Monday 11th Dec 2017 - Logistics Manager

Reversing the value drain

The growth of online retailing and home delivery is renewing the focus on reverse logistics. Getting it wrong can be very expensive when returns can account for up to 30 per cent of shipped items.

For a long time reverse logistics represented the mopping up of mistakes. A lot of expensive, awkward and unrewarding processes, often resulting diminished value or completely wasted stock. But with online sales fuelling the growth of the omni-channel marketplace, processing returns is now a key business operation.

The significance of what was for a long time seen as a tertiary customer service should by now, be beyond doubt. But there are still some businesses yet to appreciate the ramifications of a shoddy approach.

Indeed the growing number of smaller online retailers and sole traders, operating on sites such as eBay has widely varying attitudes to reverse logistics. “Some e-tailers (especially newer businesses) feel that because their business is small a returns process is unnecessary,” says Paul Galpin of P2P mailing. “Some e-commerce businesses fail to even consider the returns process, with many leaving it to the customer to make their own arrangements to send items back”

Swisslog’s Brian Whale agrees: “Newcomers to e-commerce might not fully appreciate the consequences of returns. Often returns represent 20 – 30 per cent of shipped items, which all need to be checked and reintroduced as stock.” 

And that is by no means the limit of returns costs, as they often require replacement. Heikki Haldre of virtual fitting room Fits.me says “With an average of 27 per cent of those returned items exchanged for another size, retailers face making 132 deliveries and collections to successfully sell just 82 garments.”

Managing the volumes of returns is a massive drain on resources, and can represent a huge change for operations moving into online channels from traditional distribution models. There are commercial and processing challenges such as giving the customer quick credit and recovering the value in the merchandise. “Unlike the traditional mail order houses, most retailers have poor experience of industrial strength returns management,” says Professor Alan Braithwaite, of LCP Consulting.

He predicts that reverse logistics can be expected to grow even faster than Omni-channel sales. But implementing a fit for purpose returns process for such volumes is a complex task.

The processes for handling returns is typically much more complex, and difficult to “fix” than for primary distribution. As Andrew Southgate of Zetes points out: “While picking and shipping is usually highly optimised and automated, returns tend to be predominantly manually driven, which is costly and unprofitable.”

However, a good proportion of the cost of returns is the time items spend out of sales channels, effectively wasting retailing time. “This is cash tied up and is the reason why so many new starters have cash flow problems. A good and realistic returns solution enables the items to be returned to inventory at the earliest opportunity,” says Whale.

So although by no means cheap, streamlining these processes is very valuable. While automated applications are largely ruled out by the requirement to manually examine returns, there are tools adding value to returns, such as collection and courier services with high levels of visibility.

“For organisations selling on credit we are seeing a demand for very timely reverse logistics solutions, to ensure they are quickly able to re-credit customers to ensure continued and ongoing spending,” says Gary Winter, sales and marketing director of Hermes.

With the best tracking and IT systems, it is possible to factor returns into predicted stock levels as well as giving customers a clear and timely service. In an ideal scenario, returns can be included in online inventory and directed to the appropriate channel for re-sale. “This requires a system that recognises active stock keeping unit by store, so that the returned stock can actually appear in virtual inventories,” says Craig Sears-Black of Manhattan Associates.

So the challenge is not only how to make reverse logistics process returns effectively, but also to get extra value form the system. Admittedly for some fast moving or seasonal items, the time taken to return an item can make it unsaleable. And it would be very hard to squeeze value out of faulty or broken goods.

But potential for new revenue can be exposed by good monitoring, and data: spotting problems at supplier level, and suggesting areas for improvement.

“The ability to capture and interpret data enables the process of simply returning products to be challenged,” says Dave Skellern of NFT.

 “Understanding why the problem has occurred may either result in re-delivery or serve to highlight process errors. If these errors are identifiable as a trend, then these details can be escalated and the process reviewed.”

Mark Hewitt, of iForce goes further: “When returns are managed properly they are a robust way to add 20-30 basis points to bottom line margin and it can potentially be the largest source of donor stock for on-line business, particularly if co-located with outbound stock, thereby reducing replenishment costs.”

This would suggest that multi-channel retailers are at a distinct advantage, with routes for re-sale already in place. For example, Marks & Spencer has established a network of some 50 outlet stores and an outlet web site, operating alongside its primary offerings. And iForce has combined online fulfilment and returns processing under one roof for Sainsbury’s, and what it reckons is a “best in class” returns process for Tesco, which encompass reselling stock online.

Even in-store returns are now being viewed in terms of profit potential since, as with click and collect sales, they involve customers entering stores, and therefore create an opportunity to sell.

Customer interactions

If handled well at customer interaction points as well as in transit and in the warehouse, it is possible to conserve stock and maintain its potential for profit, while also offering convenience and avoiding negative experiences for customers.

But this can be easier said than done. And it often takes a degree of trial and error to establish what kind and level of solution is required for a business. David Upton of DA systems points out: “How well reverse logistics operations are constructed is another matter, many have yet to place the right level of investment required in them to be effective.”

If it takes financial investment to make reverse logistics pay, the next logical question is where that money comes from. Many believe that current pricing for getting stock from shoppers and back into the supply chain is simply not sustainable.

The pressures of the retail market have forced many retailers to use their returns as a competitive weapon. Impossibly cheap returns look great at the online checkout, but of course they have to be paid for somehow. We all know that there’s no such thing as a free lunch. But why quibble when someone offers a free delivery or return?

Returns costs are frequently built into the outbound delivery charge, or even just the price of the purchase to provide those tantalising free services. But the result is that after years of being offered cheap or free delivery and returns, consumers are blissfully unaware of the real costs of such operations.

And if online shoppers are accustomed to free returns, even if they are unwittingly paying via inflated goods prices, how can they understand the actual costs, let alone want to pay them?
Hermes’ 2012 Parcel Deliveries Usage and Attitude survey found that they don’t.

Unwilling to pay

Half of the surveyed consumers were unwilling to pay more than £1 for guaranteed next day delivery, and more than 60 per cent were unwilling to pay more than £1 for a specific day service. 17 per cent thought that even for orders under £10 delivery should be free, while a further 40 per cent expect free delivery for orders worth between £10 and £30. Which is fine when balancing artificially low return prices with the savings of a slick multi-channel operation, but can pose a real problem for smaller businesses.

“It’s not possible to finance an e-commerce business and offer free delivery and returns unless you are an organisation like Amazon, and offset this cost against other business costs to be competitive,” says Upton.

Another seemingly great idea that puts an unfair burden on returns, is international expansion. As businesses look to grow, the internet opens up massive new markets, with such cheap and easy set-up, some firms make international sales by accident.

Of course, it is somewhat less cheap and easy to negotiate international delivery charges, customs laws, and multiple postal services. But resourceful returns operations use consolidation to mitigate costs, and collaboration with other businesses or third party logistics operations can ease flows.

Upton points out that working closely in partnership with courier firms can unlock huge potential efficiencies: “Retailers need to form partnerships with international courier partners to manage the last mile of the delivery process, from the customer back to the courier’s local distribution centre. If they have ongoing partnerships, they can create economies of scale, because unwanted goods can be bundled together and shipped out to the retailer in one go more cost effectively”

But such operations require a careful and sophisticated approach. Which is somewhat of a theme regarding reverse logistics. Ignoring the problem is no longer an option, and treating it as a side issue can result in disaster. But with the right degree of consideration, data and integration there is a real potential to re-route potential loss back into potential revenue.

Case study- iForce turns Tesco waste to wine

Tesco has used iForce to handle its returns services since 2000, but last year it commissioned the firm to find a new lifeline for their returned wine stock.

Instead of being returned to the distribution centre, iForce reworked the returns, whether damaged bottles or incomplete cases, and through re-labelling and/or re-boxing, created new stock that was often available online within hours of receipt.

Broken bottles or damaged labels also posed a challenge for Tesco. iForce created “Mystery Boxes” of miscellaneous bottles giving customers a great deal on wine while also creating revenue for Tesco on what would have previously been redundant stock.

Ian Towell, Tesco’s national returns manager said: “Returns are increasingly a crucial part of any retailers’ focus and iForce’s innovative approach to reverse logistics has opened up new routes of onward sale and ethical disposal for us.”

iForce’s ReSCU Return Processing System is integrated with Tesco’s IT and produces a pre-advice file for items returned via the till system at Tesco Customer Service Desks. Items are then sent back to suppliers or taken to the iForce processing centre in Saltley.

All products are processed within 24 hours and Tesco’s own supply chain system is automatically updated. This speed helps improve cash flow, while the system’s accuracy allows supplier credits and debits to be managed more efficiently.

Items that cannot be sold through Tesco’s own channels are sent back to suppliers, or through iForce’s disposition management service, and sold via iForce Auctions.

Case study- Collection for linking returns

Returns processes now involve increasingly sophisticated methods of linking returns to the supply chain, getting goods back into circulation around the clock.

Convenience stores, newsagents and petrol stations are being recruited into collection and drop-off point networks such as Hermes’ ParcelShop service, CollectPlus and UPS Access Point.
B2B operations are also making the most of the access that drop boxes provide.

Vista Retail provides IT services and support for retailers. Its fleet of engineers use ByBox’s iBox electronic locker network to receive and return parts overnight.

James Pepper, Vista’s technical services director: “Logistics is a key component of Vista’s highly successful and reliable service solution, therefore when a decision was made to move to ByBox to provide overnight in box and NDC delivery solutions it was reassuring to see a detailed transition plan and the high level of understanding and commitment from the ByBox team.”

All stages of return and delivery are tracked via ByBox’s software system Thinventor giving complete visibility. Customers can trace the movement of parts in real-time over the web.

Case study- High-tech reverse logistics via UPS

UPS is collaborating with Jabil Circuit to provide reverse logistics services to high-tech OEMs, service providers and enterprises globally.

The service combines UPS’s warehousing, transport, returns management and trade compliance capabilities with Jabil’s reverse logistics planning, repair and call centre support. The aim is to provide a turn-key supply chain model.

UPS has 1.8 million pick-up and drop-off locations in 147 countries while Jabil has 55 service centres in 21 countries.

The collaboration also offers field stocking locations to expedite forward and reverse flows.

Brad Mitchell, president of UPS global logistics and distribution, said: “The fact that UPS’s collaboration with Jabil already has resulted in success with several world-leading organisations, such as Dell Computers, highlights the value this solution can offer.”

“Dell has always been an innovator in the service parts reverse logistics solutions space. A clear example of this is when companies like Jabil and UPS are encouraged to come together and leverage their functional expertise on behalf of Dell customers,” said Timmy O’Dwyer, executive director, Dell Services Supply Chain.

Case study- Asda reaps value with norbert

Asda has more than 380 stores nationwide and a turnover exceeding £18.5 billion.

However, its in-house returns solution was not working. It had an unsatisfactory sortation process, poor recovery rates from returns, and a lack of stock visibility. It had not been generating revenue from the returns, including electrical items, that were being consolidated in its Wakefield warehouse.

Asda came up with objectives to increase recovery from returns, gain a more comprehensive management system, and to standardise the returns procedures at stores and DCs.

So the supermarket took on Norbert Dentressangle, which established a returns centre and an integrated service centre in the midlands.

Norbert undertook to manage the relationships between the vendor and secondary markets to increase revenue from returns.

More than 99 per cent of all returns are now accurately processed and recovery rates have increased by 45.8 per cent to be more than 95.80 per cent of the total value of the goods.

Matthew Gravestock, reverse logistics manager at Asda, said: “Norbert Dentressangle has added value through developing the category expansion of our overall returns process and maintaining a high level of accuracy. Their advice and knowledge has helped in many other areas of the returns business and we can now see the benefits.”Asda has more than 380 stores nationwide and a turnover exceeding £18.5 billion.

However, its in-house returns solution was not working. It had an unsatisfactory sortation process, poor recovery rates from returns, and a lack of stock visibility. It had not been generating revenue from the returns, including electrical items, that were being consolidated in its Wakefield warehouse.

Asda came up with objectives to increase recovery from returns, gain a more comprehensive management system, and to standardise the returns procedures at stores and DCs.
So the supermarket took on Norbert Dentressangle, which established a returns centre and an integrated service centre in the midlands.

Norbert undertook to manage the relationships between the vendor and secondary markets to increase revenue from returns.

More than 99 per cent of all returns are now accurately processed and recovery rates have increased by 45.8 per cent to be more than 95.80 per cent of the total value of the goods.

Matthew Gravestock, reverse logistics manager at Asda, said: “Norbert Dentressangle has added value through developing the category expansion of our overall returns process and maintaining a high level of accuracy. Their advice and knowledge has helped in many other areas of the returns business and we can now see the benefits.”Asda has more than 380 stores nationwide and a turnover exceeding £18.5 billion.

However, its in-house returns solution was not working. It had an unsatisfactory sortation process, poor recovery rates from returns, and a lack of stock visibility. It had not been generating revenue from the returns, including electrical items, that were being consolidated in its Wakefield warehouse.

Asda came up with objectives to increase recovery from returns, gain a more comprehensive management system, and to standardise the returns procedures at stores and DCs.
So the supermarket took on Norbert Dentressangle, which established a returns centre and an integrated service centre in the midlands.

Norbert undertook to manage the relationships between the vendor and secondary markets to increase revenue from returns.

More than 99 per cent of all returns are now accurately processed and recovery rates have increased by 45.8 per cent to be more than 95.80 per cent of the total value of the goods.

Matthew Gravestock, reverse logistics manager at Asda, said: “Norbert Dentressangle has added value through developing the category expansion of our overall returns process and maintaining a high level of accuracy. Their advice and knowledge has helped in many other areas of the returns business and we can now see the benefits.”