Managing the Complexity of Ecommerce Returns
by Scott Weiss, VP of Business Development, Port Logistics Group
As the growth of online shopping continues to rise, so has the volume of ecommerce returns, often referred to as reverse logistics. Did you know that almost 33 percent of all online purchases result in an item being returned, compared to just 9 percent of physical store sales, according to figures from Bloomberg?
The challenge is that reverse logistics is generally far more complex than forward logistics. At the same time, consumers are increasingly expecting a seamless experience when it comes to returns. In UPS’s Pulse of the Online shopper study, 89 percent of customers would not shop again at a retailer if their return experience was suboptimal. Simple and free returns are becoming the new standard. In that same study, 79 percent of consumers consider whether a retailer has free shipping when making a purchase. The cost of a return is one of the biggest stumbling blocks for many consumers, so eliminating it makes sense, even if it is expensive.
For online retailers, efficiently managing the returns process is one of the most challenging and costly aspects of ecommerce. Omnichannel retailing brings new processes, including increased dropshipping, BOPIS (buy online, pick up in store), and BORIS (buy online, return in store), making the management of returns difficult when cross-channel inventories are subject to many business rules.
Challenges come in small packages
Online retailers need to keep costs down and preserve as much of the original revenue of the returned products they can. But returns don’t always involve sending goods back to inventory following inspection or repair. Items may be destined for disposal, destruction, or put into secondary markets for resale. Online retailers may leverage the services of a 3PL fulfillment provider for reverse logistics, or even a 3PL specialist in returns. A proficient 3PL will be able to manage the returns process according to your guidelines and ultimately protect your brand’s reputation.
Another potential problem is the volume of returns to the fulfillment center, distribution center (DC), or store on any given day isn’t known, unless the receiver is given advance notice. Returns typically come back within 30 days of sale, or even longer as return policies become more liberal and return time is extended to even 60 days or more.
Returns also require more labor to process. New business models for returns are also upping the service ante as third-party returns specialists enter the market. One is Happy Returns which operates “return bars” to enable in-person returns for online purchases at its select customer base of online retailers. Another model is retailer/online retailer partnerships, such as Kohl’s accepting returns on behalf of Amazon at select stores, which makes it easy for the consumer who doesn’t have to package the item but only has to show proof of purchase on Amazon.
Whether you manage returns in-house or outsource, here are best practices:
Processes and quality control. From the consumer’s perspective, they shouldn’t have to make a phone call to learn how to return an item. Information should be included with the order or at the online retailer’s website. It does the retailer and supplier a favor when the consumer can easily inform them why the product is being returned. Return forms aid this process as do pre-printed labels.
Once received, a key benchmark for an efficient returns process is to return the appropriate goods back into stock as soon as possible for resale. So too is planning the flow of returns in the DC or store, allowing plenty of space for returns processing. The returned item will require inspection of its condition and quality to determine if it can be returned to inventory, and may require light repairs.
Value-added services and training. Apparel, electronics and shoes are some of the most returned items for direct-to-consumer ecommerce, according to returns optimization company, Optoro. To return to stock, apparel, for example, requires a close inspection under good lighting, refolding and relabeling. Goods may need steam cleaning, sewing or other repair which involves value-added services.
Training staff in returns processing is essential. Much of the knowledge for processing returns is specific to the product or brand, with returns specialists becoming very proficient in their craft. Knowledge is often handed down as tribal (undocumented) knowledge. It is always better to err on the side of documentation.
KPIs. Key performance indicators (KPIs) can be kept basic within your company or with your 3PL. Fulfillment processing rates for ecommerce orders are typically same-day or within 24 hours, including dropship orders a supplier fills on behalf of the retailer. A typical KPI for ecommerce returns is processing the item within 72 hours after the item is received, tracked as “return cycle time.” Hitting this mark 95 percent of the time is a reasonable aim.
Routing guides. With the multiple channels of omnichannel complicating returns, determining which party in the supply chain will handle each return may be subject to change. Developing a vendor routing guide is a great updatable resource. Use it to document which entity will do what processing, whether by type of product or channel, and so forth. For example, a dropshipped apparel order sent to the consumer on behalf of the retailer by the vendor may likely get returned to the retailer’s facility, and not the vendor or their 3PL, in part to maintain the brand image of the retailer. It’s also important to note consumer instructions for returns which must be included with the outbound order.
In all aspects of the returns process, close communication with participating parties for each key event in the returns process is essential. From the systems perspective, communication should be reflected in alerts and notifications that involve parcel or shipping systems, warehouse management systems (WMS), and order management systems (OMS).
The key communication-alerting checkpoints are receiver and consumer confirmations. Once the return is scanned in at the parcel carrier or drop-off location, the receiver is alerted, and can thus better plan for disposition. Consumers want an easy return process. Alert them that the seller has received the item, which is enabled by the initial scan when the consumer drops off their return. Many leading ecommerce companies are providing electronic confirmations to the consumer that their credit card has been credited; the retailer or seller generally provides these confirmations.
The expense of handling ecommerce returns are high and the pitfalls are many. Many of these returns practices can reduce the cost of returns processing for online retailers while enhancing the consumer experience and contributing to a positive brand experience. Given the growth of ecommerce and returns, there is a business case for allocating resources into building a strong reverse logistics capability.