According to a UPS study, 45 percent of consumers returned an item by shipping it back to a retailer Reverse logistics, although it’s been around for decades, still means different things to different companies. The term was originally employed to connote the process of delivering recyclable materials back to the beginning of the supply chain. More recently, the term has been taken up by retailers and refers to the process of transporting merchandise returned by consumers back to vendors. With ecommerce playing an ever growing role in the retail world, online retailers and their service providers are paying that much more attention to reverse logistics, especially in the aftermath of the holiday shopping season.  UPS, a major carrier for online retailers, reported that by the end of the first week of January, over five-million returns packages were handled—500,000 more than last year. According to a UPS study, 45 percent of consumers returned an item by shipping it back to a retailer.  In the United Kingdom, Royal Mail said online returns jumped by more than 50 percent on Monday, January 4 alone, versus the average number of daily returns in December. Ecommerce is now the main method for Christmas shopping for more than half of UK shoppers, according to Royal Mail research. It accounts for more than three-quarters of Christmas shopping spending and nearly half of online shoppers return clothing after the holiday. “As online shopping volumes grow globally, so do returns volumes,” said Teresa Finley, UPS senior vice president of global marketing. “Online shoppers tell us they want free, fast and easy returns.”  Favorable returns policies attracts business, and its a great revenue opportunity for carriers like UPS, who make more per unit on returns that on the outbound deliveries, but it also adds costs to retailers, for shipping as well as storing the additional inventory. As a recent research paper from IDC pointed out, “Space comes with overhead expenses such as rent and utilities. When there is less unnecessary product moving throughout the system, that inventory space can be more strategically used or reduced to benefit the budget of the retailer.” The IDC report lays out several strategies to help retailers manage reverse logistics more efficiently and at lower costs. “Retailers that manage their reverse logistics well have reported that they reduced losses because of an unknown shrink by up to 75 percent,” said Victoria Brown, senior research analyst at IDC Retail Insights and author of the report. Among the strategies identified in the IDC report is to is to identify locations within a retailer’s distribution network that are better for the accumulation and sorting of product for redistribution or markdown. This comes to alleviate the problem that retailers face when returns arrive to wherever the consumer chooses. Allowing consumers to return items however and wherever they want, the report noted “leads to random assortments of returned SKUs in various locations, lots of extra shipping expenses, and added labor expenses for handling.” Another best practice identified in the IDC report is to establish a redistribution strategy based on the condition of returned items. This addresses a couple of different problems. Policies on what constitutes a return acceptable for resale may be interpreted differently at different retailer locations. Also, the retailer’s inventory tracking system may assume a returned item is acceptable for resale unless it’s redirected elsewhere.  “When a process is in place to divert products according to condition, retailers can more effectively plan for alternate channels,” said the report.  Zappos, the online show retailer, the report noted sorts its returns based on whether it is unsaleable, saleable, or that it needs to be consigned to the company’s outlet store. Returned products showing minor defects are sent to the Zappos outlet store, near its main distribution center in Louisville, Kentucky, and the company doesn’t have to count them as a complete loss.  Establishing an inspection process for returned items allows the retailer to ensure that returns that are in perfect condition can be put back into the general inventory instead of being shipped off to an outlet store or put on sale. “Products that are still in good condition but were returned to a location that doesn’t carry that SKU,” the report noted, “still have the opportunity to be reassigned to an online order if a retailer has DOM [Distributed Order Management] capabilities…[W]ith extensive returns numbers, this savings adds up exponentially over time.” Making returns easier for customers turns out to be good business. Some companies make it easier for customers to return and others make it harder. Reverse logistics can a great place to satisfy a customer or to aggravate a customer. Not surprising, UPS research shows that retailers that make things easier enjoy an edge. Two-thirds of consumers said they look at a retailer’s return policy before they complete an order and the same proportion said they want free returns. Yet only 32 percent of retailers offer free returns and less than half specified a merchandise exchange timeline on their website, which is a key component of the return policy that is viewed by 88 percent of online shoppers. But if retailers turn a blind eye towards the costs for returned items, the costs will inevitably mushroom out of control.  Companies may not focus on reverse logistics because it involves only five percent of their product. But that five percent may absorb 20 of their percent of their logistics costs. The solution is to develop an effective reverse logistics program. “As retailers focus on squeezing excess waste from their supply chains, improving reverse logistics will be of keen interest,” said Brown. “With consumers demanding to buy whatever they want, however and whenever they want, products are ending up in locations never imagined, and sometimes need to find their way back to a retailer. Because of this, retailers need to face the complexities introduced to their supply chain and formulate Reverse logistics, although it’s been around for decades, still means different things to different companies. The term was originally employed to connote the process of delivering recyclable materials back to the beginning of the supply chain. More recently, the term has been taken up by retailers and refers to the process of transporting merchandise returned by consumers back to vendors. With ecommerce playing an ever growing role in the retail world, online retailers and their service providers are paying that much more attention to reverse logistics, especially in the aftermath of the holiday shopping season.  Returns of the Season UPS, a major carrier for online retailers, reported that by the end of the first week of January, over five-million returns packages were handled—500,000 more than last year. According to a UPS study, 45% of consumers returned an item by shipping it back to a retailer.  In the United Kingdom, Royal Mail said online returns jumped by more than 50% on Monday, January 4 alone, versus the average number of daily returns in December. Ecommerce is now the main method for Christmas shopping for more than half of UK shoppers, according to Royal Mail research. It accounts for more than three-quarters of Christmas shopping spending and nearly half of online shoppers return clothing after the holiday. “As online shopping volumes grow globally, so do returns volumes,” said Teresa Finley, UPS senior vice president of global marketing. “Online shoppers tell us they want free, fast and easy returns.”  Favorable returns policies attracts business, and it’s a great revenue opportunity for carriers like UPS, who make more per unit on returns than on the outbound deliveries, but it also adds costs to retailers, for shipping as well as storing the additional inventory. As a recent research paper from IDC pointed out, “Space comes with overhead expenses such as rent and utilities. When there is less unnecessary product moving throughout the system, that inventory space can be more strategically used or reduced to benefit the budget of the retailer.” The IDC report lays out several strategies to help retailers manage reverse logistics more efficiently and at lower costs. “Retailers that manage their reverse logistics well have reported that they reduced losses because of an unknown shrink by up to 75 percent,” said Victoria Brown, senior research analyst at IDC Retail Insights and author of the report. Among the strategies identified in the IDC report is to identify locations within a retailer’s distribution network that are better for the accumulation and sorting of product for redistribution or markdown. This comes to alleviate the problem that retailers face when returns arrive to wherever the consumer chooses. Allowing consumers to return items however and wherever they want, the report noted, “leads to random assortments of returned SKUs in various locations, lots of extra shipping expenses, and added labor expenses for handling.” Redistribution Another best practice identified in the IDC report is to establish a redistribution strategy based on the condition of returned items. This addresses a couple of different problems. Policies on what constitutes a return acceptable for resale may be interpreted differently at different retailer locations. Also, the retailer’s inventory tracking system may assume a returned item is acceptable for resale unless it’s redirected elsewhere.  “When a process is in place to divert products according to condition, retailers can more effectively plan for alternate channels,” said the report.  Zappos, the online show retailer, the report noted sorts its returns based on whether it is unsaleable, saleable, or that it needs to be consigned to the company’s outlet store. Returned products showing minor defects are sent to the Zappos outlet store, near its main distribution center in Louisville, Kentucky, and the company doesn’t have to count them as a complete loss.  Establishing an inspection process for returned items allows the retailer to ensure that returns that are in perfect condition can be put back into the general inventory instead of being shipped off to an outlet store or put on sale. “Products that are still in good condition but were returned to a location that doesn’t carry that SKU,” the report noted, “still have the opportunity to be reassigned to an online order if a retailer has DOM [Distributed Order Management] capabilities…[W]ith extensive returns numbers, this savings adds up exponentially over time.” Making returns easier for customers turns out to be good business. Some companies make it easier for customers to return and others make it harder. Reverse logistics can be a great place to satisfy a customer or to aggravate a customer. Not surprising, UPS research shows that retailers that make things easier enjoy an edge. Two-thirds of consumers said they look at a retailer’s return policy before they complete an order and the same proportion said they want free returns. Yet only 32 percent of retailers offer free returns and less than half specified a merchandise exchange timeline on their website, which is a key component of the return policy that is viewed by 88% of online shoppers. Cost factors But if retailers turn a blind eye towards the costs for returned items, the costs will inevitably mushroom out of control.  Companies may not focus on reverse logistics because it involves only five percent of their product. But that five percent may absorb 20% of their logistics costs. The solution is to develop an effective reverse logistics program. “As retailers focus on squeezing excess waste from their supply chains, improving reverse logistics will be of keen interest,” said Brown. “With consumers demanding to buy whatever they want, however and whenever they want, products are ending up in locations never imagined, and sometimes need to find their way back to a retailer. Because of this, retailers need to face the complexities introduced to their supply chain and formulate effective tactics for their distribution model or they will continue to lose money and margin on returns.”