How to Set Up an E-Commerce Reverse Logistics Framework Strategy for the Industrial Space as Proven By the Retail World, Part 1 of 2
The following post continues our focus on all things e-commerce logistics as we gear up to head out to Las Vegas next week at the Magento Imagine e-commerce conference. We have already talked about how e-commerce logistics has evolved in the supply chain, how to go about considering how you will set up your freight shipping charges in your new e-commerce store, and also the increase in the application of e-commerce in manufacturing and industrial distribution. Today we will speak a bit about the best practices and strategies as it relates to setting up an effective e-commerce reverse logistics framework, covering the first two major aspects in e-commerce reverse logistics: returns policy and returns preparation. Tomorrow we will finish out this two part series around e-commerce reverse logistics by covering the rest of the points in the framework: receiving, issuing credit or ship an exchange item, inspection and sorting, asset recovery, and outsourcing to a reverse logistics company.
If you have not seen our educational series on reverse logistics, view this category here.
Do know that a lot of the research in e-commerce is centered on retail, or direct to consumer. There are not yet a ton of information on manufacturers and distributors who ship larger freight that is better suited for less than truckload or full truckload e-commerce freight shipping solutions quite yet, but the strategies of the customer experience and e-commerce reverse logistics will still have the same trends and applications.
E-Commerce Reverse Logistics is Something You Must Consider as you take your Products Online
If you run an e-Commerce store or are thinking about putting your manufactured, re-manufactured, or distribution catalog online, product returns are unavoidable. Reverse logistics in an e-commerce environment is a challenging part of your business. Customer service is essential to getting and keeping your online customers. The handling of your customer product returns is an essential component of your customer service program.
In order to effectively deal with product returns you need to ensure you are addressing not only the needs of your customers, but also the needs of your company to ensure you are minimizing the cost and impact of the returns on your company since they can have a very significant impact on your profits.
The goal of this post is to help you to assess and improve your e-Commerce Reverse Logistics. To assist you to better understand e-Commerce Reverse Logistics, this post starts by outlining some key e-Commerce Reverse Logistics facts and findings. The report then outlines an e-Commerce Reverse Logistics Framework you can use to assess and analyze your operations. Each key item of the framework is discussed in detail to outline the key issues and review some best practices examples from some of the best know e-Commerce companies.
Do know that a lot of the research around e-commerce is centered around retail, or direct to consumer. There are not yet a ton of information on manufacturers and distributors who ship larger freight that is better suited for less than truckload or full truckload quite yet, but the strategies of the customer experience and e-commerce reverse logistics will still have the same trends and applications.
E-Commerce Reverse Logistics Facts and Findings
A considerable amount of research has been performed to understand e-Commerce buyer behaviors. From this research, a considerable number of findings have emerged related to the customer’s ability to return goods.
“Merchants will need to pay close attention to building return policies that are customer friendly," said Paul Bates, vice president of Information Products Group for BizRate.com. "Online buyers tell us every day that the key to winning their loyalty is the level and quality of customer support." (Source: Bizrate.com Survey). Other relevant findings from the BizRate.com research are:
- Eighty-nine percent of online buyers say return policies influence their decision to shop with an e-retailer
- The three leading products returned were clothing (27 percent), computer software (20 percent) and books (15 percent).
- Certain attributes of return policies can actually drive potential customers away. These include:
- the inability to receive credit on a credit or debit card (85 percent)
- time limit to return products that is "too short" (68 percent)
- Other attributes that online buyers consider important are:
- whether the merchant allows products to be returned by mail (66 percent)
- the ability to exchange a product for another item (58 percent)
- Sixty-two percent of consumers said they would prefer to return products by mail instead of traveling to a brick-and-mortar store.
E-Commerce Reverse Logistics Framework
In order to assess and analyze your e-Commerce Reverse Logistics you need to understand the key components for effective e-Commerce reverse logistics.
The key components are Returns Policy, Returns preparation, Receiving, Ship an Exchange or issue a Credit, Inspection and sorting, and finally Asset Recovery which can be made up of Restocking, Repackaging for Sale, Return To Vendor, Disposition and Scrap.
Throughout the entire process you need to satisfy two groups, the Customers and your Company. Most returns operations we have visited are very focused on the customer, but often do not devote enough attention to satisfying the Company. There are often considerable opportunities to improve profitability by focusing more attention to your corporate needs.
Setup of your returns policy is a trade-off between reducing the impact of returns and encouraging customers to buy. In order to remain competitive, the Return policies for most major e-Commerce companies are now fairly similar and have been created to encourage the customer. Returns policies need to address the following key areas for customers:
- What they are allowed to Return or Exchange
- If they must contact someone to arrange or authorize the return
- Any Costs for Return goods
- Who pays shipping for the returning goods and the replacement goods
- Where the goods can be returned
- When they will receive a credit or replacement item
- How long they have to perform a return
Nordstrom’s ( www.nordstrom.com) for example offers “free exchanges, easy returns”.
They separate their returns into 2 categories, Free Merchandise Exchanges and Easy Merchandise Returns.
For Exchanges, the customer is given a special incentive, free return postage. In addition, if the customer phones in the exchange request, they will ship the in-stock items immediately to speed the process. A credit is issued when the goods are returned and a new charge is created for any new items shipped. The free return shipping incentive helps remove some of the risk and uncertainty away from buying clothing on-line, since the customers often perceive a risk that the clothing will not fit and need to be returned.
For Returns, Nordstrom states that the customer is responsible for the return shipping cost. However, they offer to simplify and reduce the cost of the return shipping process for the customer by enclosing an optional pre-paid shipping label. The label has a flat fee charge of only $5.00 if used and is deducted from their refund credit. As an alternative the customer can return the items at the nearest Nordstrom store.
In both cases Nordstrom promises a credit or refund will be issued 10-14 days after the return goods are received.
Most e-Commerce companies make the customer responsible for return shipping, unless the return is required as a result of something out of the customer’s control. For example Drugstore.com (www.drugstore.com) offers free return shipping if the return is a result of their error, such as the shipment of incorrect product.
The electronics retailer, Best Buy (www.bestbuy.com) limits the return period to 30 days of receipt. They will charge a 15% restocking fee on returns or exchanges to ANY product not returned in "like new condition", unless defective, damaged upon delivery, or if the wrong product was delivered.
Sometimes different Returns policies are required depending on the products. Amazon (www.amazon.com) has a list of over 28 different Returns policies for each category of different products such as books, electronics, beauty products or televisions larger than 27 inches.
Preparing and equipping your customers to handle their returns is one of the areas with the biggest payoff for your e-Commerce returns processing.
There is a conflict or trade-off here. The easier you make it for your customers to return goods, the more goods you will have returned. It is unlikely your CEO wants to see an increase in your returns volume. However, as the statistics outlined above, poor returns policies often scare away buyers.
When you return goods to a manufacturer for credit or warranty service, you typically need to obtain approval from the company before sending an item back. Someone reviews your request to ensure it is valid and then issues you an RMA or RA (Return Materials Authorization or Return Authorization).
Most bricks and mortar retailers now have a “no quibble” policy, allowing customers to return anything they wish. No questions are asked and no reason is required.
Since the bricks and mortar retailers have this policy, the customer expects the e-Commerce retailers to have the same policy. Since the customer does not really need a reason to return an item, e-Commerce retailers have removed the requirement for the customer to call to request a return authorization (RMA).
Now a Customer Service person is no longer communicating directly with the customer to explain the return process. As a result, very clear instructions need to be sent with the original goods, so the customer knows exactly the process required to return an item.
This “do-it-yourself” process has a downside. There is no opportunity to “train” a customer to return their goods properly, so the cost of poor or incomplete instructions is high because it leads to significant difficulties for the receiving staff that need to process the items when they arrive back at your warehouse.
An e-commerce reverse logistics tactic that major e-Commerce retailers are including with their shipped packages are as follows:
- Easy to follow instructions
- Return Form - for the customer to complete to help you with their return reasons and comments. The return reasons may help you identify how to handle the returned product, such as DOA (dead on arrival) that may require testing rather than re-stocking. The customers may also indicate if they seek a credit or an exchange.
- Return labels - that include shipping address and an identifier number or bar code for the receiving team to quickly match the returned items to the original purchase so a credit can be issued.
- Pre-paid shipping identifier on the shipping label - if the return qualifies, the retailer pays the shipping otherwise the shipping cost will be deducted from the customer credit. Offering to arrange the shipping and to deduct if from the customer’s credit can be an advantage to the customer who do not wish to stand in line at the post office to ship the package. You can also offer the customer a lower shipping and insurance cost since you can pass on your shipping volume discounts.
A sample of a stock prepaid shipping label from Nordstrom’s is below. If possible these labels should be created at the time of the outbound shipment and should also include the customer return address and an order identifier number or bar code to reduce the lookup time for your receiving team.
As stated in the beginning, this post is around a framework that has been proven in the retail world. All may not apply to manufacturers, but the core ideas of planning and putting together a reverse logistics program are vital to success as many more in the industrial space and those who will need less than truckload e-commerce freight shipping solutions come online with products to sell direct to consumers in a B2B setting.
We will finish the rest of the aspects of the e-commerce reverse logistics framework tomorrow so stay tuned!