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Cliff Holste

Supply Chain Digest
Material Handling Editor

Logistics News

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

August 3, 2016

Logistics News : Three Key Factors for Implementing a Profitable Returns Capability

Retailers Getting Ready For Peak Sales & Returns Season


For online shopping giants like Amazon, QVC, HSN, Groupon and other major big box brick & mortar retailers, business is comprised of two distinctive parts – sales and returns. They go hand-in-hand and are both important parts of the profit picture. This is especially true for retailers that depend on catalog, phone, fax, and internet sales. They would not be able to sustain, let alone grow, their business without offering customers the option to return purchases. This is especially true for apparel purchases which may not fit properly or for whatever reasons may not meet customer expectation.

Holste Says...

The trick is to adopt technology and a management strategy that streamlines the return, repair, and product reallocation processes.

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Typically, these policies permit customers to return any item within 30 days (usually extended for holidays) for any reason for a full refund including original shipping & handling cost. To make it easier, customer friendly return labels and instructions are often included with the shipment, and customer service representatives are available 24/7 to answer questions.

With online returns growing at a 15% annual rate coupled with return rates approaching 30%, the rapid growth of online sales has impacted the returns policy of the traditional retail store operation. It is a fact that many consumers prefer to shop at businesses that offer the best combination of bargain pricing and easy returns.

Deploying Cost Effective Returns Processing Methods

Industry analysts estimate that consumer goods manufacturers and distributors lose 7-13% of sales revenues handling returns each year. The challenge for these companies is to minimize returns processing and handling costs through the adoption of interactive customer friendly technologies along with accurate, fast, and efficient material handling technologies.

The following are 3 key factors in deploying a cost effective returns capability:

  • Customer-Crediting Process: The focus is on security, speed and accuracy. Crediting the customer’s account after a return is made is critical to maintaining a strong customer relationship. Achieving a crediting period of 48 to 72 hours from the point of mailing the return to crediting the customer’s account is the objective. Advanced information systems must be put in place to support this short cycle time while insuring the highest possible degree of accuracy.
  • Product Quality and Control: Efficiently handling the products returned is essential for controlling costs and product quality. The goal is to maximize the value of the goods that are returned. Quickly and accurately determining the quality of goods returned, repairing damaged items, and repackaging destroyed packages are all labor intensive processes and major factors in controlling the quality of returned goods while adding to the company’s bottom line. Establishing a network of aftermarket dealers and recycling services are also critical components of maximizing the value of returned goods.
  • Applying Technology: The material handling systems and storage equipment utilized in the returns area must be modular, flexible and easily scalable to handle anticipated growth. Material handling equipment, controls and software systems must support the transaction volumes and quick crediting requirements. Integrating RF and voice systems provides maximum flexibility while streamlining system operations.

Effective reverse logistics management requires a broad range of operational, technical and strategic capabilities including:

• Scale and flexibility to meet changing business needs

• Industry and geographic expertise

• Visibility into the full product life cycle

• Refurbishment/distribution center management

• Web-based technologies and data integration

Final Thoughts

No doubt there are complex P&L implications in any returns program. The trick is to adopt technology and a management strategy that streamlines the return, repair, and product reallocation processes. Going forward it would not be surprising to find that many companies, both large and small, simply do not have the facilities or the internal capabilities to develop and properly manage this highly specialized area of their logistics operation. For them, the best strategy may include some level of outsourcing.

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