Reverse logistics: a priority when planning a distribution strategy

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The rapid growth of e-commerce continues to create new challenges for retailers as they plan their distribution strategies. One of those challenges is managing the high volume of returns. One in three shoppers return items and more than half read a company’s return policy before making a purchase. Retailers lose $50 billion annually due to inefficiencies in returns processing, and distribution centers processing returns require 15% to 20% more space than a traditional facility.

Returns not only impact warehouse operations, but are also a key revenue driver. Narvar recently reported that almost a third of new customers would no longer buy from a retailer because of a poor return experience, and 62% of shoppers exchange or replace an item they return. Today, reverse logistics optimization is just as important as execution when planning a distribution strategy.

Here are three important questions to consider when optimizing reverse logistics:

  • To what extent do you provide a simple returns process and commit to faster processing?
  • What processes and space do you need to ensure efficient management of receiving, processing and disposal?
  • How can you speed up the processing of “returns to stock” and increase the salvage value of unsaleables?

Last year, Optoro reported that 87% of consumers would rather return merchandise to a store than mail it back, but only 59% of retailers surveyed allowed in-store returns. Yet many offer a self-service online portal to generate a return authorization and downloadable shipping label. Recent data suggests that consumers prefer an automated process that is simple and provides visibility throughout the return journey.

Regardless of how retailers choose to engage their customers during the returns process, there is a real challenge in knowing what to do with returns and how to manage them profitably at the end. Real-time visibility and analytics are key to understanding who, what, why and where returns. Without accurate data, retailers will struggle to determine the capital and resources needed to effectively manage treatment and disposal.

Analytics can also help unlock cost-cutting opportunities, identify potential inventory issues in fulfillment, and uncover fraudulent returns that are costing you margin. Do you carefully consider carrier and service selections for returns the same way you do for outgoing shipments? Can you trace returns to specific fulfillment centers, processors, or process issues? Do you have processes in place to identify and track illegitimate returns and those due to handling damage?

Pure-play businesses often factor into the cost of their products and services the expectation that a significant number of ordered items will be returned at some point. Traditional retailers should leverage analytics towards a similar view as a higher percentage of sales move from stores to e-commerce channels.

Finally, it is vital for retailers to quickly put salable goods back on the shelves and maximize the value of unsalable goods, in order to optimize inventory and increase turnover. Partnering with a third-party liquidator can also give retailers access to a large secondary market, allowing them to gain capacity and increase salvage value.

E-commerce will continue to grow and may eventually overtake physical sales. These same challenges are also impacting the B2B market. Reverse logistics can no longer be put on hold. Planning an end-to-end omnichannel strategy is critical to long-term success. Effective and cost-effective returns management requires holistic capabilities and a roadmap built around people, process and technology.

Craig Leifeld is an account executive at Fortna.

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