In Addition to Examining Return Policies, Implement Strategies for Effective eCommerce Returns Management
By Drew Taranto, Joe Desormiers, DHL Supply Chain North America
eCommerce return volumes have reached the point where they threaten online sales channels' profitability and attract attention from senior executives. That has led some companies to consider whether policy changes are required to reduce return volumes and the impact of those changes on sales.
Each organization will ultimately make its own decision on that front. Still, before making substantive policy changes, it's worth assessing returns management processes to determine if there are opportunities to reduce costs, increase the recovery value of returned merchandise or improve the customer experience. Here are some of the options that may exist.
eCommerce has undergone exponential growth, so that network design decisions made in the past may no longer support current volumes.
Integrating returns processing with forward fulfillment may be a good option for many companies, especially when return-to-stock rates are high. This allows returned merchandise to be restocked and resold faster while eliminating transportation from the returns center to the forward fulfillment warehouse. It can also create opportunities to flex labor across returns processing and forward fulfillment. For example, seasonal staff is usually hired to support holiday peaks in forward fulfillment. However, they can also support the returns peak that follows, preventing backlogs that threaten return service level agreements (SLAs) and frustrate customers waiting for refunds.
But in some cases where return to stock is a small percentage of the returns volume and if the return volume is large enough, it may be best to put the returns operation in a dedicated warehouse. Companies can justifiably prioritize fulfillment center operations above all else, which can sometimes be bad for colocated returns operations. The prioritization of space can squeeze the footprint of a returns operation and returns processing can be compromised if staff dedicated to managing returns are frequently shifted to support forward fulfillment.
There is no single one-size-fits-all solution for return network design. Evaluating the existing design based on current volumes and return-to-stock rates may uncover opportunities to re-engineer the network to increase efficiency and reduce costs.
PURPOSE-BUILT RETURNS SOFTWARE
A purpose-built returns management platform is essential to maximizing efficiency and visibility. A good software platform connects the returns process to all the information a retailer has about a authorization, product catalog, and business rules for processing and dispositioning the item. It improves inbound visibility and forecasting and can significantly streamline the receipt, inspection, grading, and sorting processes to enhance productivity.
The most effective platforms integrate a retailer's business rules into the process. For example, a visual display on the platform can guide associates through the inspection and grading process using productspecific instructions and photos and then apply the retailers' business rules to direct the associate on how to sort the item for disposition. Since labor is one of the reverse supply chain's most significant cost components, moving to purpose-built returns management software can generate many cost savings.
These platforms can also produce data-rich reporting for retailers and their partners.
The data captured by a dedicated returns management system can be the foundation for a more analyticsbased approach to returns management. Here are three examples of how analytics can support returns management.
• Quality management: Consumers are usually required to identify why products are returned, but this data should be treated with some skepticism as consumers often choose the return code they believe offers the least resistance and the highest likelihood of a no-charge return. The data captured during returns processing, however, can be very reliable. Retailers can gather various information by configuring returns software to prompt the user to answer specific questions or record data such as serial number, date code, item condition, type of damage, presence of accessories, and much more. This information would be used by customer service to properly credit customers and can also be used to reduce returns by enabling manufacturing teams to address quality issues and marketing teams to improve inadequate product descriptions.
• Cost management: Quantifying the cost of returns processing enables process optimization and can guide the development of more cost-effective returns policies. Some organizations are now crediting consumers for returns on lower-value products without requiring the products to be shipped back for processing. That can make economic sense if the cost of return shipping and processing exceeds the value of the returned product. Determining that threshold requires accurately understanding costs across the reverse supply chain. This may also require more robust fraud prevention processes to identify consumers taking advantage of the policy and dynamically adapting policies presented to those consumers before purchase. Third-party organizations have emerged that are attempting to consolidate fraud data across retailers to improve the ability to identify consumers at risk of abusing returns policies.
• Environmental impact: Returned merchandise can affect the supply chain's environmental footprint. As more companies set zero-waste objectives, there is less tolerance for disposing of unsaleable merchandise in landfills, and supply chain organizations may be required to report on the amount of merchandise ending up in landfills. These objectives have led to an increased focus on finding a second life for as many products as possible through first-quality resale, refurbishment, re-commerce, parts harvesting, recycling, and donation. Charitable donations and secondary market discount channels allow returned products to serve communities in need and contribute positively to social responsibility objectives. Providers that manage the recycling and donation processes should share detailed reporting of where the product ends up, and this expectation has now extended to some secondary market re-commerce partners that are starting to provide similar reporting.
MAXIMIZING PRODUCT RECOVERY VALUE
If all returns came in perfect condition and could reenter inventory to be sold as a brand-new product, the cost of returns would be a manageable industry challenge. Because not all products can be restored to new inventory, recommerce strategies have become essential in offsetting the cost of returns. It is the process of restoring as many items as possible to the best condition possible and then finding the proper resale channels to maximize recovery and protect the brand, that is the basis of a solid recovery strategy.
Returned merchandise has the most value when it can be resold at its original price. The faster products are returned to inventory, the higher the likelihood they can be resold without discounting. Some retailers may also be able to send returned products back to their vendors for credit depending on negotiated contract terms. In many cases, there is also an opportunity to recapture significant value from a product that cannot be restored to new condition. The product may be sold "as is" in secondary channels or refurbished, repackaged and sold individually through third-party online storefronts or the brand's controlled channels. This process can be managed directly by the brand or a company specializing in selling through these channels. Other merchandise may be consolidated and sold in bulk to third-party liquidators. In all cases, it is crucial to balance the costs of preparing these items for resale against the potential increase in resale price to ensure a positive return on investment.
Brands with a secondary channel, such as outlet stores or an online resale platform, can capture higher value from lightly damaged or out-of-season merchandise without compromising the brand image. Each brand must carefully weigh the revenue generated by recommerce activities against the impact on the brand of selling through those channels and choose resale or liquidation partners that align with the brand image.
Disposal is the last resort, and, where this was once fairly acceptable, the increased focus on environmental responsibility has caused many organizations to look for alternatives that will keep unsaleable merchandise out of landfills, especially recycling and charitable donation.
A well-thought-out and data-supported strategy for product recovery enables returns to be managed more efficiently and helps ensure all merchandise is resold at the highest value or disposed of responsibly.
THE WAY FORWARD
eCommerce providers can no longer afford to treat returns as an afterthought. With the steep rise in volume, returns processes must be designed and executed with the same discipline, efficiency, and scalability as forward fulfillment. By taking a more strategic approach to returns management, businesses can contain rising costs, maximize the value of returned merchandise, build customer loyalty, and protect the brand.
Learn more about DHL Supply Chain strategy for effective reverse logistics visit www.dhl.com/supplychain/ecommerce
Drew Taranto, Joe Desormiers
Drew Taranto Senior Director, eCommerce Strategy, DHL Supply Chain North America - As Senior Director of Strategy, Drew Taranto drives the growth agenda for eCommerce within DHL Supply Chain North America. Key areas of expertise include customer insights, product development, market intelligence, and building forward-thinking strategies to propel impactful business results. Joe Desormiers, Senior Director, Reverse Logistics Strategy, DHL Supply Chain North America - Joe Desormiers is Senior Director of Strategy and Product Development at DHL Supply Chain North America. His primary role involves developing strategy for new reverse supply chain service offerings. Joe has over 20 years of experience collaborating with many top retailers and manufacturers to design and implement solutions in returns management, refurbishment, multi-channel recommerce, fulfillment, and transportation. He attended the University of Massachusetts and currently lives in Indianapolis.