Reverse logistics is a numbers game. And the numbers are staggering: More than $550 billion worth of returns per year make their way through channels, according to the Reverse Logistics Association — a figure certain to increase as e-commerce keeps on growing.
Second, because many online retailers offer free shipping on returns, reverse logistics has become an extremely expensive business. In fact, returns are generating 10 billion shipments every year and carry a huge $50 billion in profit loss according to Opens a new window Reverse Logistics Stress in an Era of Free ReturnsOpens a new window , a recent report jointly issued by investment firm CBRE and Optoro, a logistics software start-up.
As far as free returns, Amazon is largely responsible for introducing such a customer-friendly policy, forcing retailers to follow suit in order to remain competitive. The result is that online return rates now run at over three times the level of those for store-bought merchandise.
No return on returns
There’s no prospect of dialing back on something that consumers show they really value and have come to expect. Just under half of shoppers surveyed last year by UPSOpens a new window say free shipping is the biggest determinant of a positive returns experience, while three-quarters report that the returns experience itself significantly influences their decision to head back to a retailer for further purchases.
And the CBRE/Optoro report backs those numbers, finding that a massive 97% of customers are more likely to shop at a retailer where their returns-experience has been positive.
In fact, Amazon turned the returns screw that little bit tighter last month after expanding its free policy to include a number of products not previously covered, among them household items and kitchen appliances. The company said the move was part of its strategy of “constantly innovating on the customer experience.â€
That kind of innovation is costly and requires a response. Supply chains are built first and foremost for forward delivery, so it’s no surprise that’s where the bulk of investment has gone.
The reverse logistics segment necessarily has been an afterthought and that has led to inefficiencies. For example, hubs are designed and equipped to deal with uniform packaging and bulk-loaded pallets to ease shipments out through the delivery bays, not for single packages of various sizes and a mix of products drip-feeding in through the door in a disorganized fashion.
That’s simply anathema to an efficient supply chain.
Efficiency centricity
But co-location of this kind might no longer be possible as return volumes grow. Expect instead to see greater use of centralized returns centers dedicated solely to the business of reverse logistics.
One major advantage of such setups is that workers trained primarily on the forwarding function won’t be diverted from their primary tasks as they are now at co-located sites. Any shift in emphasis away from forward distribution should deliver benefits.
Not surprisingly, current inefficiencies have attracted new players with a focus on the returns function. Optoro, for one, is a start-up with a tech bent that has developed a purpose-built reverse supply chain, operating its own warehouses for clients such as Target and Staples.
Optoro’s capabilities have certainly impressed Ikea, which last month announcedOpens a new window that it would integrate its technology across 10 American distribution centers and 50 retail stores, citing the elimination of “much of the waste created in the reverse supply chain.†So impressed was Ikea, in fact, that it recently picked up a small stake in the company for an undisclosed amount.
Look out for more tech fixes to the reverse logistics problem, both from third-party providers and carriers. Of the latter, UPS prefers to work with Optoro, while FedEx rolled out its own FedEx Returns Technology solution in 2018 for simplifying the returns process.
Simplicity is key. FedEx teamed with Walgreens last October to enable consumers to drop off online returns at thousands of Walgreens stores across the country.
That makes sense. Research shows that shoppers prefer to drop online returns at stores rather than deal with the fuss of shipping themselves. As often with the supply chain, improvements come from making life easier and more convenient.