The term "supply chain" typically conjures up thoughts pertaining to fulfillment and forward logistics. While many supply chains have become extremely efficient, the recent increase in product returns continues to dilute many efficiencies developed over the past few years.
The pandemic changed shopper behaviors and fueled unprecedented growth in e-commerce sales. On the flip side, more e-commerce and omnichannel sales have led to a significant increase in product returns. In fact, the growth in returns is estimated to be nearly five times greater than the growth in digital sales.
Returns are wreaking havoc on many supply chains optimized for down-stream or outbound processes. Products flowing up-stream (those coming back to the retailer or manufacturer) add complexity and require extra handling to be made available for resale.
In the early days of e-commerce, returns were minimal and could be managed internally. However, as the number of returns grew, many trading partners began reallocating existing resources for managing and processing returns. As returns continued to increase, these companies quickly realized this approach was diluting their supply chain's overall performance. They learned the hard way that reverse logistics is complex and that returns can quickly erode margins if not managed properly.
Reverse Logistics Requires a Dedicated Effort
The requirements of product returns are vastly different from those affecting traditional, forward logistics. In addition to sellers having to process and determine appropriate disposition of returns, consumers need to decide on printing a shipping label or receiving a QR code, discover where they can drop off a return and, in either case, be kept informed when their refund will be processed. Reverse logistics introduces additional steps; therefore, timely communication and simplified processes are essential.
Optimize Returns by Harmonizing Disparate Data
The logistic challenges attached to product returns can be addressed efficiently by extracting actionable insights from disparate data sets. These data sets can be integrated to improve order tracking, delivery, multimodal visibility, in-store returns, e-commerce returns initiation and identify optimal pick up/drop off (PUDO) locations.
Using data harmonization technologies and applying advanced analytics will help trading partners optimize their reverse supply chains through enhanced decision support. At the same time, consistent, real-time communication and accelerated speed-to-credit will provide a positive, loyalty-building experience for consumers.
The Immediate Need to Optimize Post-Purchase Management
Mismanaging product returns will erode bottom-line performance, which is why returns have earned a spot on the "short list" of many executives. Manufacturers, retailers and carriers are beginning to see the value gained through comprehensive management of post-purchase operations. In addition to facilitating return initiation and increasing speed-to-credit, intelligent post-purchase management systems enable better shipment tracking and new order fulfillment while capturing data points throughout the entire product journey.
Intelligent, Integrated Post-Purchase Systems Maximize Value Recovery from Returned Goods
There are several outcomes for returned merchandise; however, it's often the case that returned goods end up in landfills due to the lack of time and/or resources needed for processing and evaluating disposition alternatives including liquidation, donation and recycling. Also, many merchants, especially the smaller startups, do not have the expertise or business network to manage alternate dispositioning such as repurposing or recycling materials. Consequently, the opportunity for value recovery gets buried along with the products themselves.
Disposition options include:
This is the best option for maximizing value recovery -- provided the returned merchandise is in pristine condition and can be quickly returned to inventory for resale at the original price.
Refurbish and Return-to-Stock
This approach is common for electronics, home goods and furniture. After refurbishment, products are returned to stock where they are sold at discounted prices.
RTV involves returning unsold inventory to the vendor for credit. While this is a common practice across industries, sellers must make returns in full compliance with manufacturers' business rules in order to receive credit.
Another method for maximizing value recovery from product returns is selling goods into secondary markets. The marketplace for liquidated goods can include bodegas and flea markets with goods also found at "pop-up" selling events such as truck sales and pallet sales. Successfully and safely selling into secondary markets requires liquidators' strict adherence to the client's policies for maintaining brand standards. Resellers must be vetted and audited to ensure total compliance -- with their resale activity taking place in geographies where there is no opportunity for competition with the client's primary sales channels.
Product returns and inventory overruns can, under appropriate circumstances, be donated to charitable, non-profit organizations. In addition to helping those in need, companies can offset their loss of margin through donation-based tax credits. These programs are sometimes referred to as waste-to-charity initiatives.
Another method for capturing value from returned merchandise is through waste-to-energy initiatives. These programs, also referred to as energy-from-waste, most often generate energy in the form of electricity. In addition, some processors can transform waste into some form of fuel commodity. Participants receive payments based on the amount of energy created.
Sending returned product to a landfill is the last resort for product disposition. Disposal does not recover any value from returned and/or damaged goods and contributes to current, and growing, sustainability challenges.
Extending Supply Chain Performance Analytics
Supply chain performance analytics typically focus on optimizing forward logistics. However, as omnichannel expands and the number of returns increase, optimization will require companies to identify and quantify each activity and process within their extended supply chains. By analyzing both forward and reverse logistics, companies will improve efficiency and, ultimately, grow margins.
Integrated Post-Purchase Solutions Will Change Consumer Goods Management Forever
New technologies will enhance the consumer experience throughout the entire purchase and return cycle. These technologies are already improving communication and providing a platform for enabling frictionless returns. Consumers will have more options for delivery and pick up (methods and locations), while benefiting from real-time updates. AI and machine learning will determine if an item should be returned, the optimal method for value recovery, and the most efficient logistics through aggregation, warehousing, and transportation.
Collectively, integrated post-purchase solutions will provide insights for adjusting return policies, help trading partners capture greater value from their returned goods and enhance the customer experience. Integrated post-purchase solutions create a convenient experience for the customer, improve profits and promote sustainability. With retail continuing to evolve, along with shopper's expectations, the time for these solutions is now.