have the benefit of a physical inspection of the product and this increases the likelihood that they will experience some dissatisfaction with the product and will want to return it.  As increasing numbers of on-line vendors offer easy, no-fault returns, this has resulted in the potential for an ever-greater amount of returned merchandise flooding a company’s reverse logistics supply chain.

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In recent years companies have reported returns percentages anywhere between 5% and 35%.  Hard goods are normally at the lower end of the scale, while fashion clothing and footware, where the customer will sometimes order a range of sizes if they are unfamiliar with the fit, is frequently at the higher end of this range.

So what strategies are currently being adopted to cope with this growth?

  • Some companies oursource their reverse logistics to a third-party logistics provider (3PL) whose focus on this aspect of the business offers a degree of expertise, while clearing the client’s facilities to concentrate on the primary supply chain.  This can have several benefits to the business, not least that of finally recognising the true cost of reverse logistics
  • The retailer must develop a clear policy regarding returns, which must be carefully communicated to customers.  The policy might include the product eligibility requirements, timescales, instructions for gaining authorisation and return shipping instructions, including the information that must be passed back to the retailer.  If you have sent the order out, all the information you need to process the return quickly and accurately should be readily available.  Just ensure that a unique reference is carried with the product on its journey out and back again.
  • An easy returns policy may be critical for consumers, but returns management is extremely complex and costly for retailers.  The aim of most companies must be to reduce returns whenever possible.  It sounds obvious, but how much resource is allocated to identifying ways to reduce returns?  Analysis can illustrate the main causes of returns or products with a high incidence.  Are product descriptions and pictures adequate?  Is transit packaging adequate to protect the product?  Do the handling processes or equipment contribute to damage?
  • Disposal methods need to be clearly defined according to the condition of the product and packaging, supplier guarantees, and possibly shelf life
  • Recognise that reverse logistics is not simply the opposite of the outbound flow.  Essential differences include;
    • Reverse logistics often carries a significanly higher administrative overhead
    • The volume of reverse logistics is much less predictable as it is not controlled by the retailer and supplier
    • Upon receipt, the condition of the product must be assessed and reasons for the return captured for analysis
    • Accuracy and speed of processing is required, since customers will be impatient to receive credit or a replacement
    • There is a potentially wide range of disposal options and WEEE regulations impose environmental responsibilities

Reverse logistics management software exists that can either operate as a standalone application or as part of an ERP.  This specialised software can automate some of the critical functions and provide reporting and audit functions to enable retailers to maintain better control and also assist in meeting regulatory requirements.