Posted by on 02.22.16
Building a Reverse Logistics Strategy
This three-part series details how the returns side of the retail supply chain is a critical component of business success.
As noted in the previous posts in this series, returns comprise a significant amount of business for retailers. And shoppers expect that if they can purchase merchandise anytime and anywhere, they should be able to return merchandise with similar freedom. This presents a major challenge for the retail supply chain. Once the shopper begins to return products purchased online to the stores, the retailer needs to have a process in place to handle those products or costs will escalate quickly.
When asked to name the top three challenges in omni-channel supply chain operations in a survey by Retail Systems Research, 65% of the respondents listed “what to do with the increase in online purchases being returned to stores” as a major challenge.
In a recent Gartner report titled “Returns–The Ticking Time Bomb of Multichannel Retailing,” 55% of respondents considered “Improving the efficiency of the returns process and technology” as very or extremely important. Conversely, only 42% believed that they do this well or extremely well.
The notion of delegating returns back into stock for the stores or online orders only alleviates a portion of the returns volume. Few companies measure the percentage of returns that sell at full retail once back in stock. For those that do, 48% of returned merchandise selling at full price is the current North American market benchmark, according to research by Gartner.
How retailers handle the other 52% of returned merchandise is why greater understanding of the reverse logistics process is important to controlling losses and maintaining value of returned goods.
Experts in Reverse Logistics attest that the earlier the product is inducted into the reverse logistics process, the greater the opportunity to retain product value in resale. In support of the returns process, data and pre-determined disposition rules enable an acceleration of the cash ecosystem. In liquidation, premium buyers are looking for quality product, segregated by category, and in quantities to garner the highest market price early in the returned product’s lifecycle.
Executing omni-channel reverse logistics is inherently complex. Extensive technology investment is essential to connect what and where inventory is in the supply chain. Product data capture, at the point of receiving the return, is necessary to expedite returned goods to stock, return to vendor, liquidate, donate or destroy. As product value dwindles, it is imperative to have a plan in place.
What is Important to a Reverse Logistics Strategy?
The challenge of reverse logistics is shrinking profit margins, as returned product idles in the supply chain. An infrastructure designed to maximize the net recovery of returned goods is at the heart of a good reverse strategy. Three critical components are transportation, facilities, and systems support. Net recovery is the resale value less the cost of operations.
If retailers are unable to return damaged product to vendors for credit, liquidating the product to the secondary market represents an opportunity for gross margin recovery. The best liquidation programs offer robust returns management software to sort merchandise into the liquidation channel that maximizes net recovery. These channels include bulk liquidation, B2B pallet auctions, B2C item sales, and inspection/testing/repair for high-value electronics merchandise to retain maximum value.
A Winning Combination
Implementing a strategic, data driven omni-channel returns process is an undeniable winning situation for both the customer and the retailer. A good customer experience is positive, seamless, and easy to do. When poor execution of a returns process plagues the online retailer, the consumer is likely to become frustrated and vow to never shop on the website again, as well as warning their friends to beware.
A good retailer experience is an efficient process for accepting returns, issuing credit or exchange, and moving returned goods back in to stock, return to vendor or liquidate quickly to maintain a positive cash flow. An ill devised returns process results in returned goods piling up at stores, distribution centers and inhibiting positive cash flow. Instead of retaining margins through restocking or liquidation, returned goods are heavily marked down, donated, or destroyed. The dissatisfaction of the customer in the returns process can create ill will and jeopardize repeat business.
Onward – Forward and Backwards
All things considered, it is best to consider a holistic supply chain, one that begins with merchandise procurement and goes beyond final delivery to the “extra-mile” of returns processing. The goal is to provide an outstanding customer experience, speedy processing of returns, and lower costs.
A top tier returns strategy includes system integration, inventory visibility, automated routing and disposition, economies of scale, and a means to refurbish and liquidate product for maximum asset recovery.
Since 1958, Sedlak has provided independent and innovative distribution solutions to companies worldwide. To learn more about omni-channel solutions for your business, contact us by filling out the form below.