Reverse Logistics: Earning a High Rate of Return
Are you ready to pay attention to the benefits a reverse logistics program can bring to your enterprise? Here are two expert perspectives on the opportunities that will make a difference in reverse logistics programs and how to establish goals to optimize those benefits.
New Directions in Reverse Logistics
Many excellent articles have been written about reverse logistics best practices over the past two decades. To summarize a few of these well-known best practices:
- "It didn't work" is the customer's most common complaint.
- On the other hand, "No Defect Found" (NDF) is the most common result of testing.
- The corollary here is that if you help people really understand the product they're buying, and make it easy to understand how to use it, they're less likely to return it.
- If you make the returns process easier and faster, customers will likely buy more.
- Whatever you're going to do with the product, figure it out quickly, and move it along.
These ideas are not surprising, because they are not new. A number of new opportunities, however, can actually make a difference in your reverse logistics. These include:
Much has also been written about the omnichannel in the past few years, because there really has never been anything like this before.
You can buy something in person, or from a screen, which might be on your computer, your TV, your phone, your tablet, or the front of your refrigerator. You can literally shop anywhere that you have an internet connection. Buying things has never been easier. No matter where your screen is, the website knows you—and your address and credit card number.
As far as physically getting your product, you can go to a store to buy in person, or use Buy Online Pickup in Store (BOPS), or use Ship to Store, or to a locker at 7-Eleven or the grocery store, or have it sent to your house via UPS, USPS, or FedEx, or more recently, Uber or Lyft.
When exploring a new channel, keep in mind that:
- Customers will expect it to work as seamlessly as your other channels, on day one.
- They will probably find ways to use—and maybe abuse—it that you never anticipated.
One of the first things the big box stores were faced with when implementing Ship to Store is figuring out what to do with the items that they didn't carry in their stores after customers returned them.
When is it worth sending an oddball item back to a returns center in order to capture more value? When does it make more sense to just mark it down, sell it, and be done with it? The answers will be different for every company, and perhaps for each location, depending on demand.
Customers realized that if special order items were returned, the items were often deeply discounted and sold as-is, on site. More than a few unscrupulous customers realized that they could order such an item, return it, and then come back and re-buy it (or have a friend buy it) at a substantial discount, and companies had to adjust.
Amazon's pending purchase of Whole Foods has been written about significantly, with respect to its potential impact on the forward side of groceries and ready-to-eat foods.
On the forward side, the Whole Foods acquisition offers Amazon the possibility of entering the Buy Online Pickup in Store market, perhaps only for food, or potentially also for other Amazon products. In either case, a voice in my head wants to call this the "nom-ni-channel."
From a reverse logistics perspective, however, Amazon could potentially allow customers to Buy Online, Return to Store. This would not only increase foot traffic in stores, it could benefit consumers by allowing them to avoid paying the freight costs on returned items.
Amazon would save significant amounts of money on items where it pays the freight cost for returns because the items are delivered to the store by the customers, and sent to Amazon returns centers via truckload, as opposed to small parcel.
Augmented reality (AR) help desk
Most people are familiar with virtual reality, where the user wears a headset such as an Oculus Rift, or puts their phone into a similar visual headset. Pokemon Go is an example of augmented reality, where your device shows you the view from your camera, along with additional items.
One interesting possibility is the use of this technology for customer service. Some companies are already releasing apps that let users use augmented reality to look at the engine of their car, and see text and images superimposed over the engine, showing them where to open a cap and add oil or washer fluid.
One company, Help Lightning, is using AR to help customers diagnose and fix problems in real time. Customers point their phone's camera at the back of their TV, or inside their printer, and a live customer service agent points at the back of the TV and shows the customer which cable needs to be moved from one connection to another. Customers look on their phone screen, and see the agent's hand overlaid on the image of their TV, showing what needs to be changed. It's as if the agent was standing right there in their living room.
Because so many returned items come back from testing as NDF, anything a company can do to help customers successfully use their products can reduce reverse logistics costs. For some products, AR may be a cost-efficient solution.
Many companies use eBay or Amazon to disposition or sell off returned or overstock product. But because there are so many sellers on these marketplaces, consumers are concerned about the possibility of buying counterfeit goods.
Globally, counterfeiting is a significant problem. In 2013, counterfeit goods represented 2.5 percent of global commerce, and 5 percent of sales in the European Union, according to the Organization for Economic Co-operation and Development.
The reason liberal returns policies and simple returns processes are attractive to customers is that they lower the risk of buying from a company. Reducing the risk of buying a fake product makes customers more comfortable buying from a supplier.
To deal with the situation, both eBay and Amazon have announced different approaches. eBay will allow customers to request the item be sent to eBay Authenticate before being shipped to them. If the item is fake, the customer will be refunded double the purchase price.
The broader press has written a lot about blockchain, the technology best known for powering Bitcoin virtual currency. The shorthand summary is: Every time a transaction happens, both the information about the buyer and the seller is saved in a ledger, known as a blockchain, which is stored across countless servers around the world.
The result is that it is possible to see a record of every single time an item changed hands. Various efforts are underway to leverage this technology for the supply chain, to provide visibility and authentication of products and their origins.
Amazon is trying another approach to both provide upstream visibility and prevent counterfeiting.
In late 2016, it announced Transparency, which is currently only available with Amazon Elements products. The products come with a 2D barcode on the packaging. When customers scan the 2D barcode with the Amazon Transparency app, they can learn where the product was made, where the source materials came from, and any expiration dates associated with the product. Every individual package receives a different code.
For manufacturers to participate in the program, they have to pay for each code. Prices start at 4 cents to 5 cents apiece for companies buying fewer than 1 million codes, and go down to one cent for companies buying more than 10 million. If a SKU is in the Transparency program, companies agree to put the Transparency codes on every single unit of the SKU they ship, regardless of the channel they will sell it through.
The 2D barcode contains a 26 character alphanumeric string that the app then looks up in the Amazon database, where it finds the product information to display on the app.
Smart QR Labels (SQRL)
Since 2013, the Reverse Logistics Association (RLA) has been developing a similar, but open, system, known as Smart QR Labels, or SQRL codes. These labels allow companies to store any information they want to share with customers or supply chain partners.
This is an open standard, and was approved by ANSI in September 2016. There is no cost to create or read the codes.
Unlike standard QR codes, which typically only contain one web address, the SQRL protocol allows companies to store as many pieces of information as they want in one code. Unlike the Amazon system, in which all of the information is stored on a server, SQRL codes can store any and all information directly, and therefore can be read even when there is no internet access. This might be information such as a part number, net weight, country of origin, date of production, expiration date, etc. If companies discover the need to include information not already included in the standard, the RLA can quickly expand the standard.
In addition, web links can easily also be included. One SQRL code could include multiple links to provide customers easy access to a number of websites to register their product, buy an extended warranty, download a manual, contact customer support, or learn where and how to dispose of a product at the end of its life. Codes can also be used to show where a product was refurbished, by whom, and what was done.
Putting Your Engine in Reverse
For most companies, the thought of taking a product back has historically been negative—almost something to be ignored in the hopes that "it will go away."
Moving boxes in for stock and out for shipments has been a way of life for as long as I can remember (and I've been in the business for more than 40 years). Being efficient and effective at that was what determined the long-term profitability of companies selling and shipping goods to customers.
But a few years ago, while walking through a customer's warehouse, I asked the owner what "that cage in the corner" was. He told me it was his "annual profit"— all of the returns that that his team had stacked up for months in hopes that someday they'd have time to properly catalog and deal with them. The fact that months' worth of returned goods was wasting away in the corner put the company at risk.
I recently asked Victoria Brown of IDC about the industry's perception of returns. Her answer was revealing. The focus is still on getting the outbound delivery right. Companies find it daunting enough that Amazon has set customer expectations to one-day, two-day, or same-day delivery. Returns don't even make their top 10 issues list.
However, statistics show that with the onset of "free" returns, 30 percent of all online orders bounce back within the first 30 days after shipment (PostalVision 2020). Think of that in terms of running a warehouse operation. You have to staff for 130 percent of your typical capacity to handle the volume of goods you're shipping and the shipments coming back to you.
Furthermore, many come back without proper labeling, packaging, or returns authorization to assist your team in knowing what to do with them. Hence the "cage in the corner".
Your gearshift has both a D and R. It's time to get serious about how your logistics machine can work more effectively in reverse. Some might think the same processes used to receive shipments from suppliers should work for returns. Not so much. Inbound receipts have a level of discipline in their packaging that assures proper handling when they hit the dock. This is not so with most returns.
So, what constitutes an effective reverse logistics process? The first step is to establish your goals for returns:
- How many returns do you have the ability to simply redirect back to the supplier? If significant, what process to effectively crossdock those goods exists or can exist within your operation?
- What facility do you have to refurbish, repackage, and restock goods for resale within your standard selling activities?
- For goods that can't be "returned to vendor," what facility do you have to redistribute or auction the goods off to the public or to flash sale sites?
- What is an acceptable write-off rate for goods that can't be RTVed, restocked, or redistributed?
Once you have a definition of "success", you can craft a set of processes and procedures that eliminate the "cage in the corner" and close the profitability hole an ineffective reverse logistics process causes. Remember, handling returns poorly not only affects customer satisfaction, it also leaves unrecoverable costs, excess inventory, and wasted space utilization of physical assets.
Considering the answers to the above questions, an effective reverse logistics program should consist of these steps:
- Authorize returns. Advance knowledge of an inbound shipment will allow better labor management and more effective dealing with the disposition of the return.
- Receive goods. An Advanced Ship Notice gives you a head start on properly receiving goods from your supplier. A Return Merchandise Authorization does the same for returns.
- Grade merchandise. Unlike standard receiving, you need an effective process to grade inbound returns to determine disposition.
- Track goods. No more "cage in the corner." Store returns by disposition to provide global visibility into the returned inventory.
- Refurbishment. Whether you refurbish yourself or send goods out to be refurbished, have a process and a tracking mechanism. Otherwise, you've simply established another "cage in the corner."
- Sales/auction. Establish a mechanism, internally or through thir parties, to sell off goods you can't restock as new.
- Redistribute. Recognize that in many cases, you can't intermingle returned goods with new merchandise in your warehouse or 3PL. Establish the process and tools to manage redistribution effectively.
Putting your business in reverse doesn't mean taking a step backwards. It affirms the growing reality that effectively managing returns spells new revenue opportunities, improved profitability and better customer service—all necessary in today's emerging, customer-driven commerce world.