January 2016 | Commentary | Reverse Logistics

Shedding Light on DIM Weight Returns

Tags: Reverse Logistics, Retail, Logistics, Supply Chain

Dave Silva is Principal, Newmine LLC, 855-444-6463

 

Volume shippers who send most of their goods to customers via parcel carriers know that a pound is not always a pound. Dimensional, or DIM, weight is a significant issue that can add up to millions of dollars in shipping expenses. For e-commerce shippers, customer returns are inevitable. Without a clear understanding and plan for managing returns, DIM weight expenses can easily challenge budgets and profitability.

Many Internet businesses offer customers an easy returns program, which has been proven to be a key customer expectation. The company provides a return label for the customer, and charges a flat fee. But is this enough? Are DIM weight charges wreaking havoc with the customer service-oriented program?

Calculating DIM Weight

DIM weight is the actual space a package occupies. It is determined by multiplying the dimensions of the package for the total cubic inches, then dividing the total cubic inches by a dimensional factor, which each carrier provides.

For example, the UPS dimensional factor for a domestic ground shipment is 166. The result of that calculation is the DIM weight of the package, which is then compared to the actual weight. The greater number becomes the billable weight.

Many retailers, notably Amazon, have discussed the struggles of balancing the consumer's demand for free or low shipping costs with the true cost of shipping, especially when orders are consolidated from multiple parties, as is the case with Amazon's marketplace vendors.

On the outbound side, fulfillment centers with warehouse management systems and packing logic are still challenged to get it right and use the correct size box to minimize DIM weight charges. On the returns side, Internet businesses provide the customer with a shipping label. Box selection for the return item is left to the customer's discretion. Even if customers use the vendor box, they may be returning only one of many items they purchased. The return parcel could have a fair amount of space in the package, making it a target for DIM charges.

Recently, I was reviewing freight bills for an Internet client, and noticed a significant number of packages with DIM weight charges. When I drilled down, a number of these packages were returns. The Internet business was inserting a UPS ground-shipping label with the outbound order, and charging the customer a flat fee of $7.95. I also noticed a number of packages were being dimmed an additional three to five dollars per package. Some packages had even higher costs over the actual weight, for example, a $40 DIM charge vs. a $7.50 actual weight charge.

It's Up to the Shipper

Most customers have no knowledge of DIM weight charges or the formulas that they should use to ship. It's all on the shipper to get the return logistics right. That creates considerable financial exposure and negative impact on the business' profitability.

More concerning is that many businesses don't have tracking mechanisms in place for their returns programs, and frequently do not know if the program is costing them money. Fewer have safeguards in place.

Most Internet businesses don't pay as much attention to returns as they do to outbound freight expense, and that's a serious risk to the business, especially in these days of increased competition and heightened customer expectations.

Almost certainly, low-hanging fruit is sitting in your returns department, and the time could be ripe for introducing a returns assessment program.






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