Along with the rise of e-commerce has come a disproportionate surge in returns: Online orders are returned on average two to three times the rate of in-store purchases, according to investment firm CBRE Group Inc.
Leading companies take a strategic approach to reverse logistics and evaluate how they handle returns with the same efficiency as outbound order fulfillment. Here are some of their approaches.
Not all returns are equal. Visionary companies assess the value of returned merchandise and the work and cost involved in reselling it, then use that to guide investments (labor, equipment, training, etc.) as well as disposition strategies (re-stock, discount, return to supplier, donate or scrap).
Returns should be measured and managed as closely as fulfillment operations. Know the cost per unit to handle returns, the volume and dollar impact of type (category, vendor, customer). Use data from returns to improve purchasing and inventory deployment decisions in the future.
A better view. A single view of inventory, including returns, enables better decision making about order fulfillment and replenishment. Look for ways to fulfill orders directly from returns. Use data from product returns to improve planning for new products and inform future purchasing, design and manufacturing decisions in the future.
Fast resale. Making returned items available for resale quickly offers a greater opportunity to resell the item at full margin. Leverage systems that guide whether an item should be transferred to a different distribution center or channel due to demand patterns. Establish easy-to-understand guidelines that define when an item should be returned to the vendor or scrapped based on its condition.
When items are returned to stores, there must be a process for determining whether to put the item back on the sales floor at full price, mark it down or perform additional handling tasks to ship it back to the DC.
Prevent and reduce. Look for ways to reduce the number of returns. Tools such as true-fit technology and enhanced fit guides minimize the need for bracketing (buying multiple versions of the same item to try on and see which one works best) and reduce the number of returns. Provide more product attribute information and product reviews to set a customer’s expectations about the product before they click “buy.”
Channel choices. Many companies offer free return shipping, which bolsters brand satisfaction but is very costly. With an understanding of the cost of returns across different channels it is possible to incentivize customers to choose the lowest cost option of returning the item to a local store. This has the added benefit of providing another sales opportunity.
It may even be beneficial to allow the customer to keep the item if it is cost-prohibitive to return.
Companies that take a strategic approach to handling returns efficiently will continue to delight customers without a negative impact on profitability. Those who fail will see reverse logistics costs soar.
Craig Leifeld is an account executive at Fortna Inc.
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