The rise in e-commerce and shifting customer expectations has led to a new landscape for returns. Traditional ideas of reverse logistics are not enough to guide retail brands, retailers and industry professionals to the right path for smarter returns management.
Comparing Reverse Logistics and Returns Management
Although sometimes used interchangeably, reverse logistics and returns management are two different sets of activities.
Reverse logistics, the traditional approach, is simply moving products from point A to point B. It refers to what happens after a product is delivered and the customer decides they no longer want it. If faulty, it may be sent back to the retailer or manufacturer to be refurbished or recycled, or it might be put back into stock for resale.
Organizations handle the workflows associated with reverse logistics in-house or choose to outsource parts or all of the process. In either case, it requires the retail brand to manage a variety of partners and suppliers as a core competency, which might not be strategic or reflect their strengths.
Returns management, by contrast, is a holistic end-to-end method that addresses the entire life cycle of a returned item and the multiple stakeholders that are involved. It starts from the point a customer initiates a return, continues through transport and the processing activities in a warehouse, and is completed when the product reaches its end destination.
In this model, there is full ownership of the entire process, and a complete overview of the whole ecosystem and critical stakeholders.
Common Challenges
Reverse logistics is a complex process and is difficult to do well. Initiating the return, transporting the item, analyzing its condition, processing the refund, and preparing for resale or recycling, are all steps in which errors and misalignment can occur.
Some of the common challenges to a strong stakeholder experience are:
- The time it takes to return a refund to the customer is beyond their expectation. Some retailers choose to initiate a refund only after the item has been received and reviewed, and with potentially longer transport times this can take 5-7 days or more. Other retailers initiate a refund once the customer starts initiating the return, which means risk with a significantly damaged or fraudulent item. If a customer is missing information on refund status, they may call in to customer service (who also might not have the information) and express their frustration, increasing the internal workload on resources. Customer expectations are higher than ever, so when things go wrong, it quickly causes buyers to be dissatisfied. In fact, 80% of consumers say they would prefer to do business with a competitor after experiencing problem returns.
- Returns carry hidden costs, so a retailer does not have a good understanding of how to make better decisions about approaching returns holistically. A returned product carries more cost than simply the price per parcel. A good example may be the assumption on the cost for return-to-stock. It’s a fair assumption for a retailer to think getting an item back to stock is a good financial choice. However, in some cases, the cost to transport an item is much higher than the item’s value, so incurring those return costs is a poor choice. Separately, if return-to-stock time takes too long, items can devalue before they are able to be resold. One organization started to tackle this challenge and realized that only 5% of their returns were making it back to inventory! Over a 6–9-month period, they were able to increase this amount to 80% and are evaluating their returns assumptions for the remaining 20% of items.
- Managing multiple logistics providers is a challenging experience. Because providers have different workflows, processes, and ways of sharing information, both carriers and retailers can waste a lot of time on small but important tasks, such as emailing back and forth and updating spreadsheets to deal with carrier-dependent logistics issues. IT integration is needed for smooth data flow, but each carrier sends information in different formats – so retailers must gather data and ensure it is usable for consumers to track their returns. This gets increasingly complicated with the number of countries a brand may be operating, not to mention the details of cross-border workflows.
- Delivering on rapid growth impacts all stakeholders. Retailers need to be able to quickly flex their returns operation to successfully navigate peak seasons or expand into new markets. Yet the strategic investments required in facilities, people, tools, and technologies often compete with other business priorities. Investment to scale for growth in revenue generation with new products or geographies is well understood, but too often returns are not considered until warehouses are overflowing with large amounts of out-of-stock products.
Seeking providers with specific domain expertise in scaling or avoiding returns can help meet the needs of a growing brand, accommodating the ebb and flow of returns and any geographical expansion, whilst still retaining oversight of the entire ecosystem.
Future-Proofing and Optimizing Returns
A shift from reverse logistics to a returns management strategy can provide retail brands with the knowledge they need to understand the true cost of returns and make informed decisions. So, how can brands move the dial from reverse logistics to smart returns management? There are three core pillars that a returns strategy should incorporate:
Full return journey orchestration:
The strategy should focus on the entire returns’ lifecycle, with optimization of the end-to-end process. This includes the customer experience, with flexibility that enables buyers to pick their preferred method from multiple choices of returns. They might choose a convenient pick-up option or from a variety of nearby drop-off locations. Carriers, postal networks, warehouses, and any other parties involved are managed and monitored to ensure operational excellence. The process follows the product until it reaches its end destination, whether that is back to stock, recycling, or charity.
Data-driven by integrated technology:
For returns management to be smart, it must be data driven. Integrated technology can collect and report on valuable data in real time. This includes information about consumer behavior, transactions, returned items, the reason for a return, refund lead time, back-to-stock time, and more. Smooth technology integrations can provide strong visibility with data available in one place in near real-time. This enables better fact-based decision making, predictable returns, and even the ability to replan manufacturing volumes to meet demand.
Ecosystem-oriented:
Smart returns management requires a shift from managing linear, fragmented processes to managing whole ecosystems of returns. It removes the need to own aspects such as logistics fulfilment centers, by leveraging an external network of warehouses, carriers, and service providers. It optimizes labor, resources, and interactions throughout the entire supply chain. The bigger the network, the more value is added for customers, who will be able to return products with greater choices and greater speed.
Reverse logistics is a complex process that lacks in efficiency, visibility, and integration. It leaves retail brands and retailers exposed to hidden costs and declining customer satisfaction. It’s time to focus on smart returns management, so that the entire supply chain can benefit from returns processes that are simple, smart, and scalable and deliver a much stronger experience for all stakeholders.
