Dirty Little Secrets of Holiday Returns 3: Reverse Logistics

How 3PLs can help retailers maximize the value of returned goods
Oh, those fickle consumers.   They shop online and in stores then return a good deal of what they purchased.  Popular articles and news reports focus on the increased importance of the customer experience as being key to the success of every retailer, both brick and mortar and e-commerce.  Both online retailers and traditional retailers understand that the business process of dealing with returned goods in today’s global supply chain can be highly problematic and complicated.  This is due to the popularity of online shopping but preference for consumers to return goods in person.
According to the 2017 UPS Pulse of the Online Shopper survey, although 58% of respondents prefer to return goods to a physical store rather than mailing them back to online retailers, 75% mailed their returns.  This is most likely due to online retailers offering free returns shipping.  In this survey, 79% of online shoppers rated the policy of free shipping on returns as an important factor in their decision to purchase from a retailer.
How merchandise is returned impacts retailer profitability directly.  The variable costs on an in-store return is approximately $3 per item, no matter the retail value of the item.  On average in-store returned goods are restocked on shelves within a day of return.

For goods that are returned to a distribution center, the story is different.  Merchandise that is returned to a distribution center takes an average of four days to restock and costs approximately $6 to process.

Because of consumer preferences to return goods to a physical store and the reduced time and cost of doing so, some retailers are making changes to their businesses.  Here are a few:

  • A joint agreement between Kohls and Amazon enables consumers to return goods to 82 stores in Chicago and Los Angeles
  • Walmart initiated “Mobile Express Returns” in approximately 4,700 stores across the U.S. Consumers simply need to open the Walmart mobile application, scan a QR code at an express station within the store then leave the merchandise.
  • Walgreens has partnered with FedEx to facilitate returns to one of the more than 7,500 stores across the United States.

3PL Reverse Logistics Activity Broadens Following Booming Holiday Sales Season.

First the holiday sales, then the holiday returns.  It is all part of the great retail cycle of life in which not all retailers are equal.  In terms of the global supply chain and logistics industry, not all retailers are prepared to process the volume of returned goods, especially online retailers.  As it stands, online retailers that have the necessary business process, operations and people in place or that outsource reverse logistics to experienced third party logistics providers are better able to optimize the value of returned goods.  The increasingly popular operation of reverse logistics within the field of supply chain management is the business process by which loss is mitigated.  Having goods identified and ready for resale as quickly as possible help recover the lost value of the merchandise.  Because the volume of holiday returns is higher for e-commerce retailers than brick and mortar vendors, being well positioned can mean the difference between profitability and distress.

5 Reasons to Rely on a 3PL to Process Returns and Handle Reverse Logistics

Because industry studies, popular articles and news reports indicate that consumers consistently place high value on the customer experience, including the process of returning merchandise, retailers and e-tailers are taking notice.  Developing their own corporate cultures with tolerance for returns combined with supply chain models and execution of handling returned goods is often problematic.  For this, retailers are turning to 3PLs for help.

Coordinating and effectively managing a returns processing and repair operation can be complicated.  As with other issues, when a business concentrates on its core competencies, it is more likely to be successful.  Third party logistics providers typically have relationships with multiple transportation providers, enabling savings and efficiency.  It also happens that 3PL providers have partnerships that enable the consolidation of end-to-end reverse logistics processes.  This is especially useful when dealing with goods with a short life span.  Working as part of a successful supply chain logistics network provides tremendous benefits for 3PL customers without the outlay of capital.
The complex nature of reverse logistics and continually increasing rate of product returns every year has led to the development of separate forward and reverse supply chains.  For retailers, this is a significant capital investment, not only for the facilities and equipment but also for the time and cost of labor resources, transportation and technology needed.  Outsourcing reverse logistics to a third party provider enables retailers to remain more flexible without the need to acquire the necessary expertise and resources.
Besides potential improvements in supply chain sustainability, retailers who choose to outsource report major advantages of relying on a 3PL partner for returns processing including:

  • Improved margins and enhanced profitability
  • Faster turnaround to stock time
  • Enhanced customer service
  • Higher rate of consumer satisfaction
  • Overall reduction in operational expenses

3PL Value-Added Services for Returns Processing and Reverse Logistics

Reverse logistics is, by its nature, a very manual process.  Packages are opened.  Goods are inspected.  Documentation is prepared based on the assessment of the returned goods.  Returned merchandise is then determined if it can be resold or if it is damaged.

Time is the enemy in processing some types of returned goods and inventory management is critical.  Apparel, electronics and perishables are the most vulnerable.  Because of rapidly changing fashion trends, technological obsolescence and shelf life, these goods must be processed quickly so that the maximum value can be extracted.

Using supply chain management software for inventory management and to provide real time information flow and supply chain visibility can help to ensure that returned goods are processed and positioned in locations where they are most likely to sell, quickly and efficiently.

  • Returned merchandise repair or enhancement:
    • Button attachment or button changes
    • Deodorizing merchandise
    • Steaming
    • Pressing
    • Emblem attachment
    • Miscellaneous repair of goods
    • Heat transfer
    • Screen printing
    • Product assembly
    • Bonding or fastening
    • Sewing repairs
    • Cleaning, mold and mildew removal
  •  Prepare returned merchandise for resale:
    • Bagging
    • Folding
    • Packaging or re-packaging
    • Hanger change or hanger insertion
    • Application of barcodes, labeling or re-labeling
    • Price ticket changes or re-ticketing
    • Application of security tags
    • De-kitting or kit assembly

 

  • Salvage of parts or components of merchandise
  • Recycling of goods

Leading Qualities of a 3PL Reverse Logistics Services Partner

  • Ability for the 3PL partner to provide clear, accurate, timely communication
  • Experience in repairing rather than simply replacing merchandise components, especially items that are expensive or hard to locate
  • Rapid turnaround time
  • High quality accurate performance of value added services
  • Usage of leading edge technologies to provide real time information flow and supply chain visibility
Third party logistics providers that are experts in reverse logistics do not treat it as an afterthought.  Rather, they have studied the value chain.  3PLs focused on reverse logistics often use technology including material handling solutions, transportation management systems, wireless technology such as RF and RFID, voice-directed technologies, supply chain software including warehouse management systems and much more.  These 3PLs rely on technologies to help with inventory management, the business process of assessment, repair, refurbishment or restoration and then transport the goods for resale quickly to maximize their value.

Using these various types of supply chain software, wireless technology and material handling solutions reduces labor and errors, provides real time information visibility for inventory management and aids in speeding up processing time.  All just to get goods back on the shelves so that consumers can buy them-again.

Summary:

In the complex supply chain and logistics industry, many businesses falter when handling returned goods and the reverse logistics business processes that are required.  By outsourcing the business process of returned goods to third party logistics providers, retailers can rely on their expertise, supply chain and logistics networks and technology to provide real time information flow and supply chain visibility.

Processing returned goods quickly, accurately and efficiently so that they can then be positioned for resale is often essential to reselling the goods at all.  3PLs that deal with returned goods typically offer a wide array of value added services to their clients to repair, restore and reposition goods for resale.  By relying on a 3PL to accomplish this work, retailers can save on labor, time and capital expenses and focus on their core competencies.

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