How to Select a Returns Management Partner

Tags: Reverse Logistics

As retailers turn over stones looking for ways to reduce costs, eliminate waste, become greener, and raise the bottom line, returns management is an area ripe for picking. What was once written off as a lost cost has now become a can't-miss opportunity—and for good reason. In 2011, U.S. consumers returned more than eight percent of their purchases. That number climbs to as much as 20 percent in certain product categories such as consumer electronics. Despite this, and the fact that 80 percent of returned items are not defective, many retailers have yet to implement a comprehensive returns management policy.

It may be a matter of dealing with buyer's remorse and repositioning un-opened items into the forward logistics stream, or repairing and refurbishing defective merchandise for resale in secondary markets. The evolution of e-commerce channels for overstock and pre-owned goods, as well as popular brick-and-mortar outlets and value retailers, has created a new revenue stream for companies to tap in lieu of sending items to the scrap for recycling. The quicker they can process these returns and determine where value can be extracted without too much investment in time and resources, the more they stand to gain from resale opportunities—especially for fast-moving, high-value merchandise.

The cost of bringing returns management in-house is often prohibitive. So, many companies turn to third-party logistics providers to facilitate the process. Here are some capabilities to keep in mind when selecting a returns management partner:

  • Consolidation to help meet peak returns volume.
  • Tracking and reporting so that customers are constantly aware of a return's status.
  • Distribution that provides returns to designated warehouse or refurbishment locations.
  • Returns/replacement so that customers are provided with required replacement merchandise or account credit on a timely basis.
  • Established distribution network that allows returns to avoid unnecessary route detours and warehouse layovers.
  • Returns Management Authorization (RMA) so that customers can better track returned items and receive "early warning" with regard to any potential defects or product malfunctions.
  • For international transactions, carrier must have the ability to seamlessly transport goods across borders, and to comply with all regulatory Customs and security mandates.
  • Ability to integrate forward and reverse logistics into overall supply chain strategies.

Returns on Investment

Companies should take a closer look at how they are managing returns for myriad reasons. Among them:

  • 58 percent of consumers report that a company's returns policy is a factor in their decision whether or not to shop with that retailer, according to KPMG, a financial advisory company.
  • The estimated cost of generating a new customer is five times more than the cost of keeping an existing customer happy.
  • The secondary market is a rapidly growing sector of the economy—accounting for 2.3 percent of U.S. GDP during 2010, according to research conducted by Dr. Dale Rogers, professor of logistics and supply chain management and the co-director of the Center for Supply Chain Management at Rutgers University.
  • Consumers returned almost $2.2 billion worth of merchandise during 2011, a figure that accounts for more than eight percent of all sales, according to the National Retail Federation.
  • Only five percent of returned merchandise actually has defects—with "defect" defined as something as minor as torn packaging, according to Accenture consultants. While those returned products cannot be resold as new, they can be resold on the secondary market.