Free Returns Are Not Free!

We spend some time demystifying the reverse logistics conundrum.

Reverse Logistics, or the process of accepting consumer returns, is quickly becoming one of the hottest topics in the retail industry due to the complexities of operating an omni-channel business and increased regulation. According to an article from, “The average retailer's reverse logistics costs for consumer goods are equal to an average 8.1 percent of total sales—a figure which, unlike forward logistics, includes the value of the goods.” Quite a bit of this cost is embedded in how returns are processed, underpinned by liberal return policies.

Twenty years ago it was possible to centralize returns because almost all returns came through the brick-and-mortar store and were sent to a centralized returns processing center which created supply chain efficiencies, and drove down cost. In the same article from Charles Johnston, Director of Repair and Returns for home improvement retailer Home Depot explains, “By reducing administrative and transportation costs, consolidation cuts reverse logistics costs by 40 percent on average”. The benefits of centralizing returns still exist in an omni-channel retailing world with a liberal return policy (example: return policy) but they require creative and complex solutions like marrying forward logistics and reverse logistics in the same fulfillment center, both of which have different processes and back-end systems.

This does not begin to touch the other costs baked into the returns process like regulation and fraud. On the regulatory side of the ledger a good example is California’s Electronic Waste Recycling Act of 2003. Retailers must collect and pay certain recycling fees for televisions of certain sizes. This extends to manufacturers as well as they must notify retailers regarding which products are covered by the legislation. A global retailer must manage these regulations across all geographies they do business in to ensure they are compliant. Likewise return fraud is a major problem for retailers with the National Retail Federation’s 2014 Return Fraud Survey estimating the industry will lose $10.9 billion to return fraud this past year. This extends into the method of payment (credit cards and gift cards are big offenders), and the challenge of “wardrobing” which is the returning of non-defective product.

Reverse #supplychain logistics isn't so simple anymore; but #analytics may be able to help

The good news is modern analytics and visualization can help create and manage an effective end-to-end returns process. Below are a few key reasons why:

  1. Agility – Forward Logistics and Reverse Logistics require many different systems and visibility across the end-to-end process. The ability for a supply chain manager to tap a dashboard to flip perspectives from forward logistics to reverse logistics without having to log a request with IT is imperative in the time-sensitive world of omni-channel retailing.
  2. Simplicity – The returns process is already complex, data visualization must make it easier to manage without removing the sophistication.
  3. Mobility – Accessing supply chain information while on the fulfillment center floor, or the point of decision, not only shortens decision windows but also expands the number of supply chain professionals who can make data-driven decisions.

Qlik specializes in analytics at the point of decision, and I invite you to test drive the Qlik Omni-Channel Dashboard which is an excellent showcase of how a retailer can overcome the reverse logistics conundrum.


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