December 2004 | Commentary | Viewpoint: Logistics & Supply Chain Analysis

Turning Returns Into a Competitive Advantage

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Growth of direct-to-consumer sales through catalogs, television, and the Internet continues to explode. Business-to-consumer retail e-commerce sales in the third quarter of 2003 totaled $13.3 billion, a 27-percent increase over 2002, according to the U.S. Census


While direct shopping makes it easy and convenient for customers to buy merchandise, it does not allow them to touch, test, or try the product prior to purchase—fueling direct retailers' need for an efficient method of managing product returns.

Many retailers handle returns as individual, disjointed transactions, and fail to consider the entire returns process and its impact on the customer and on its operations.

In most cases, merchandise has to arrive back at a warehouse before a return can be acknowledged, creating uncertainty on the part of the customer, and inefficient operations for retailers. And, because it can take several weeks to complete the return process, the retailer often loses a significant amount of sellable time during a product's lifecycle, possibly sacrificing profit margin.

Streamlining the Process

Proactive retailers realize streamlining their reverse logistics process creates a competitive advantage—and is essential to increasing bottom-line profitability. Returns management is now perceived by many retailers as a logical method for completing the value chain.

In order to promote a high level of customer satisfaction, the return process must be convenient and simple to understand. All merchandise shipments should include a pre-paid, pre-addressed, bar-coded return label with clear usage instructions, and

information on convenient package drop-off locations.

Once the return is initiated, communication with the customer becomes essential to ensure a satisfactory returns process, and to build a customer's confidence in the retailer. It is important to have systems in place for collecting bar-coded data throughout the cycle, which allows the retailer to report vital information back to the customer.

Retail warehouses can also capitalize on returns visibility at the earliest stage. By receiving information about a return prior to package arrival, an operations team can better schedule its workforce, reduce spikes in the workload, and prepare for deliveries.

An unexpected increase in returns of a certain product might indicate a potential problem and allow retailers to prepare a recall, negotiate a return-to-vendor with suppliers, or quickly replace problem merchandise in order to save the sales transaction.

Such a returns process also reduces "trunk" or "back-seat" time, giving the retailer a better chance of putting the item back into stock within the same season it was originally sold. The retailer can then hope to fill pending back orders and sell the item at full price rather than having to take a markdown.

Elements of Success

Successful returns management programs begin with the original order, and exhibit these common features:

  • Empower the customer through a simplified returns process, convenient package drop-off, and minimal return expense.
  • Provide advanced visibility into product returns to all parties, which allows companies to keep abreast of the volume of incoming packages, and notify customers when their merchandise is en- route. This reduces return-related calls, and allows the retailer to focus on other revenue-generating activities.
  • Streamline the physical flow of returns back into operations, and offer more processing flexibility by controlling labor and space planning, scheduling deliveries, and pre-sorting packages according to specific business rules.

A well-managed returns solution can distinguish a retailer from competitors and enhance customer loyalty. By delivering the greatest customer convenience—and at the same time, realizing maximum operations control—proactive retailers are turning returns into an integral part of business success.

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