Reverse logistics is costly and time-consuming. But with the right combination of customer service, process improvement, outsourcing, and technology, you can reduce the burden.
Did you know as many as 1 out of 3 items shipped is returned? Even worse, retailers who don’t offer free and/or easy returns can lose more than 80% of online customers. While you work hard to create more shipping capacity, returns processing is eating away at your profits. The good news is your business doesn’t have to suffer. With the right fulfillment strategy and equipment, you can create an efficient and sustainable reverse logistics system.
Reverse logistics refers to the process of managing the return and grading of products after the sale. It's a critical part of any retail operation, but it can be especially challenging for companies that sell products online. With e-commerce, customers aren’t able to physically inspect the products before making a purchase, which can lead to a higher rate of returns.
Reverse logistics are typically broken down into five main categories:
No matter what the reason is for returning items, the high volumes and process of receiving, inspecting, disposing, and/or remanufacturing and restocking returned products can be time-consuming and costly. Real estate experts estimate that, on average, returns require up to 20% more space and labor capacity than the original order fulfillment process (referred to as forward logistics).
And the rate of returns just keeps growing. Per Narvar’s State of Returns 2022 Report, the value of all the merchandise sent back to retailers in 2021 was a whopping $761 billion. A survey by the National Retail Federation and Appriss Retail found $816 billion in lost sales for American retailers in 2022 because of returns.
Moreover, Klarna found that over eight in ten (84%) online shoppers would turn their back on a retailer after a bad returns experience.
It’s clear, then, that ignoring the problem is simply a non-negotiable in today’s business environment. Reverse logistics is only getting more complicated and costly as time goes on.
To address these challenges, companies can implement a variety of strategies, but here are three I highly recommend:
First and foremost, businesses should continuously improve product information and images to help customers make informed purchasing decisions and prevent returns. Eliminating returns is impossible, but it is possible to reduce the volumes by paying close attention to customer complaints and the data.
Provide clear instructions and return labels to ease returns for customers so items come back to the right receiving locations with enough context for quick processing. Perhaps encouraging customers to bring returns to your stores can not only resolve the order easily, but also generate desirable foot traffic.
When the items do arrive, you’ll want to be prepared to grade and return them to inventory as soon as possible. Like classic retail, many companies resell returned items as regular stock, discounted for unwanted inventory, or even as “open-box,” if necessary. Implementing automated systems and software for receiving, processing, and restocking returns can help reduce costs and improve accuracy.
You can follow these tips in-house or outsource to a third-party logistics (3PL) provider. But, be prepared — receiving and processing individual items ("eaches") is much more labor-intensive than receiving a full case.
Automation solutions, such as AutoStore, are a great tool for tackling labor intensive returns. You can bring the storage right to the grading process, decreasing buffering and inefficiencies caused by touching items multiple times.
Specific locations can be designed for individual units, and those locations can be prioritized first for picking. If needed, those items can be topped-off to Bins of that SKU. This saves huge labor effort by eliminating long walks and sorting. Most importantly, those returned units become immediately available to new buyers improving your bottom line.
Automating the reverse logistics process is an effective strategy so long as the solution is customized to your exact operation. As an example, here's what AutoStore did to help a major global retailer address an unusually high returns problem:
Like the rest of the industry, the company experienced a sharp uptick in returns since the start of the pandemic, but theirs was particularly concerning. It was up 50% since 2020, a crushing development that was causing a cascade of pain points throughout a massive organization with over 40,000 employees and $3 billion in annual sales revenues.
Operations managers tried to address the problem with their existing infrastructure based on a manual persons-to-goods system. This strategy was disastrous. It created inefficiencies in storage density (low units per storage location), operator performance (slow picking process), and order accuracy (inaccurate putaway strategy) for the retailer’s operations.
Ultimately, the use of existing infrastructure was unsustainable.
With AutoStore, the retailer immediately improved order accuracy and reduced mispicks by optimizing inbound flows through system-directed putaway. The AutoStore cubic Grid allowed the company to store items vertically in segmented bins (allowing more than one SKU per storage location), thereby quadrupling their stock capacity.
AutoStore increased the picking rate by 300% with the introduction of goods-to-person workstations. By solving multiple pain points within the same operation the retailer was able to achieve a system ROI within 3 years.
Ultimately, it's important for companies to take proactive steps to address reverse logistics, as the costs and resources required to manage returns can be substantial. Adopting strategies to prevent returns, simplify the process for customers, and improve warehouse receiving, grading, and restocking can all help minimize the cost burden. If operational changes aren't enough, investing in infrastructure like a warehouse robotics system might be a more effective option.