With returns on the increase, having the right processes in place can make the difference between profit and loss, as Sam Tulip discovers
Returns have been a supply-chain problem ever since Josiah Wedgewood, the 18th-century potter, introduced his money-back guarantee.
But in some online retail sectors, returns volumes have soared and the impact on profits can be disastrous. Laurie King, principal at consultants Crimson & Co, notes: “Getting reverse logistics wrong has a big impact on margin. There are substantial costs in logistics, inventory and markdowns or disposals.”
It is vital to be realistic about the likely level of returns, says Brian Templar, of Davies & Robson . “It could be very low; for example most buyers of CDs know exactly what they are expecting, but for fashion items it could be 25 per cent, even 50 per cent or more,” he says.
“The returns process needs really thinking through. There are processes to be set up, inspection, testing [mandatory for electrical goods], repair, reconditioning, cleaning, repacking and labeling,” he says. “Depending on the product, this may be something to job-out or it could be a natural activity for a mezzanine floor in the stock-holding warehouse, which will utilise vertical space and minimise transport costs.”
Dealing with returns under the same roof as your replenishment distribution will save time
Mark Hewitt, chief executive at fulfillment specialist iForce, says: “When returns are managed properly in a robust way it is potentially possible to add 20 to 30 basis points to bottom-line margin and it can in theory be the largest source of donor stock for online business, particularly if co-located with outbound stock, thereby reducing replenishment costs. Dealing with returns under the same roof as your replenishment distribution will save time.”
His colleague Geoff Taylor, director of Client Services, comments: “Best practice in the returns arena is all about speed, item traceability from store to final disposition, having a strong onward sales channel, and strong supplier relationships resulting in minimised margin erosion and improved cash flow for the retailer. So those retailers who have a consolidated returns and fulfillment centre are at a distinct advantage as costs and dwell times are dramatically reduced.”
He adds that effective returns handling can also reflect a retailer’s social responsibility, through reduced landfill, charitable contribution and other eco-friendly distribution routes.
“The value of goods declines the longer they’re off the shelves,” Craig Sears-Black of Manhattan Associates points out. “If an item can be re-used in the store it’s returned to, it should be. This requires a system that recognises active stockkeeping unit by store, so that the returned stock can actually appear in virtual inventories. If it’s returned to the warehouse, it needs to go back into the enterprise system, so it can be re-sold more quickly.”
Laurie King notes that the goal is to reduce costs while gaining greater visibility of the returns supply chain. “The key differentiator for leading companies is their mind-set – they manage returns as if they were their biggest supplier. Efficient and planned processes are required alongside systems giving visibility and reason-code analysis for returns. Joined up collaboration between various departments – e-commerce, planning, logistics, quality control, customer service, buyers – is also key to protecting profits as well as making the returns process a key customer experience.”