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How do e-commerce returns affect reverse logistics management?

Customers expect to return purchases, which means you need to be proactive in your approach to reverse logistics. Here are some things to think about.

As part of reverse logistics management, having a proactive returned goods strategy is critical. Inbound shipments...

make up 4% of global retail revenues, and retailers spend 8% of total sales on returns, according to Bain & Company. They pile up and become losses unless they are managed, handled properly and turned back to salable inventory or otherwise repurposed.

What is reverse logistics?

Reverse logistics is the set of activities that recapture value after a product has been sold, including activities such as recycling, servicing and refurbishment. Note that you may hear reverse logistics sometimes called aftermarket supply chain, aftermarket logistics or retrogistics.

E-commerce = more customer returns

Reverse logistics can include returned goods, whether because they are damaged, because they were incorrectly shipped or simply because customers change their mind. And consumers are finding lenient return policies a big draw, whether they do their shopping online or in a physical store. So, while physical stores have to deal with returns, there are significant differences in how they affect operations. Online stores in particular can suffer big losses if they don't have effective reverse logistics management processes in place to deal with the escalating rate of their sales being returned.

Four tips for better reverse logistics management

Assume the return. With a 30% return rate, online retailers need to assume they will see their merchandise come back if they want to avoid the mayhem of manually processing requests for return authorizations.

Online shops need to look carefully at how leading retailers handle their reverse logistics management, even though it is not the complete answer. For example, Amazon includes an online link for every item ordered and enables the consumer to generate a return label. This takes into consideration the reason for the return and routes the shipment to the appropriate destination. Online shoe vendor Zappos offers a similar online return authorization.

Other retailers pre-empt the online process and simply include a packing list that doubles as a return authorization. This approach assumes a single destination for all the items in the order, whereas the online process allows for variable destinations and, in Amazon's case, adjusting the amount of credit applied to the return.

Decide where it will land. Whether the initial purchase was made online or in a store, customers may decide to return their items by shipping them back rather than waiting in line at a store location. Before a customer decides to send merchandise back, its destination needs to be defined. Predefining the destination shipping address can eliminate another set of handling and shipping to the appropriate location. This information should be defined and recorded when the initial purchase order is placed with the manufacturer.

Define a disposition strategy. Even before the goods are shipped back to their designated landing points, retailers need to have arrangements in place for what happens next. Whether the items are to be repackaged for resale, returned to the manufacturer or donated, it's critical to have this last piece of the supply chain fully established so returns don't continue to amass and become sources of additional costs.

Decide in advance. Each online retailer needs to design an order return process that reduces losses and minimizes expense, while still enticing customers with a generous return policy supported by efficient reverse logistics management.

This was last published in June 2018

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