Reverse logistics management: dealing with the increasing problems of managing returns

With returns becoming an essential part of the delivery experience, measuring the success of delivery does not stop once a parcel is handed over to a customer. It can be a key parameter for benchmarking on-time deliveries and profits but it does not account for all cases. Fulfillment and returns are two sides of the same coin. Fulfillment ensures products are brought to the market and returns follow the reverse path in the supply chain and bring the product back.

According to research, 30% of all products ordered online are returned as compared to 8.89 percent in brick-and-mortar stores. Also, 92 percent of consumers surveyed said that they will buy again if the product return process is easy.

1. Challenges in managing returns

Reverse logistics that includes a customer sending back a product to a manufacturer makes the entire supply chain process more complex. This brings back to life something that in real terms has no value.

In the U.S. alone, Statista highlights that return deliveries will cost $550 billion by 2020, 75.2 percent more than four years prior. Worse, that number doesn’t include restocking expenses nor inventory losses. What is more alarming is that as much as 42 percent of customers buy variations of a product with the intent of returning it and 42 percent have returned an online purchase in the last six months. This makes it extremely difficult for online retailers to understand the buying behavior of a particular customer and build processes around it.

2. The impact of cost on reverse logistics

Returns put significant pressure on warehouse management. As reverse logistics is unpredictable in nature, it complicates warehousing by making standard handling processes redundant or difficult to implement. This, in turn, leads to rising per-item processing costs.

Cost is one aspect of returns that is extremely difficult to address and it has a significant impact on revenue. The problem with reverse logistics is that the cost incurred cannot be attributed to one fixed cost center, it spreads across the entire organization. In the U.S., revenue that's impacted by returns is estimated between $52 billion and $104 billion.

Understanding why exactly a customer wants a product to be returned is another pain-point that retailers are struggling to eliminate. In most cases, ‘defective’ is what they get as a reason behind the return. But it’s too general a reason and it seldom helps in fixing the issue and reselling the product. What’s even more alarming is that businesses do not really understand the financial impact of returns.

A survey highlights that only 42 percent of retailers were able to say that they fully understood the financial impact of returns on their business, while 27 percent admitted that they guess or can’t measure it at all.

From a customer’s perspective, returns happen to be an extremely sensitive issue. Just like they expect a seamless delivery experience when buying something online, they expect the same for returns. A customer is unhappy with the product that she received in the first place and then if she finds it difficult to get the right product, it will only add salt to the injury. And when it comes to returns, customers can be quite unforgiving and appreciative at the same time.

Research shows that 79 percent of consumers want free return shipping and that as many as 67 percent of shoppers check the returns page before they purchase online. On the bright side, 92 percent of customers say they will buy again if returns are easy.

So, how does an e-commerce business optimize and orchestrate returns? The answer lies in ensuring adequate visibility and control.