Tuesday 23rd Jul 2019 - Logistics Manager Magazine

Reining in the returns monster

Huge volumes of returns are denting retailers’ profits – no wonder the pressure is on to process refunds fast and use returned stock effectively, says Johanna Parsons.

There was a time when retailing meant buying goods and selling them on for a profit. Then the internet came along, and with e-retail came an influx of “returns” requiring an entire new supply chain in reverse. Some estimates reckon that up to 50 per cent of sold goods are now returned to the retailer. That’s a monstrous problem, requiring complex adaptations to established logistics flows. And any cost or delay to refunds can have a serious impact on sales, so the pressure is on.

“The numbers speak for themselves,” says Mohamed Said-Hoefer, operations director, UPS UK, Ireland and Nordics. “UPS’ 2018 Pulse of the Online Shopper study showed that 75 per cent of online shoppers in Europe considered return shipping an important consideration when purchasing from online retailers. This means that having a strong reverse logistics system in place is not just a problem to solve for after the sale has been made – rather, it’s a crucial element to making a sale in the first place.”

Samantha Holden, chief commercial officer at Yodel and CollectPlus echoes the significance of the reverse supply chain for sales. “Returns are a crucial part of online retail,” she says. “It’s no secret that offering free returns instils a confidence in consumers that positively impacts the purchase decision-making process. In fact, our research has found that 94 per cent of online shoppers say that they check the retailer’s return policy before making an online purchase

“However, the fast-paced shopping environment has created a returns culture that poses a number of challenges to retailers. As a result we are seeing most of our retail partners looking for ways to adapt,” says Holden.

Indeed, the challenges are many and various. Mike Hilton, account director of TGW Logistics, describes the returns process as “a veritable avalanche of supply chain challenges”.

“Returned goods tie up a huge amount of stock and working capital, and can become a retailer’s biggest single inbound source of supply, presenting significant operational challenges,” warns Peter Louden, business solutions director of Clipper Logistics.

And he can attest to the strain this places on distribution centres. “Fashion items can arrive in almost any type of packaging, often creased and showing signs of being tried on by a customer. Electrical items could be poorly repackaged and require fault testing. Processing returned goods can cost up to three times more than processing inbound stock. Traditional DC models were not created for the multichannel operation or the processing of significant volumes of returned goods, particularly when dealing with the peaks and troughs of retail e.g. Black Friday and January Sales.”

“We estimate that the average level of returned goods is 40- 50 per cent,” says Lars Beier Madsen, sales director of Logistic System, BEUMER Group. “A lot of e-tailors are looking at a business where more than a third of their operation is dedicated to dealing with returns. Many organisations have no operational setup for this part as, by nature, all the focus has been on developing a streamlined outbound flow.”

“The biggest challenge we encounter is the widespread adoption of omni-channel sales,” agrees Joe O’Shea, director of Principal Logistics Technologies. “As new channels are added business processes become more complex. Customers will shop across all sales channels. They may research an item online, then purchase in-store. They might buy an item online for home delivery or may wish to collect it in-store ‘click and collect’. The returns process must be considered for each channel.”

The complexity of physically processing returned goods is a huge complication. “Each product type (if not unique product) has a specific set of criteria that would make it fit for re-sale,” says Honeywell’s Darrell Williams. “These could be look and feel (often a variable value judgment) of the product and its packaging, or potentially does the product operate as intended? This may involve technical or operating routines to be carried out. And how do we ensure that each returned product has the correct ‘tests’ applied to it? And we have not yet addressed the question of damage or short returns,” says Williams.

But with so much money riding on these issues, there are many solutions to try. Martin Willmor, managing director UK&I at DHL Supply Chain, says that one solution is to encourage consumers to make use of bricks and mortar locations to process returns, as well as deliveries.

“Not only is it cheaper to process returns in a physical location than online, but it can often lead to additional purchases as part of the process. DHL is working with a number of major retailers to use their bricks and mortar store portfolio as part of their omni-channel strategy, reducing the cost impact of deliveries and returns, and ultimately sweating their assets to improve customer service quality,” says Willmor.

Yodel’s Holden says efficient returns are an issue of ethics, too. “From a logistics point of view, a returned parcel doubles the miles on the road and beyond the financial impact of this, one of the biggest concerns is the environment. One way customers and brands can make greener and more convenient choices is through the use of third party Drop and Collect Points like CollectPlus.

“The promise of a fast, tracked returns can also help reassure customers that they will be refunded swiftly. Our research has also shown than more than half of online shoppers said taking too long to receive their refund would prevent them from shopping with the same retailer again,” says Holden.

Collaboration could be a key to success too, according to Paul Durkin, director of home and e-fulfilment at Wincanton. “Whether that be collaborative consolidation centres to keep goods in circulation and reduce wasted miles on the road, or a more collaborative relationship between retailer and consumer that promotes returns to physical locations instead of booked pick-ups,” he says. “Working together could solve shared problems.”

“Consolidation is the key to an efficient returns process,” reckons Paul Ridden, chief executive of Skillweb. “If every retailer maintains their own reverse logistics channels, the overall cost per item can be prohibitive. By designing systems that enable the standardisation of returns processes, carriers can offer white labelled services to retailers with reduced costs and improved service.”

Clipper’s Peter Louden reckons that a strategic overview of the processes at play is crucial, using continuous improvement to optimise core processes and remove non value added activity.”

Louden also points to the formidable efficiencies of automation. “Established returns processes can adapt to become more efficient through the increased use of mechanisation and automation. In large operations we use bespoke automation systems to enhance the processing of stock, achieve supply chain efficiencies and cost savings for the client. While it enhances service offerings, it also reduces cost and complexity, minimising physical labour and eliminates human error.”

Mastering the reverse logistics process has a major impact on a company’s bottom line, says TGW’s Hilton. “All retailers are constantly looking to reduce the cost of every SKU handled in their supply chain. Reducing the number of times a returned SKU is handled represents a big opportunity to contribute to this objective.

“This is where the intelligent application of automation at the right stage of the process can make a key difference. Currently, it would be fair to say that this doesn’t start at goods-in,” says Hilton. “Opening and disposing of packaging, closely examining for marks or tears, possibly checking for bad odours and finally deciding on the fate of each returned SKU means the process is not yet fully within the capability of robot technology.

“So, for the foreseeable future, the resource heavy front end of returns will remain primarily a manual operation. However, the process of returning an item to its original picking location within the warehouse or locating it in a defined return-to-stock area that is part of the “New Order” picking process can be dramatically improved with the use of today’s warehouse automation,” says Hilton.

There are proven technologies to boost manual operations too, even at “goods-in”. “It is critical that we empower those responsible for returns with the correct tools, systems and information to address the needs of each product. Starting with easy identification of incoming goods, to the full gambit of tests required to ‘reinsert’ the product back into the available stock pool, or to dispose of in some other way. Established technologies such as Voice Directed Work, with its inherent agility, help facilitate the execution of these tasks with proven efficiency gains,” says Honeywell’s Williams.

Of course the root cause of many of these issues is the fickle nature of the customer. And although curing the human condition may be beyond most warehouse systems, IT offers a promising new treatment.

Returns platform ReBOUND surveyed 2,000 UK online shoppers and 200 online clothes retailers finding that 13 per cent of consumers admitted to purchasing an item with the intention of wearing it and then returning it for a refund, a practice dubbed “wardrobing”.

Customer expectation for free returns alongside behaviours such as wardrobing have created exponential demands on reverse logistics systems. “They have created a monster, and it needs to be reined in,” says Eric Carter of Indigo Software.

But rather than attempting to tame the more beastly customers head-on, Carter advocates a smart approach to monster wrangling, using data to be more selective with the returns offering. “Some companies are saying that they will penalise serial returners and block them from shopping on their sites. More realistic is to simply increase the minimum order value to qualify for free returns or invite high value consumers only to enjoy free returns within a loyalty club scheme.”

Vicky Brock, director of data innovation at ReBOUND, agrees: “Banning shoppers for repeatedly returning items overlooks that individual customer’s lifetime value. An effective returns strategy requires a nuanced, data-driven approach.”

The consensus is that interactive reverse logistics portals are a great way to enable retailers to be more nuanced, and such portals are on the rise. ReBOUND’s founder Phil Smith explains that the platform facilitates businesses to pick and choose their own returns processes by accessing carriers and integrated IT. “The basic version of the proposition is that when the customer arrives at the portal, puts in the order id, they see the order details, tick what they want to return and why, print a label and off you go. The next stage is taking tracking data and feeding that into the wider business IT such as the finance system, business intelligence, or warehouse management systems.”

He emphasises the value of visibility. In practical terms this means minimising data re-entry, offering refunds triggered by certain tracking event and even in managing staff levels. “They can see, actually we’ve got 4,000 parcels coming in next week I need two more people in returns or I’m not going to cope.”

“There’s all sorts of clever tricks they can use now with this data that we’ve accumulated to maximise efficiency of that whole reverse supply chain, instead of where we were: lift the back of the truck, every parcel is a surprise, open it, check it, manually enter it, you’re constantly behind the curve,” says Smith.

The data generated is an invaluable win-win agrees Clipper’s Louden. “Short of outright charging customers for returns, incentivising them to share information about the nature of the return through an interactive portal, enabling them to return items quickly, has benefits to the current customer. The interactive portal enables returned items to be processed quickly so they can be re-sold, which has benefit to both the retailer and the next consumer, says Louden. “At Clipper, we’ve developed a multichannel reverse logistics solution called Boomerang to complement our leading outbound fulfilment system.”

And visibility doesn’t have to be complicated. Principal’s O’Shea points to the underestimated value of labelling as the crucial first step to begin to improve established systems, “as per the old adage ‘you can’t manage it unless you measure it’.  Well, you can’t even measure it unless it’s correctly labelled.

“We’d always suggest that a barcoded label is shipped with the goods, or that users can log onto a portal and create a label so that when these items enter the returns process they are identifiable,” says O’Shea.

And with that as a base there are myriad opportunities to use that data creatively. Holden says Yodel’s latest applications include a “print in store” service for returns labels, which is now also fully integrated with Amazon Alexa, so that customers can return parcels without needing to use a computer or printer.

Wayne Holgate of Paragon Software advocates another innovative use of data, with the example of two-person delivery operations. He suggests that “empowering the delivery team with ePOD software that allows them to quickly share information with the customer service department about damaged goods may result in the customer accepting the item for a small reduction in price. A much more economical approach than a return journey for your average two-person delivery operation.”

So for the multifarious problems thrown up by the scale and complexity of reverse logistics in the e-retail era, there are seemingly just as many methods of tackling the challenge. And given the knock-on effect to sales, there’s a decided financial incentive to exploring the options and reining in the monster.

 

Surfdome rides the ReBOUND

 

Surfdome is one of Europe’s largest online retailers of outdoor apparel and surf gear. In 2015 the UK business found that returns related queries were clogging its customer service department.

All international customers were expected to package and pay for returns and customer services was constantly busy with lost parcel claims, refund chasers, and people asking for a free return.

The firm wanted to offer local return addresses and tracked services to their international customers without needing tens of new carrier integrations. Surfdome wanted a single solution which could process 100 per cent of their international returns.

Surfdome selected the ReBOUND all-in-one platform, and they were able to go live with tracked returns in every country they sold into, without the adding any additional costs to the project in a matter of weeks. Customers can now independently register and track their returns from anywhere in the world.

Surfdome’s operations team worked with ReBOUND to build a global return proposition enabling them to turn carriers on or off at a moment’s notice, and to offer free returns in specific markets.

Surfdome found that using ReBOUND was seven days faster than their previous solution, allowing them to refund their customers quicker.

Surfdome realised an enormous saving as they were able to stop using local warehouses in France, the US and in Australia. The firm also experienced a 20 per cent reduction in return queries from international customers since going live with ReBOUND.

Marion Delmaire, e-commerce executive at Surfdome, said “The ReBOUND team are extremely helpful, and very quick to respond anytime we need them. The platform is easy to use, and their consolidated returns model has sped up the process of returns from mainland Europe by a week compared to our previous solution.

“Not only have their streamlined logistics saved the company time and money, our customers love it. Customer service contacts from international customers have reduced by 20 per cent since going live.”

 

 

This article first appeared in Logistics Manager, July 2019.