This post concludes our two part series on setting up an e-commerce reverse logistics framework strategy so that when, as a manufacturer or distributor, you are going about perfecting or just setting up your products to sell directly to the end customer via an e-commerce channel through your website’s shopping cart, you are prepared for the inevitability of returns. In e-commerce, setting up and planning on reverse logistics in e-commerce is undoubtedly a requirement. You could either go about fine tuning and perfecting your e-commerce logistics yourself, but it is highly recommended to seek out experts who have experience in not only effective logistics technology with e-commerce offerings for your freight and logistics, but also years of experience in setting up logistics management, including reverse logistics.
If you are interested in e-commerce logistics and best practices, view our blog category to read what we’ve discussed so far in this series.
Reverse Logistics in E-Commerce is No Longer a HOPE to have but a NEED to Have
It’s no secret that a positive experience delivered to a customer determines whether that customer will come back. This is true in pretty much any industry, but especially true in manufacturing and distribution where collaborative relationships between suppliers and customers in a B2B setting are vital for long term success.
Shippers who have set up online shopping carts must enhance the user experience prior to pressing the “buy” button but also focus on the post-purchase site experience to keep customer retention metrics at satisfactory levels.
This is where many who are now shipping products used to the traditional flow of logistics vs. the reverse logistics in e-commerce that occurs with introducing an online shopping experience for customers, drop the ball. Often, once a freight shipper starts doing e-commerce logistics, they have a need to consider reverse logistics for the first time. By incorporating new strategies to optimize this process, shippers can increase customer retention and add new revenue streams to the direct business beyond the traditional brick and mortar channel.
Here are some key metrics to support the reverse logistics in e-commerce business case:
- 85% of customers say they will stop buying from a business if the returns process is a hassle (Harris Interactive)
- 95% of customers say that they will likely shop with a catalog or business again if the online returns process is convenient (Harris Interactive)
- 40% of shoppers don’t buy online due to returns difficulty (Jupiter Research)
- Customers who have their complaint resolved quickly have a re-purchase intention rate of 82% (McKinsey)
The Conclusion of the Framework to Set up Reverse Logistics in E-Commerce Strategy
Reverse logistics in e-commerce are an inevitable fact of online retail. As the depth of online product categories became apparent in the last three years, the importance of setting up a reverse logistics process as part of your e-commerce logistics strategy increases as well. Provide a bad returns experience and you undoubtedly reduce the chance of a customer coming back for a repeat purchase. Let’s continue the rest of the various elements you must explore when setting up the reverse logistics part of your e-commerce strategy. Yesterday we spoke about returns policy and preparation.
Processing returned packages is a very challenging task. The key purpose for a detailed receiving process is to issue credits or permit product exchange. The key challenge is proper identification to ensure proper matching to the original order. Since customers are managing their own returns, there is considerable variation in the labeling and contents.
Your receiving team needs to inspect and validate:
- Who has returned the freight?
- What goods have been received?
- The condition of the freight
- Does the freight match the original purchase?
Receiving is a labor intensive process. Many companies set up an “assembly line” for their team to quickly and efficiently process these inbound items. Considerable skills and training are often required in the areas of product identification and product handling rules.
The impact of good Return instructions is clearly noticeable at this stage in the reverse logistics in e-commerce process. But despite the best efforts of your company, many customers will not follow the instructions, resulting in difficulties in identification and matching to issue a prompt credit. This of course leads to unhappy customers (even though it was caused by their inability to follow simple directions).
Your return processes need to accommodate all possible exceptions quickly and effectively. The Receiving process of reverse logistics in e-commerce is full of exceptions and returned items that do not fit the standard rule set. If these exceptions are not handled quickly and effectively your receiving team has three problems:
- The assembly line processing breaks down, since valuable time is wasted trying to special handle one item, which slows down processing for the entire team and often leads to a backlog
- Items that need to be specially handled get set aside and delayed even further
- Customers will call for status updates. This creates more problems since someone must spend valuable time handling the trace requests to track down the goods and issue the credit.
Poor processes lead to backlogs and a stressful working environment for your Receiving team. Good processes lead to fast turnaround times, fast credits and happy customers.
Issue Credit or Ship an Exchange Item
Once the freight has been received and validated by the receiving team, a credit can be issued or an exchange can be shipped.
Issuing credits can be very costly to your company if not performed well. Care must be taken to ensure your receiving team is properly matching the original items purchased, with the actual items returned. Since many shippers who have employed e-Commerce strategies have big gaps in their receiving processes, items often go missing. As a result, the customer service people at are often instructed to issue un-validated credits upon customer request because they have no way of verifying if the customer really did return their freight.
Good receiving and credit processes can significantly reduce the workload for your customer service personnel who handle the status update calls and emails from customers looking for their credits.
Inspection and Sorting for Reverse Logistics in E-Commerce
The main purpose of inspection and sorting is to stream the returned items to the path of highest selling price or recovery value. This process is often combined or is attached to the receiving process since it is a logical next step while the inbound goods are being handled.
At this stage, the customer goods have been received and their credits have been processed and satisfied. Now it is time to satisfy your corporate needs. This is best done by recovering the highest value possible from the returned goods.
Training and product knowledge are often important for the inspection and sorting process. It is a labor intensive process. The better your team understands the products, the faster they can make decisions on how to process the products and the greater the likelihood of them capturing a higher recovery for that item.
Processing the returned items is often set up in an assembly line format to enable easy separation of the product as it flows to the next stage. Processing is very dependent on the type of products being handled. Depending on the volumes you need to handle, several stages may be required to streamline the processing. Often similar products or items requiring similar processing are physically streamed and consolidated until there is enough volume to move it to the next stage (i.e. when a pallet is full). Sometimes tests or test equipment is used to determine how to stream an item.
Each returned item if often given a unique identification tag for tracing and gather statistics on processing and disposition.
Products can be streamed according to their final destination, such as:
- Restock – unopened boxes can go straight back to new inventory
- Repackaging for sale – open box goods in “as new” condition that can be resold on the e-Commerce site
- Return to Vendor – to be returned to the original vendor where they were purchased for credit or exchange
- Disposition – items that have value, but will not be re-sold at the e-Commerce site
- Scrap – damaged or obsolete goods
Even though the customer did not want keep the goods, these returned items need to be viewed as “assets”. An asset has value and can be sold. The challenge is to find or recover the highest value for each item.
In order to recover the highest value, these returned “assets” are often handled as follows:
- Restock – little loss of value if processed quickly and the product is still current
- Repackaging for sale – open box goods in “as new” condition can often be sold in a “clearance” area of your e-Commerce site or moved to a local “bricks and mortar” branch. These “B” goods are often sold for slightly less than retail, but often higher than original cost. This is often the best channel for these goods since handling is minimized, and turnaround time is quicker.
- Return to Vendor – defective goods, warranty issues or vendor agreements often allow for return of goods. This channel often means you will recover full cost of the items, but the cost of handling must be considered. For instance if the goods are not defective, it may be more prudent to sell the goods for cost plus a margin on your site.
- Disposition – Freight that you do not wish to resell on your site, often still hold considerable value. A number of great disposition sources and services now exist for just about any products in any condition.
- Scrap – almost nothing is scrap anymore. If you have a lot of it, someone is usually willing to buy it from you.
Careful attention to rapidly processing, sorting and resale of your returned “assets” is one of the best opportunities for profit in your reverse logistics in e-commerce operations.
Outsourcing your Reverse Logistics and E-Commerce Logistics
Many shippers do not view the handling and processing of reverse logistics in e-commerce or reverse logistics in general, as a core competency. A number of companies have outsourced partners in one or more of the key Reverse Logistics areas such as transportation management, returned goods processing, e-commerce logistics technology, and services such as freight claims, accounting, and carrier relations.
It is important to understand the processes you need before you outsource, so you can define what needs to be done, how it needs to be done and how to measure success so you are able to effectively choose which partner can best fit your needs. Use our handy 3PL checklist to understand your needs as a shipper.
“Returning” to Profitability
Reverse Logistics in e-commerce is a newly emerging area that is just starting to get the attention of senior management and shipper executives who are looking at or have already implemented an e-commerce channel. It is highly likely that your company has significant challenges in this area. Do not be afraid, you are not alone. (They do not even teach courses on Reverse Logistics in school yet). This is a “New Frontier” and should be viewed as an excellent opportunity to improve your corporate profitability.