Omni-Channel and Returns Management

Omni-channel continues to be one of the hottest trends in supply chain management today, basically touching every software application you can imagine. In order to truly be omni-channel, retailers and brand manufacturers must provide a unified brand experience for their customers. This is true for all three major phases of the customer journey – before, during, and after the sale. The key is to use all available channels in a complementary way, using the specific advantages each has to offer. One of the big elements of omni-channel that is often overlooked is returns management and reverse logistics. Given the rise of e-commerce, this is becoming even more important. E-commerce orders are much more likely to be returned than their brick and mortar counterparts. As a result, companies need to properly plan for the returns process.

I recently launched an updated survey to build on ARC’s annual Omni-Channel Fulfillment strategic report. Every year the survey takes on a different twist; while the base questions are the same to look at the larger trends, I take a deeper dive into a specific topic each year. This year’s survey is focused on returns management and reverse logistics. Once again, I partnered with the folks over at DC Velocity to create and distribute the survey. The survey examined the overall fulfillment process, starting with channels of operation, warehouse logistics, fulfillment technologies, last mile options, and finally returns management. The new report will be released in the next month or so, and DC velocity will run their feature article as well. For now, however, I’d like to share a quick sneak peek of returns management processes from the survey. Specifically, I’ll share how companies handle returns, whether they can measure the financial impact of returns, how they recover the cost of returns, and sustainability practices for returns.

How returns are handled: for this question, respondents were able to select all the methods that they use for handling returns. The most-used method was to handle returns internally (63 percent). This means that the companies are solely responsible for collecting, labeling, packing, shipping, and processing the return. These companies are also nearly twice as likely to handle returns at a centralized facility, rather than at the local or regional level. The second most-used method (40 percent) was to contract out to a 3PL. This takes the strain of the aforementioned processes off the company, but also gives it less control over the experience. The least-used method, with only 8 percent of respondents selecting it, is sending the item off to a clearance re-seller.

Financial impact: while the majority of survey respondents indicated that they make returns part of their forecasting plans, the ability to measure the overall financial impact of returns is still an area of concern. According to the survey, only 42 percent of respondents can measure the full financial impact of returns. This includes the cost of processing, packing, and re-stocking the item. While this eats into revenues and margins, too many companies cannot adequately quantify the process. Of the remaining 58 percent of respondents, 31 percent have a general idea of the financial impact, 17 percent are guessing at the financial impact, and 10 percent cannot measure the financial impact at all.

Recovering costs: companies generally have policies in place to help recover the basic costs of doing business. For example, even though consumers expect free and fast delivery of products, companies will charge for certain types of delivery options, such as expedited or for large items. The same is true for returns. According to the survey, 31 percent of respondents collect fees for return shipments. Unlike Amazon where you can just print a return label and drop it back in the mail, these companies are charging consumers for the cost of return shipping. Additionally, 20 percent of respondents collect fees for returns processing.

Sustainability practices: When it comes to sustainability, companies need to decide what they will do with the returned item, which will vary based on the type of product. Per our survey, 60 percent of respondents indicated they re-use the returned item, and sell it “as is.” This is common for apparel and other non-electronic items. For consumer electronics, things are a little trickier, as 53% refurbish the item and then sell it, while 25 percent remanufacture the item, which means the item is held to higher standards than refurbishing.

That’s all for my sneak peek on my current omni-channel research. Since this is still just a sneak peek, I am still collecting responses. If you would like the participate in the survey, here is the link. Keep an eye out for the full strategic report which should be available in the next month or so.