Endava : The Value of Digital and Automation in the Product Returns Process

Mobility | Antony Francis |
28 January 2022

A recent study by CBRE and Optoro predicted consumer returns to reach $66.7 billion between 2021 and 2022, an increase of 45.6% compared to 2020 and 2021. A few years ago, product returns were often considered an afterthought in the business environment. They were annoying, and they took a disproportionate amount of time to deal with.

Once retailers had refunded the customer, the returns would be stacked away in a messy corner of a warehouse, and, when that area took up too much space, they would be written off and either given away or sold to liquidators for cents on the dollar. Occasionally, companies would hire a third party to refurbish certain categories of product and would just dump truckloads of goods onto their receiving docks with no control of what was given, just a blank manifest of "goods", with no itemised lists. This lack of control was a field day for some processing companies, with significant "shrinkage" of items. Inadequate value was returned to the retailers, and they missed a huge opportunity.

THE ADVENT OF REVERSE LOGISTICS

Initially, returns were brought back to the store until catalogue and TV sales, followed by e-commerce, drove higher rates of returns to fulfilment centres than previously encountered. The Reverse Logistics business was created, as growing quantities of returned goods sat in expensive warehouses.

In fact, the returns industry has its own association, the Reverse Logistics Association (RLA), with stellar programmes to highlight the challenges in returns management and the circular economy. Originally focused primarily on electronics, over the last few years, it has incorporated other areas like apparel, shoes, household goods, etc.

Retail management soon realised the lost value of these goods but also the value in customer retention if returns processing was made easy. Their analysis indicated that the cost of returns processing simply added to the original COGS (Cost of Goods Sold) of the product (initially a 100% loss). So, they began looking at ways to mitigate or offset that cost.

But how to offset that cost and avoid adding further costs to the point of going beyond economic repair or refurbishment? This question was equally important in domestic appliances as it was in softer goods, like apparel and cosmetics, etc.

NEW LIFE FOR RETURNED GOODS

The returns policies of most retailers have become very customer-friendly - with little or no challenge to the return reason being made and full refunds being the norm. No one wants to be the first to charge restocking fees as is common in the B2B sector.

Despite valiant efforts by many brands, Amazon was one of the first to capitalise on the full potential value of refurbishing and reselling items online when they created www.warehousedeals.com, a site specifically for refurbished returned goods, also shown as "used". These items are sold at around 40% of the original MSRP (manufacturer's suggested retail price). Amazon also realised the risks involved with just dumping loads and loads of items on the refurbishing vendors without any controls. So, they provide a detailed manifest with each load, including a license plate (LP) number for each item. This number follows the item throughout the process and is reported back to Amazon. They have full visibility for all items and therefore mitigate shrinkage. As is often the case with Amazon, many other retailers have followed their example.

Not only is this better for the environment, but retailers can also understand the reasons why items were returned faster and sort them accordingly, as one barrier has been removed to ensure that damaged or faulty items are not resold. Both factors are also vital to maintaining consumer satisfaction, as many customers are looking to brands who champion sustainability as well their attention to detail of ensuring faulty items are not sold on to other customers.

PRODUCT RETURNS IN A NUTSHELL

The Reverse Logistics process begins with either a call to a customer service call centre or a browser tab with the e-tailer's website. Here, retailers collect information about the return reason, issue an RMA (Return Merchandise Authorisation), and provide instructions to process the return (shipping label, packaging, etc.). In many cases today, a return shipping label is included in the original shipping box, and the customer simply slaps the label on the return box and drops it off at one of the pickup points. Since this "first mile" of the returns process is equally costly as the "last mile" of forward logistics, increasingly, retailers are allowing in-store returns or make agreements with shipping companies and other retailers to provide a greater choice of drop-off locations. An example would be Whole Foods accepting Amazon returns.

So, we have refunded the customer and spent more money to ship the items back and now have a total loss. And this is just the beginning! Once the shipment phase is complete, the return arrives at the warehouse dock, either a carved-out area in the main warehouse or a dedicated facility. Inside the four walls, a series of processes kicks in to determine if the product can be resold or needs to be liquidated: receiving - triage - inspection - refurbishment - re-boxing - palletisation - relisting for sale - fulfilment and shipment. All steps that cost more money. Being able to scale and flex to customer demands will be key to optimising retailers' multi-channel strategy, as different channels will peak at different times.

MAKING RETURNS MORE EFFICIENT: ENTER TECHNOLOGY

So, where does technology come into play here? Automated systems and fulfilment software solutions are the answer. Refreshing outdated warehouse technology that is currently slowing retailers down is the way to allow them to create a smooth fulfilment and returns operation. But have they also thought about how the growth of online shopping would impact their delivery and returns procedures? As volumes increase, the only solution to avoid throwing spend on labour is through increased automation.

As with any process, the various steps for returns can be automated, and capturing relevant data (condition, cost to refurbish, etc.) will allow better control of the items as they are processed. Increased use of automation, artificial intelligence (AI) and machine learning (ML), and robotics reduces the cost of these process steps. For example, the decision to refurbish or not is equally important as the BER (beyond economic repair) decision; it determines if an item can be resold or needs to be liquidated. Algorithms can be used to automate this process and store the data that is captured during the process steps.

With the continued growth of e-commerce, returns can no longer be put aside to think about at a later date. They need to be returned to market before they lose too much value. Customer loyalty is fickle, and customers will move to competitors if returns processes and policies are not good enough. Utilising fulfilment technologies, such as those powered by AI-driven robots, can allow retailers to gain an edge over their competitors, retain customers and win new ones, and increase conversion rates. Technology can also give them the flexibility to respond to changes in shopping habits and manage seasonal peaks and troughs.

TECHNOLOGY IS A TEAM SPORT

Retailers should not - and often cannot - go this way alone, though. To effectively manage their returns operations, they must partner with a trusted fulfilment technology company to get the biggest return on investment. Technology partners can analyse the weak points in operations and make improvements to ensure the returns process runs smoothly and the retailer is able to cope with the fluctuating demand across every channel.

Technology companies can support retailers in optimising their returns operations in a number of ways:

• enabling fast inbound sortation, providing the ability to sort high volumes of returned goods;
• through quick put-away of returned items, items go back to inventory faster, improving the turnaround of goods;
• enabling optimised storage, using specially designed storage and allowing SKU (stock-keeping unit) mixing;
• enabling prioritised picking for returned items.

All of this creates an efficient, manageable, and scalable solution for businesses, no matter their size.

Running a complex operation such as that of returns can take a toll on retailers and their budgets. By partnering with a technology company, retailers can reduce friction, enhance efficiency, and provide better digital experiences whilst remaining cost-effective. And balancing cost with productivity needs to be a priority for the rising number of smaller businesses selling directly to consumers online.