How an Effective Returns Helps Online Retailers Reduce Profit Loss

Leveraging the back-to-basics principles, shippers and 3PLs will need to work together to enhance their supply chain relationships and ensure they are both mutually focused on the end customer.

Adobe Stock 165639987

As technologies within the supply chain have advanced, so has the focus on solidifying the forward supply chain process. This includes but is not limited to transportation, warehousing and inventory management. Today, these are among the key differentiators in the competitive landscape that can alter any business’s execution in multiple ways.

Yet, forward logistics is a part of a much larger functioning of a healthy supply chain. As the spending of e-commerce has intensified for both B2C and B2B purchases, companies must be aware of the mounting challenges seen today in reverse logistics processes. Increased purchases come with increased returns. Should organizations be unable to manage this influx, the results could be damaging and leave a lasting impact. However, when implemented properly, they create vast prospects for effectiveness, sustainability, lower costs and new revenue options for 3PLs.

Reverse logistics can’t be ignored any longer, as shippers and their logistics providers are leveraging technology to optimize the other half of the supply chain equation. In fact, as of July, retailers are sitting on a record $732 billion in inventory. That’s a 21% increase from a year earlier, as reported by the Census Bureau. With the abundance of products that retailers have in stock, many began kicking off holiday sales earlier than normal this year with a mission to clear out warehouses to make room for a new round of products. Fortunately, things are looking up for retailers because even with the fluctuating economic climate and inflation, the National Retail Federation (NRF) predicted this year’s holiday retail sales will grow between November and December by 8% over the same period in 2021, which could result in $960 billion in sales.

A typical returns process can be a headache for both customers and retailers. Returns are costly, tedious and steeped in multiple processes: a business must review the returned product, refurbish it and get it back in stock. If not done effectively, or if a step is missed or data erroneously inputted, it can negatively affect a company’s supply chain. Inevitably, more purchases equal more returns. Take, for example, that even during the 2020 holiday season, more than 10% of retail sales were returned, totaling about $428 billion. Furthermore, on average, for every $1 billion made in sales, retailers experience an average of about $106 million in returns. As retailers are beginning to get into the thick of front-end holiday operations, it’s vitally important that they ensure their reverse logistics processes are efficient.

Returns are also a highly fraudulent endeavor. There is a frequent occurrence of buyers deciding to make bulk purchases of several items to receive their refund while selling another item for personal profit. It is essential to combat these threats that organizations enforce layers of protection to track fraud and keep revenue generation upward.

COVID-19 highlighted our supply chains and illuminated the soft spots and deficiencies of historically capable supply chains. Ongoing disruptions and inflationary pressures have further elevated the supply chain to a boardroom conversation. This has given executives and organizations a chance to reassess their ways of functioning and created an opportunity to find something better.  

In 2023, it is clear that some of long last supply chain challenges include: Lack of resiliency, flexibility and adaptability disparate data sets, reactive planning vs. proactive planning and a lack of an end-to-end view. One of the first steps to resolving these constraints is through collaboration. Across industries, a group effort is necessary to single out the causes of distribution while encouraging the use of new methods to propel organizations forward.

Today's retailers must be equipped with technology to separate themselves from the competition and find success in this ever-changing, volatile, e-commerce digital era. Online businesses can increase revenue and decrease product loss while improving the customer experience by leaning into the vital digital transformation that today's multi-faceted consumer calls for.

Gone are the days of spending countless hours, or even days, processing returns and being caught in a perpetual cycle of back and forth with customers. Adopting a digital system to manage the returns process can help elevate a business to new heights and efficiencies, allowing a company to focus on its product, increase brand loyalty and ultimately protect its bottom line.

As disruption and complexity continue to increase, effectively meeting supply chain needs has become even more complex. Leveraging the back-to-basics principles, shippers and 3PLs will need to work together to enhance their supply chain relationships and ensure they are both mutually focused on the end customer.