The incredible growth of eCommerce has sent returns skyrocketing. Traditionally, only about 9% of merchandise was returned, but in terms of online orders, at least 30% of orders are returned to the merchant.
This increase has put a strain on supply chain funnels and sounded the call for smoother reverse logistics processes. Having reached critical mass, returns can certainly affect your bottom line and brand image if they are not properly managed.
How should a company flip returns to an advantage? By using reverse logistics!
Because reverse logistics can improve overall business health in at least four ways: saving money, reducing waste, improving customer retention and identifying potential for product improvements. In this post, we’ll show you how.
1. Reverse Logistics to Save Money
This is a priority that every company can appreciate. Saving money improves the bottom line and increases profits, which is obviously the main reason most companies are in business. It may be tempting to gloss over returns, but they have a real impact on profitability.
The average manufacturing company spends 9-15% of its revenue just on processing returns. The expenses may include many things such as return shipping charges, receiving and restocking, liquidation and staff time.
Here’s a scenario:
Sales are strong; lots of orders are going out – great news. There is a fair margin on the products and the net profits look good. But returns are accepted for up to ninety days and they trickle in awkwardly and informally. When this company receives a returned item, the priority is to refund the customer’s money and the eCommerce system doesn’t handle refunds smoothly. As a result, returns aren’t tracked in detail and all adjustments are made manually.
Did you spot the fail?
These returns are not being included with sales data in a transparent way. Business owners in this situation may not have an accurate picture of sales health. The manual adjustments and casual handling of each return actually cost the company more money in manpower and wasted time, not to mention the loss of merchandise that could have been used in another way.
2. Reverse Logistics to Reduce Waste
A good portion of returned items can be resold, although this varies significantly by product category. However, there are many items that cannot be resold as is, perhaps due to damaged packaging or small defects. It might be surprising that these items still have value and do not need to go directly into the trash. The units can be refurbished, repackaged, reused for parts or recycled.
Electronics, for example, are often returned due to minor issues and the selling company typically passes these units on to secondary markets rather than process the goods further in-house. Resale of electronics in secondary markets amounts to as much as $15 billion in the US alone.
Clothing returns can be problematic when items that have been tried on, become dirty or have been damaged. Also, reprocessing needs such as replacing torn plastic packaging or tags seriously affect the ease of resale. It’s easy enough to make these corrections if efficient reverse logistics systems are in place.
A fulfillment service is not typically equipped to tag and repackage merchandise, but taking a proactive approach to logistics management can change everything. A company with this attitude and a good relationship with their fulfillment partner can anticipate the issue and simply set up their 3PL with packaging, tags, labels or whatever is needed to easily turn over an item for resale.
Other product categories may be more appropriate for liquidation (think food or consumables) but many products can still be reused in a creative way. Companies even make toothbrushes out of recycled yogurt cups, so just remember that no idea is too crazy to consider.
By reducing waste in these ways, companies can make more money and help the environment at the same time. Plus, this leads to happier customers.
3. Reverse Logistics to Enhance Customer Retention
Customers love a good return process. In fact, 95% of customers will continue buying from a company if they have a positive return experience. It only takes one bad experience to make a bad impression, so as eCommerce returns continue to increase in number, it’s worth devoting special attention to reverse logistics processes.
The good news is that a good return process encourages customer loyalty – and every business wants to retain customers. After all, it can cost as much as five times more to attract a new customer than to keep an existing one. And it might come as a surprise that eCommerce return capabilities affect first purchases from new customers. One report stated that 68% of US shoppers would be more inclined to shop on a site that offered automated returns. Before they even buy, they are interested in the return process.
Once the customer has made that first purchase, it is well worth keeping them happy – which doesn’t mean they won’t return something. The report also notes that 96% of consumers say they would shop again from a retailer based on a good return experience. Easy shipping, no restocking fees and quick refund processing or replacement are all factors in customer satisfaction. But one of the most important results of returned merchandise can actually be better products.
4. Reverse Logistics for Product Improvement
Good reverse logistics data can identify whether there are quality control issues. For instance, if a particular product gets returned more often than average, there might be an issue with that product. There may be manufacturing defects that can be recaptured by the merchant from the manufacturer, which means sending products further back through the supply chain.
Collecting information on returns is vital to product development, so it is important to actively use the data from these returns and identify patterns. AI systems are beginning to be used to analyze the vast amounts of eCommerce data along with other digital tools. Once these systems easily and quickly analyze mass data, human staff and managers can review the results and take appropriate action.
Besides defects, reverse logistics offer a chance to identify manufacturing improvements, which lead to better products and more sales. Customers frequently return an item that they simply don’t like once they see it in person. This could be because the item is represented poorly on the site, which is essential to identify.
How many orders are lost for this reason?
It could be because the item lacks something, doesn’t have a particular feature or just doesn’t present well. Think about a returned order as a golden opportunity to find out why someone doesn’t like a product so that it can be improved. This is the essence of good marketing: selling customers what they want rather than trying to make them want what’s being sold.
Sometimes it seems like no sales are final, but returns can actually benefit the company if they are handled correctly. A casual reverse chain that just puts products back on a shelf or in the trash, gains nothing — no knowledge about how many customers returned something for being poorly sized; zero information about defects in manufacturing; no recovery of value; zero customer loyalty.
Once the benefits of smooth reverse logistics are clear, it’s easy to see that returns are just as important as outgoing orders. The companies that pay close attention to improving reverse processes can add value and improve the bottom line.
Sarah Brangan is a content writer for Sprocket Express. She is fascinated by supply chain technology and the world of eCommerce but believes technology is pointless without the human factor to preserve flexibility and personality. At Sprocket Express, they consider themselves geeky technologists but insist on giving personal dedicated service.
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