Dealing with returns can be a logistical headache and can hit profits hard, but a clear strategy can help ease the pain
Like a video game where each level is harder than the last, the final stage of the supply chain is the ultimate test – the boss level. The last leg when customers receive their goods has more challenges, more variables and more unknowns than any other area of logistics. Get it wrong and customers cry blue murder.
Needless to say, it’s the moment when retailers most often come a cropper.
Take an issue like returns. It’s chaos. A survey for the BBC in May revealed the scale of the problem. Two-thirds of customers buying women’s clothes in the past six months had returned at least one garment. Some are taking advantage of free returns to order multiple versions of the same item to see which fits better. A study for Barclaycard shows six in ten retailers had suffered from this rate of return and three in ten say returns hit profits.
Retailers have divided strategies on how to cope with returns. Some 30 per cent advocate charge for delivery to offset the costs, compared with 20 per cent who increase the price of items to cover the cost of returns. The optimum strategy just isn’t clear.
And that’s just one sub-set of the fulfilment challenge. There are new concepts such as ultra-fast delivery to make life complicated. Amazon Prime Now and Shutl are offering delivery in 90 to 120 minutes. Food service Deliveroo is proving how potent this is by offering to courier meals from restaurants to the consumer’s door for a flat rate of £2.50. Last year investors valued Deliveroo at $600 million – a recognition of how disruptive ultra-fast delivery could be in logistics.
So how can companies upgrade their post-sale systems? The obvious place to start is to ensure delivery systems are integrated with ordering. Too obvious? Not at all, says David Hallam, director of Orderwise, which creates software to handle sales ordering and processing.
“Often businesses rely on staff having to manually rekey information into external courier platforms in order to get the required information across to their delivery service of choice,” he says. “This is not only incredibly inefficient, but also raises the risk of mistakes being made when details are transferred, which could lead to further costs being incurred down the line.”
Technology is not always the answer. When it comes to improving customer satisfaction, there’s a simpler method than algorithms and radio-frequency identification trackers.
As Stuart Godman, chief strategy officer of logistics operator DX, points out, retailers can impress buyers with better communication. “For example, if a large or heavy item, such as a sofa, shed or wardrobe, requires a two-man service in order for it to be safely and successfully delivered, this needs to be offered and explained to the customer. After all, customers who are left to shift a bathroom suite from the kerbside, simply because they didn’t understand why a two-man service would have been most appropriate, are unlikely to be satisfied with their shopping experience,” he says.
Post-sale fulfilment is such a fast-changing industry there’s no one-size-fits-all solution to anything
With more information customers may change their delivery options. Dominic Regan, senior director for Oracle’s value chain education portfolio, has studied retailer profitability and points out that the most effective method of delivery is to do many deliveries in a single journey. The trick is to get customers to consent.
And they may do, if they understand what is going on. “By having this understanding, it is possible to offer incentives to customers allowing delivery teams to preplan deliveries,” says Mr Regan. “For example, by offering two-day delivery or three-day delivery for free, or a chargeable next-day delivery, consumers feel they are in control of the process and subsequently may be inclined to pay for a delivery to be made at a convenient time.”
Outsourcing vs insourcing
The eternal question of outsourcing is ongoing. There are ferocious advocates on both sides. Innoverne is a business-to-business (B2B) automotive tool hire firm, which uses UPS contract logistics facility in Coventry. This handles returns, turning them round for resale within hours. For Innoverne, it’s an economic, all-in-one solution.
Yet when the internet laundry business ZipJet founded in 2014, it decided to keep all logistics in-house. It now serves 25,000 customers this way. ZipJet co-founder Florian Färber says: “While tempting, outsourcing logistics is rarely the cost-effective solution. In fact, outsourcing logistics often incurs an array of additional costs that eat into your margin.
“At ZipJet, logistics insourcing allows us to tightly monitor and continually improve on efficiency. In both London and Berlin, we rely on our own fleet. This will be the case as we expand into Paris, as we see this as the best way to deliver cost effectively while maintaining a firm grip on customer experience.”
Ultimately, post-sale fulfilment is such a fast-changing industry there’s no one-size-fits-all solution to anything.
Even that accursed returns policy will require a number of things to be considered. First, is free delivery really cost effective? Collect Plus survey numbers show 74 per cent would be less likely to buy if charged for returns.
Real-world behaviour may vary from survey data. Multivariate testing will expose what shoppers really think. Scott Slinn, head of supply chain solutions at BT Expedite, says the only way to know is to run the numbers. “In the fashion world, free delivery is an excuse for customers to buy multiple items to pick and choose at home,” he says. “I think it’s worth doing the analysis to determine the impact of forcing the customer to pay for returns. Will this reduce sales and by how much? Will this decrease returns and by how much? It’s analysis worth doing.”
Oracle’s Mr Regan says it may be worthwhile to offer customers a discount for hanging on to products they want to return. For high-value B2B orders this makes sense.
Data gathering can reduce returns. Eric Fergusson, director of retail services at commerce specialist eCommera, says: “Establish effective data capture on cause of returns so that you can track, for instance, how many returns are due to the product not meeting expectation of size, colour, feature or dimension, which can then be addressed online.” The supply chain can’t exist in isolation.
Post-sales logistics will never be “solved”. If anything, it’s getting harder and harder to meet expectations. But with a few changes to strategy a lot can be accomplished.