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Reverse logisticsWHITE PAPER

A Better Return for Retailers?

Often it seems retailers only have a forward gear when it comes to their supply chains. All the investment and attention is lavished on distributing goods onwards from warehouses with a lot less thought for products that swim against the tide.

Reverse logistics has traditionally been an under-resourced, minority sport played in odd corners of the distribution network. However, that is set to change. Events such as the rise of on line shopping and home deliveries, growing pressure to make efficient use of transport, and regulations requiring items such as electrical products and cardboard waste to be recycled are already pushing reverse logistics higher up the corporate agenda.

The financial and environmental cost of returns

The increased focus among retailers on the reverse supply chain is not before time, given the hefty bill that UK businesses are footing for returns. The total cost of returns for the UK retail sector is in the order of £500 million per annum, according to the survey Efficiency of Reverse Logistics published in 2004 and sponsored by the Department of Transport. Retailers could be wasting up to £200 million per year on collecting and transporting £6bn of returned goods annually.

The inefficient handling of reverse logistics also has a high environmental impact, the survey points out. With nearly a third of lorries running empty in the UK, there is a significant opportunity to reduce CO2 emissions by integrating reverse logistics with the rest of the supply chain.

Cracking the reverse logistics problem isn’t easy, however, despite potential cost savings from better integration of between 20% and 40%. Many logistics systems aren’t well prepared to deal with reverse logistics processes. And the issue is easily overlooked during supply chain planning because accounting for reverse logistics losses is not a simple matter.

There are many reasons why goods are returned. Inaccurate demand forecasts, faulty goods, liberal consumer return policies and a desire to maintain high on-shelf availability are just some of the drivers.

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Retailers could be wasting up to £200

million per year on collecting and

transporting £6bn of returned goods

annually.

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Changes in the structure of the UK retail sector have not helped companies manage their reverse logistics effectively. In the consumer electricals and entertainment sectors, new players such as supermarkets have entered the market, overturning established distribution networks. The reality is that some new entrants have moved into these sectors without setting up proper provision for reverse logistics.

In the electrical sector, the practice of buying out guarantees on goods means that retailers have had to set up their own internal returns centres to handle goods coming back under warranty. They have not all performed well. Retailers may not be considering the true loss when they sell graded products as ‘the manager’s special offer’ and at a reduced price. The reality is reduced spend by the customer and another potential returns issue down the road.

The rise of no quibble money back guarantees has also swollen the number of goods being returned to shops and created confusion for suppliers. On average, a half of all returns described as faulty have no faults with them. And while clothes retailers may be able to return product to the racks, it is usually impossible to resell undamaged consumer goods without discounting them or disposing of them through secondary markets.

Then there are the hidden costs of reverse logistics: the cost of handling and storing goods, as well as the possibility of repackaging items in order to sell them on. Although returned stock can benefit a retailer in that it remains on a company’s books at its original value, in general returns are a depreciating asset.

Reverse logistics hampered by restructuring

Effective returns management is critical

In some sectors with established sale or return models such as publishing or catalogue retailing, as much as 30% of goods can end up coming back through the supply chain, the Efficiency of Reverse Logistics survey reveals. In these businesses, effective returns management is critical to overall profitability, but even among enterprises that are closer to the industry average of 2.5% of sales returned, savings are possible by managing reverse logistics more effectively.

Returns represent a big issue for retailers because the amount of goods involved is massive. In the book industry, for example, 66m books are

returned each year : most returns of paperbacks will be pulped rather than be sold. In entertainment, it is estimated that some 25 million music products and 50 million DVDs are sent back each year having never left the shops.

Over 50% of goods returned to the supply chain come not from customers, but directly from stores. Sometimes sales outlets have been deliberately over stocked. For example, at peak periods entertainment suppliers may flood stores with product to drive sales. Similarly, publishers often use piles of books as an alternative to conventional display materials.

Returns represent a big issue for retailers because the amount of goods involved is massive. In the book

industry, for example, 66m books are

returned each year:

In the consumer electricals and entertainment

sectors, new players such as supermarkets

have entered the market, overturning

established distribution

networks. The reality is that some new

entrants have moved into these sectors without setting up

proper provision for reverse logistics.

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that require store managers, for example, to document their returns and explain why items are being sent back bring discipline to returns management.

E-tailers need to develop systems that make it easy for customers to return goods by setting up areas on their websites to log returns, providing

bar coded packaging to return goods and automation at their returns centres to log, approve refunds and assign disposition codes.

Equally, they need to dispose of returned goods quickly. Here the rise of a sophisticated secondary market that includes online channels such as e-bay and Amazon, where 70 per cent of sales are now of returned goods, has speeded up the process and allowed suppliers to reclaim more of the value of returns.

Clearly, it is important to manage the returns process to ensure that an organisation limits the negative effect on the bottom line. An integrated returns process (see diagram) is vital to minimising the cost of reverse logistics, improving customer service and getting maximum recovery of the value of returned goods.

However, the processes in a returns centre can be very complex. They involve inspecting goods, making decisions about what to do with them and then carrying out a variety of repair or disposal activities. A systematic approach, backed by appropriate IT, can reduce the time lags between when products arrive at a returns centre and product disposition.

What happens before goods reach a centre can significantly affect the efficiency of reverse logistics. Processes

An integrated returns process reduces costs

Returns (Process)Integrated System

Customer ServiceFinancials /Carriers /Order Management /ERP /

Claims

Returns Receiving

Multi-Lingual

RTVPortal

InventoryTracking

ReturnsFees

Reporting

Visibility

Supp

ort

Func

tions

Inspect Disposition

Shipping

Return toStock

Refurbish

RecoverAsset Value

Destroy

Disposition Execution

Return toCustomer

Return toVendor

Repair

Repairs

Receive inventoryUpdate RMA

Tracking #Update RMA

DebitsCredits

Inventory

WarrantyReturnReason

Etc.

Integrated Workflow

Putaway

PostFinancials

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Rob Mitchell has over twenty five years’ experience in reverse logistics, supply chain management, operations and 3PL’s, in the retail sector. Rob has successfully run a specialist reverse logistics company and managed high profile companies such as Virgin, Safeway, Woolworths and LVMH. He joins Unipart Consumer Logistics to add his vast experience to the return logistics and asset recovery business sector.

email: robert.l.mitchell@unipart.co.uk

For more information contact:Mark Mearns, Head of e-fulfilment & reverse logisticsUnipart LogisticsUnipart House, Garsington RoadCowley, Oxford, OX4 2PGTel: +44 (0) 7963 275660 mark.mearns@unipart.co.uk

or visit our website:www.unipartlogistics.comRef: WPRL09

Rob Mitchell

Unipart Logistics’ e-fulfilment and multi-channel fulfilment expertise comes as a result of successful partnerships with clients such as asos.com, Play.com, Pets at Home, Vodafone, and Jessops. For these clients we provide flexibility and a breadth of experience to manage their forward and reverse supply chain operations, to ensure a continuity of excellent service for their customers. Please contact us if you want to improve the management of variability and seasonality in your supply chain, take cost out of your pick and pack operations, or improve your returns handling capability. Unipart Logistics is part of the Unipart Group of Companies, one of Europe’s leading providers of outsourced logistics and distribution services.

Author:

An integrated returns process reduces costs (cont)

Transport costs involved in returning goods from retailers to manufacturers can be significant, especially where part loads lead to low vehicle utilisation. Back hauling saves costs by integrating returns into the outbound logistics network.

As returns management becomes more important, retailers are developing better in-house capabilities or outsourcing the operation to third party logistics providers. The third party option is likely to grow as the number of providers offering specialist solutions increases.

Reverse logistics is one area where retailers have an opportunity to make considerable cost savings by taking a holistic supply chain management approach to the issue. But they need to be taking proactive action now.