Mastering reverse logistics for profit

How to convert return of goods into an opportunity

A supply chain is a network of companies, suppliers, resources, activities and technology that starts with the source or raw materials and creates a stream that finishes with delivery to an end user. The supply chain – or distribution channel – flows like a river, all downstream. The rise of e-commerce has generated a new river that runs back up the mountain: the flow of returned goods. How can a logistics manager cope with this unusual stream? Gian Schiava tries to unravel its unique challenges and their solutions with help from an expert.

The pandemic effects of 2020/21 changed what was a gentle reverse current in various industries into an unwelcome tsunami. After all, sending goods back adds extra materials handling and management costs for the vendor. The company has to cope with consumers expecting free return shipping, and the experience of returning items must be smooth and easy or people will shop elsewhere in future

You don’t need much imagination to see that managing these returns can be costly and complex, but there are opportunities as well. To find out more, Eureka talked with Peter de Henau, Managing Director at Savoye, a French intralogistics specialist and system integrator.

Eureka: How big is the flow of returned goods compared to regular shipments?

Peter: “It is difficult to put an exact number on this. On average, the figure is probably somewhere between 13 and 15% of the online purchases. However, there are countries where we see a bandwidth of 30 to 50%, in which individual buyers return at least one parcel per year.”

Eureka: What about the difference by market sector? Which industry has to cope with the largest return flows?

Peter: “There are regional differences here also, but the industries with most returns are similar everywhere. Most are seen in fashion, with up to 30% being returned, followed by home electronics with 7 to 11%. Least returned are books and DVDs, where choices seem to have been made very consciously. In general, we can say the fewer the options, the smaller the return flows.

“One particularly interesting aspect is the very high percentage of returns due to damaged or malfunctioning products. Retailers need to consider how they package goods, and look at the quality of materials handling in their warehouses. Transportation and sortation within the warehouse are amongst the processes that could be reviewed.”

Eureka: What are the specific challenges with reverse logistics? How does the flow differ from that of other goods being received?

Peter: “Reverse logistics is indeed a specific and labour-intensive inbound flow. Products must be checked, possibly repaired internally or externally, repacked, stored and made available again. Especially in fashion, this involves a high degree of manual labour at dedicated workstations. Speed of processing is important, especially with seasonal and/or fashion-related articles, and also due to the expected payback period. Often a product cannot be repaired internally and, depending on its value, must be returned to the original manufacturer or even written off. This leads again to extra flows that your warehouse has to process. Map these flows and see how you can improve them.

“There is an increasing range of options for customers wishing to return goods. Goods can be bought online but returned via a physical distribution point, or vice versa. Monitoring becomes vital. One has to know, in real time, the total stock, the available stock, supplies arriving and goods returning. Make sure your IT systems provide this information and always collect all data necessary.”

Eureka: What should a warehouse manager to do to handle these flows better?

Peter: “Keep all flows – both regular new orders and returns – separate at goods reception and set up specific zones where you can process them. Also make sure that your materials handling systems are suited to handling these flows and that your IT systems have separate processes for their management. Draw up a material flow schedule of the entire logistics operation, including these return flows, on a regular basis. Use this to determine how the design of the warehouse should evolve, and/or to assess whether automating specific flows can yield operational and financial benefits.

“Also, use your WMS (warehouse management system) to design a returns process. Set up this process, including tracking and tracing via reprinting labels, so that operational costs can be reduced. In addition, follow your customers and identify those who abuse the system. Process all data through actionable decision models in order to adjust processes.”

Reverse logistics is here to stay. Positive return management processes result in repeat purchases. Unhappy experiences seem to have a more significant impact, making consumers more likely to leave a company permanently. So, you know what to do…