Suppliers all around the world today are facing higher rates of return in part because of more generous return policies, changing consumer expectations, and increased e-commerce activity. But this places a significant and increasing financial burden on businesses. The rate of return for products, otherwise known as reverse logistics, can be mitigated when suppliers work to improve the speed, cost, and efficiency of shipping goods. Suppliers feel the pain of product returns more than most because they handle returns that stem from retail, e-commerce, and wholesale channels. Thankfully some strategies can be used to mitigate the cost.
Return and Repair Policy Framework
Returns are underpinned by consumer choice. There are $550 billion worth of returns that move through the economy each year because it is a competitive necessity. But still, efficiency and effectiveness concerns exist.
Retail is facing a high number of repairs. Companies have made it easier for customers to return products to maintain a competitive edge over other companies but as a result, nearly half of the products that are purchased are sent back to their suppliers, and returns have increased dramatically. Having a generous return policy has become commonplace in today’s competitive retail environment, but it is imperative that retailers also interject steps to prevent customers from abusing these policies. Some companies like Amazon have started to change the way they handle reverse Logistics such that customers who purchase and return products habitually will have their accounts closed without any warning. Manufacturers and retailers alike need to work together to make sure that abusive practices don’t take place. Simultaneously, for low-cost items, some companies are opting to avoid asking their customers to return old products when they are seeking a replacement. Instead, the company sends the replacement. This is a fiscally sound strategy that cuts down on reverse logistics costs for organizations.
Collaboration within Retailer Community
It is essential for manufacturers and suppliers to take a better look at the vendor agreements they have in place so that they can enforce better collaboration. Price has typically remained a point of dispute, and for that reason, companies need to re-evaluate the return policies they have in place. Manufacturers usually don’t enjoy processing returns because there was a great deal of overhead and a lot of dispute, especially where wholesale customers are concerned. Returns are a significant issue among the electronics Industry, where they comprise $10 billion worth of additional cost every year. Figuring out how to handle these returns has been a challenge facing suppliers all over. In the past manufacturers would accept returned products because they wanted to maintain a good brand reputation. But that is not the case anymore. Collaborating with manufacturers and vendors is now eliminating additional responsibilities that reverse logistics would otherwise create. Electronics that are returned get disposed of and sent elsewhere where roughly 95% of those returned products are merely resold rather than written off as a loss.
Use of Data and Information
Suppliers are now looking for a reliable third-party platform that can be used to help sort through and process returns. Having a centralized location for data processing can help to handle returns cheaply and liquidate any inventory that is left behind. Businesses can still be grown with a low baseline as long as the cost for returns is reduced. Having a centralized location for data makes this much more manageable.
Suppliers can use things like sensors and connectivity to monitor problems in the field, troubleshoot issues within their products and repair those issues to minimize the rate at which customers return products. Products can also be connected with software and operating systems that allow suppliers and manufacturers to update them from anywhere. The hardware and components that are easy to replace can be sent to customers as soon as an issue is detected so that customers can complete self-repairs. This process alleviates the need to return products entirely. On the back end making better use of existing data provides companies with the tools necessary to predict when returns will take place. They can track the volume of returns, what condition the products were in when they were returned, why products were returned, and the dollar amount. By having all of this information in one place suppliers can predict the problems and predict the condition that returned merchandise will be in so that they can plan accordingly.
Logistical Challenges and Solutions
Use of online purchase and delivery systems requires coordination within the retail community. There needs to be better management of heavy and bulky goods, after sales care, and responsiveness.
As more people continue to purchase products online, the cost of transportation is rising. Logistics is spending a total of 1.5 trillion dollars in transit alone. Processing returns for larger items like television, furniture, and equipment is not only challenging but very expensive because of the transportation requirements. Suppliers are trying to reduce this cost by combining delivery and pickup. Replacement items are shipped to the customer, and at the same time, the returned item is picked up so that only one trip has to be made. New infrastructure is another alternative that helps improve the efficiency of returns especially when existing facilities are expanded. It’s very common for suppliers to have all of their processing handled in one facility when it would be better to separate the facilities.
There is a need to respond to customers and of course, some investment is required. With an increase in online customer purchases, the rate of customer returns has increased. Suppliers are working very hard and must continue to do so to address the growing rate of return. There have to be areas where returns can be mitigated, predicted, and where returned items can be resold, all of which works together to minimize the cost.