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Taking the Cost out of the Reverse Supply Chain

Marketing
Martina Mercer
January10/ 2017

Mark Catley, Head of E-Commerce Development, Norbert Dentressangle

Are you doing all you can to reduce, optimise and wring maximum value from returns?

Refunds go with the territory in retail, with high street retailers expecting an average returns rate of 10%. While the rate of online returns differs based on industry and location, analysts say anywhere between 25% and 50% is commonplace.

According to the IMRG, the number of items returned during 2012 was 236 million, predicted to rise to 397 million by 2017. And research by Webloyalty, in association with analysts Conlumino, found that the cost of returning product to UK fashion retailers reached £90.76 million in 2012, of which £61.52 million was borne by the retailers themselves.

However, with the adoption of appropriate technology and best practices in the reverse supply chain (and a bit of vision), it is possible for returns management not only to become an entirely cost neutral activity but also to promote customer loyalty and drive sales.

Reducing returns

By far the simplest way to reduce the cost of returns is to reduce the rate and volume of returned product. While impossible to eradicate, the incidence of returns and the associated costs can be dramatically reduced by working with vendors and carriers to minimise product damage and improve delivery accuracy. Indeed, through the introduction of improvements in packaging, materials handling and carrier management, one of Norbert Dentressangle’s customers – a major DIY retailer – was able to reduce return rates by 42%.

Closing the physical loop

In traditional supply chains, integrating the outbound and inbound supply chains is common and has clear advantages in terms of both cost and vehicle utilisation (and therefore the environment). Given the discrepancy in their profiles however, there is little opportunity to close the store/home delivery loop.

However, the growth of ‘click and collect’ and return to store services increasingly creates a new supply chain dynamic depending on how retailers get the stock from the stock holding point into the store – using traditional supply chain routes (e.g. adding e-commerce orders to store delivery replenishments) or potentially new routes via parcel carriers, pallet networks or dedicated ‘round robin’ vehicles. This is especially relevant where drop shipping is used and where the physical store replenishment and e-commerce supply chains are not integrated.

Tying these additional delivery streams to the reverse supply chain (including store returns) provides an opportunity to streamline processes and improve vehicle utilisation, or carrier efficiency on collection of store based returns.

Halfords and Marks & Spencer are amongst those, not only to have spotted this opportunity, but to be actively taking advantage of it.

TAKING COST OUT OF THE REVERSE SUPPLY CHAIN 2/…

An even greater opportunity exists in relation to collaboration between retailers, allowing the customer collect or return goods from or to one retailer via another retailer’s stores. This, along with increasing recognition that competitive advantage is achieved through product assortment, availability and price and not necessarily through the supply chain, represents another step towards the possibility of shared user returns centres, offering substantial cost and efficiency benefits.

And, given the massive environmental benefits associated with shared trading, delivery, transport, collections and disposition networks, the retail supply chain would do well to innovate now and get ahead of the game or face being forced down this path by tougher and tougher environmental legislation in coming years.

In the short term however, direct from consumer returns are likely to remain the norm. Efficiency in dealing with these is imperative in building brand loyalty, basket value and repeat purchasing. On the flip side, according to research from Collect+, poor returns experiences lead to 58% of online shoppers permanently shunning outlets.

Recovery management

As well as reducing the costs associated with the movement of returned product, what happens to that product when it reaches the handling point is critical in order to maximise the recovery value.

Value is achieved by having a range of disposition routes available for a range of different returns scenarios, taking into consideration factors including type, value and condition of product and any legislative requirements, e.g., WEEE.

In the majority of cases, there is a hierarchy of disposition routes for returned items, dependent on the recovery value they typically yield. These include – in order of desirability – returning perfect items to stock for re-sale at full price (100% of retail value), returning selected marked or discontinued items to stock for sale (either by theretailer or a re-seller) at a mark down (50-90% of retail value), returining faulty products or those purchased on a sale or return basis to the vendor for a credit (100% of cost price), product re-work such as re-packaging or repair (50-90% of retail value), the sale of items to a ‘jobber’ (10-80% of retail value), recycling (5-20% of cost price), donating items to charity (feel good factor plus possible good publicity) or, if there is no other option, disposing of the item (0% recovery value plus cost of disposal).

Progressive companies are taking a more aggressive approach to managing returns, with a focus on getting product back into existing sales channels quicker, through multiple channel options such as making it easier through online advertising and clear concise web targeting.

More effective returns and recovery management also significantly reduces waste to landfill – with landfill tax at £48 per tonne and an escalator which will see this increase to £80 by 2014, this is a priority for retailers.

While recovery management is a mature discipline in the US, in the UK, many retailers are only now beginning to ‘grasp the nettle’. However, those which have done so successfully are realising massive bottom line benefits.

If you are a small business you can see if you’re entitled to a tax rebate on your inventory, uniforms or products in order to help with the initial cost of facilitating returns.

 

Martina Mercer

Martina Mercer is an award winning copywriter and digital marketer. She specialises in psychology delivering marketing that identifies consumer profiles and connects customers with brands. As an expert in proximity marketing, Martina is one of the only experienced beacon marketers in the UK highlighting her commitment to developing her skills in an ever changing consumer focused world.