Reverse Logistics: Gold amid the minefield

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The rise of online retail has made returns processing the critical final customer service interaction. Somewhere among the growing demands, there is a seam of value waiting to be mined.

Reverse logistics operates in a minefield of demands and dangers. A returns operation has to co-operate with customers who are probably disgruntled, running impeccably to try and win them back. But it also has to keep retailers happy by recovering maximum value from returned items, and keeping costs down. Some estimates put the cost of reverse logistics at three times as much as outbound processes.

And the demands will be compounded next year, by a European consumer rights directive that will double the legal window for returns to within two weeks of purchase.

The first hazard to negotiate is the physical process of getting an item from the customer. This involves the same challenges as the crucial “last mile” of deliveries, but with the extra pressure of winning back an unhappy customer. 58 per cent of online shoppers never go back to retailers that have given them a poor returns experience, according to a survey by CollectPlus. This has unsurprisingly resulted in a greater focus on convenient options for the customer.

“Customers want choice and to be able to return goods in ways that suit their lifestyles. Long gone are the days when customers were prepared to sit at home waiting for unwanted goods to be collected,” says Keith Basnett, chief operating officer at Shop Direct Group, which includes brands such as, Littlewoods and isme. And with a recent study by TOA Technologies finding the cost of waiting at home for deliveries and services to be at some £2 billion a year, who can blame them?

ASOS’s EU delivery solutions manager Robert Muldoon, agrees that consumers are becoming more demanding. “Our customers are increasingly expecting a free returns service, while asking for alternative and easier methods on returns.”

Responses to such customer expectations include options to return to stores, doorstep collections, timed collection slots, free fully tracked returns, courier tracking, fast turnarounds, real time refunds, later opening hours, and convenient drop-off points.

Hermes offers a returns service via its lifestyle couriers, locals who know the area and will collect from the customer’s home, a neighbour or a nominated safe place. Collection can be arranged by the customer online, according to their own stipulations.

Basnett says that Shop Direct customers have been keen to take up its CollectPlus option, which uses convenience stores as a network of drop off and collection points. “CollectPlus has significantly enhanced our returns service. In the majority of cases, CollectPlus stores are open from 7am to 11pm seven days a week, making this a highly flexible and convenient alternative for those that cannot afford to wait at home for collections during working hours. 12 of our customers even returned goods to us via CollectPlus on Christmas Day.”

Virtuous circle

Being well informed is enormously important to customers. 89 per cent of consumers think prompt acknowledgement that a returned item has been received would be a huge factor in improving returns, according to research carried out earlier this year by Blackbay with Interactive Media in Retail Group.

This should be possible to implement using the same technology such as scanners on mobile devices which are generally already used in deliveries. “Just as with the delivery process, every scan/event during the returns process can be tracked and provided online to the customer,” says Nigel Doust, chief executive officer of Blackbay.

In many cases, the solutions developed to meet the demands of savvy e-shoppers, have brought with them a sophistication that also serves the retailer and logistics providers.

Keeping customers informed of collection times via email or text avoids wasting time for customer and collector alike. But when data becomes interactive the benefits go further. If a customer can text in advice that they won’t be home as planned, this data can be used to recalculate the driver’s route, and potentially fit in extra jobs and add value to the day’s work, rather than leaving him to waste time on a failed collection.

Data can also be used to flag up substandard manufacturing by monitoring defect rates. Over time, data can also build profiles used to predict returns behaviours for particular regions, individual customers or product types. For example, Yodel expects 20 per cent of clothes and footwear, 10 per cent of electrical items and 5 per cent of books to be returned.

This knowledge makes it much easier to set up a cost effective reverse logistics process, and also to recover value from returned items. With adequate visibility, returns can be a great source for donor stock. “Sophisticated retailers can receive SKU-level detail on what products are coming back, allowing them to re-sell the return items instantly,” says Yodel’s Adam Smith.

In fact, Mark Hewitt, chief executive of iForce picks the potential of data as a key for innovation in returns. “It’s a virtuous circle,” he says. “Returns provide data which gives management information for the buying team and the supplier which in turn will improve the product, leading to increased sales to the customer – who will still wish to return.”

Mutual benefit

Another service of mutual benefit is combining collection of return items with the delivery of replacements. This not only saves delivery costs, but also minimises inconvenience for customers, and anecdotally helps products “stick” – importantly finishing the transaction on a high.

UPS is streamlining service on its “returns exchange” offering, whereby a UPS driver delivers a replacement item while simultaneously picking up the original item marked for return.

The driver assists the customer in packing the return item in the same box used to deliver the replacement. It is then immediately shipped back to the retailer or to an alternative location, with no second trip for the driver.

Third party returns operators are also able to dedicate resources to extracting value from returned items that retailers might not consider worth handling further. iForce has its own online store, “BuyForce” to trade otherwise unsaleable returned items – it reckons that up to 85 per cent of returns can be refurbished and remarketed.

“What constrains many retailers from maximising the potential of returns is the specialised nature of the beast. Specialist logistics suppliers offer scale. [and]they can also provide the key expertise and systems, otherwise absent from the retailer,” says Hewitt.

As well as scale, cost is still prohibitive for many retailers contemplating international returns. Paul Wilson, director at Davies Robson says: “Keep the returns local where possible. work with an international partner that can perform the ‘in country’ delivery and collections on your behalf, inspect returns, assist in the processing of the refunds locally and ship the returns goods ‘home’ only if they are re-saleable and with at least some consolidation.”

Basnett agrees that consolidation is an effective strategy for international returns. “Waiting for just a couple of days and packing a number of items into each box can often reduce the cost of return per product to that of a domestic parcel.”

Although in many cases cost comes at the top of a long list of demands of a returns service, there is a wealth of potential to create value.

Hewitt argues that returns can be an opportunity to regain customer sentiment, increase customer loyalty and to gain customer advocacy. It is a robust way to add 20 -30 basis points to bottom line margin, he reckons.

Reverse logistics operations will face increasing demands with the seemingly unstoppable rise of online retail. But intelligent use of data and generally giving the customer what they want can be the key to unearthing rich sources of value.

Case study: Online clothing buyers now take goods back to the shop

Boden, the UK and international clothing retailer, began a trial period in November 2010 allowing its customers to return items for free through CollectPlus. Boden customers were offered the service by means of a CollectPlus leaflet enclosed in their parcels containing instructions and a self-adhesive label.

This approach, requiring no IT integration, no stationery changes, nor a PC to find a nearest store, enabled a rapid mobilisation of the service.

Boden customers were also the first to be offered the chance to use the new CollectPlus SMS store locator as well as the standard online store search. By texting their postcode to a special number, customers received a reply giving the address of their nearest store and also a link for smart phone users to search for more.

Within weeks the service accounted for 20 per cent of all Boden’s free returns volume. Boden got positive feedback when contacting its customers, with the convenience of the returns locations and their hours of availability reported as the major factor in satisfaction.

The partnership also delivered operational benefits, as the fully tracked nature of the CollectPlus service acts as a valuable data source for Boden. It can give daily reports of the number of parcels which have been returned via CollectPlus stores, enabling the returns department to plan their labour accordingly. With the average CollectPlus return taking less than three days, Boden can restock quickly and give customers faster refunds, which it views as a valuable motivator of brand loyalty. Four months on from the trial period, Boden now offers the CollectPlus returns method as the standard service for both free and paid returns.

Case study: TM Lewin saves on returns and refurbishments

Shirt maker TM Lewin has more than 100 stores in the UK and a growing international business with franchises in Singapore, Malaysia, Prague and has branched out into Australia. TM Lewin offers its customers a bespoke service on its tailoring range.

The clothing maker says it has seen costs fall since it selected Torque to provide a multi-channel and reverse logistics services. Services include: pick, pack, distribution, export and import freight, relationship management of partners and pre-retail services including quality control, ozone treatment and product assembly as well as value added services and returns processing.

Torque manages the online returns and exchange service for TM Lewin, providing a refurbishment service where returns from customers are quality checked, refurbished where possible, ironed and re-packed to the original standard. The goods are then returned to stock.

Torque also manages an alterations service for TM Lewin’s online customers which covers sleeve and trouser lengths. The turnaround on this service is advertised on the TM Lewin web site as eight days, however Torque aims to exceed this expectation.

TM Lewin initially chose Torque in 2006, and Torque has offered night deliveries for more than two years from its Heathrow site. Torque processes and delivers 256 replenishment orders within the M25 per week bound for TM Lewin’s retail stores, in addition, in excess of 30,000 orders per week are fulfilled for online orders in the UK.

Keith Nesbitt, chief operating director, TM Lewin said: “When developing our expansion strategy, it became clear we would need to find a logistics company with both UK and international capabilities for today and with potential to expand for the future. We also required a company who mirrored our values of delivering outstanding quality and service levels to its customers. Torque has delivered in all these areas and entered into a firm partnership with ourselves both for now and the future.”

Case study: Accuracy and efficiency for Asda

Asda’s returns centre at Magna Park handles one million returned electrical items per year – from kettles and toasters to sound systems, flat screen televisions and 6million music CDs, videos and games.

The supermarket giant, part of Wal-Mart, offers a 28-day exchange or refund service, but found its processes had become inefficient and costly.

It took on Norbert Dentressangle to handle its reverse logistics, to increase the recovery value from returns and provide full control and visibility of the reverse supply chain.

Norbert Dentressangle specialists visited Wal-Mart’s returns operation in the USA to gather best practice insights, and established the 110,000 sq ft Asda Returns Centre at Magna Park near Lutterworth in Leicestershire.

It has established a web-based WMS which gives complete visibility. When an electrical item is returned to a store, it is issued with a returns centre transfer request label. Upon arrival at the centre, the labels are scanned to confirm receipt. The product is then inspected, identified and confirmed onto the system.

An appropriate disposition route will then be identified. In most cases this involves returning the item to the vendor/manufacturer; alternatively it will be channelled through the secondary “jobbing” market.

When a line reaches a certain volume the vendor is notified and requested to collect their products. Previously only 50 per cent of returned products went back to the vendor, but now some 95 per cent do.

Norbert also sells the remaining items to “jobbers” which can only sell the items outside the UK.

These updated arrangements and effective warehouse management are helping to significantly reduce dwell time for Asda, from an average of 48 days to just 21, improving working capital and cash flow.

Norbert also reckons that more than 99 per cent of all electrical returns are now accurately processed and Asda’s recovery rates have increased by 45.8 per cent.

Case study: Reverse gear for retailer

German catalogue and e-commerce retailer Witt Weiden sells clothing, shoes, and accessories with annual sales of some 570 million euros. It dispatches around 77,000 parcels per day, but had insufficient capacity for its returns.

Servicing costs spiralled and bottlenecks formed while using a cross-belt sorter, so it looked for a better system from Knapp subsidiary, Dürkopp Fördertechnik.

Employees check, sort and repack received returns, separating damaged goods. Items are then supplied to one of the two automatic infeed stations of the split-tray sorter. This amounts to double the capacity of the previous set-up. Similarly, using tote trays has dramatically increased throughput, as previously all clothing had to be aligned in a certain direction.

The conveyors travel at 1.3 metres per second, and the sorter’s 24 outfeed stations have two pneumatically operated openers. Using target codes, operators can define two outfeed points for each chute. After the goods have been sorted, employees scan them, pack them into boxes and return them to storage.

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