Is Your Parcel Technology Prepared for the Future? Part III
Key elements to evaluate whether your platform is enabling or hindering your ability to respond to the ever-increasing magnitude of change [a three-part series].
We are back with the third installment of our three-part series in which we dive into the key elements crucial to understanding if your platform is enabling or hindering your ability to respond to the ever-increasing magnitude of change in the shipping industry. In Part I, we discussed how to increase cost savings and customer satisfaction through expanding your carrier services and agility, understanding DIM weight, and exploring freight consolidation. In Part II, we discussed how to collect the right data and how to utilize it effectively. Finally, we are ready to explore reverse logistics, with suggestions of ways to expand your return offerings for your customers, and how to more efficiently process those returns to help you better understand if your technology is enabled to optimize this fundamental business need.
Part III: Reducing the Cost of Returns (is there an opportunity for profit?)
Reverse logistics, or Returns processing, is an integral part in the best practices of omnichannel retail shipping especially when according to the National Retail Federation, returns are three times more prevalent for online retailers. While we all would like to avoid the return, the fact is the returns process has been stated by shoppers as one of the areas of lowest satisfaction, and returns policies are a key consideration factor when they buy.
Returns can put a substantial dent in a business's bottom line if technology, processes, and polices aren’t developed with customers in mind. According to Jim Brill, UPS reverse logistics marketing manager, studies have shown that the expense of returns processing ranges from 20 to 65% of the cost of goods sold, so investment in optimization should yield dividends.
The growth of omnichannel retail and greater consumer expectations has created new logistics challenges not only in delivering a product to your customers, but also in reverse. The days of a linear supply chain have long passed, making way for a circular economy. The return rate at a brick and mortar store is about 8 to 9%, so in a $5 trillion retail economy, that is about $400 to $450 billion in returns. For ecommerce transactions, return rates are three to four times that rate so the cost exposure is even higher.
Expand Your Return Options
It is clear that customers demand options and have high expectations of omnichannel retailers. In Part I, we discussed the options they expect in delivery; it should come as no surprise they also expect options when returning.
While not all customers take care in reviewing returns policies prior to buying, the trend towards demanding flexible return options is apparent. A UPS Pulse of the Online Shopper Study found that 82% of online shoppers that reviewed policies said they would complete a purchase they intend to make online if they could return the product for free in-store or with a preprinted label. Yet only 32% of the Top 500 retailers offer some form of omnichannel or store-based return. So why would we not provide an offer that would certainly guarantee that we lose customers and sales if we don’t respond to the insight from 82% of our customers?
Pre-printed return labels: 52% of customers in a UPS Pulse survey said they want a return label in the box, yet many retailers are do not provide this service. There are many product and business reasons to not provide a preprinted return label like cases where a retailer has the luxury of low return rates (pharmaceuticals) or the retailer has persuasive proof that the customer is unique and doesn’t require the service. If you aren’t making the service available but should, your Parcel TMS should not be keeping you from making customers happy. If you need the capability, your parcel shipping system should have the ability to preprint flexible (i.e., multi-carrier) return labels when the shipping label is created; this can be a separate label placed inside the parcel, or integrated into an invoice or pack slip.
In-store returns: According to the UPS Pulse of the Online Shopper Study 2016, 60% of customers have stated they prefer to return items to a physical store when given a choice. Store traffic drives add-on sales, so why not direct your customers straight to your own stores, instead of forcing them to trek to the nearest UPS or FedEx drop-off location to return their purchase? Not only does this circumvent the cost of return shipping or implementation of preprinted return shipping labels, it also offers you a chance to make an additional sale when the customer is in-store making their return. Of those shoppers who prefer to returns items to a physical store, 70% of shoppers make an additional purchase when at the store.
On-demand return labels: If your analysis shows that preprinted labels are not appropriate, you should most likely offer on-demand returns via your website. The day of forcing customers to email or call to request an RMA are over (for most organizations). Many retailers are shifting to this option not only to improve customer satisfaction, but also to drive additional traffic to their website (and potential upsells). This is a huge opportunity to integrate rate shopping to optimize your savings while also gathering data for why the product was returned. Your Parcel TMS should be an active participant in this process providing your ecommerce system with the rate shopping, labeling, and tracking information just as if this were an original purchase in the shopping cart.
Returns cost reduction: Just like with the last mile with the original delivery, the first mile is an area of exploration that you should consider digging into to determine cost savings. There are many alternatives to explore rather than using a destination return to DC carrier solution. As we mentioned in our May post, Top Takeaways from the National Postal Forum 2018, “USPS understands that Returns processing is a critical driver of customer satisfaction. Customers may abandon a retailer forever with one single poorly-managed return, and shippers have significant cost exposure. USPS is aware that customer experience is key in this process, and is actively working on offerings like “return to store” that allow a retailer to automatically send a return to the store closest to the customer’s return origin zip. While you as a retailer may not actually want to process the return at your store, it may be a service worth considering especially if you have an under-capacity USPS trailer coming to your store for SFS deliveries, or a trailer with space available heading back to your DC/FC.”
You will likely want to explore offering more than one of the options above. If you are an apparel company for example, where your return rate is much higher than average, you may not want to make an outright switch to website returns from preprinted labels, but rather make this an additional option for your customers, or even incentivize them to choose it, to test the results.
Best practices in processing warehouse returns
The opportunity to improve doesn’t stop at your receipt of the return. Once you received a return, how do you continue to recognize efficiency and cost savings? When evaluating best practices in processing warehouse returns, Alex Parvenov of Ciber Inc. has great suggestions. Of particular interest is separating the physical process from the accounting process to allow for gaps between physical and accounting realities.
- Separate responsibility over physical inventory from responsibility over customer credits. A warehouse employee most likely should not be concerned with how and when a customer will receive credit. Credit processors use an electronic transaction log of returns dock activity to release customer credits.
- Distinguish between return reasons and physical disposition. The former describes why customer returned it. The latter describes physical state of the merchandise. Credit clerks must understand return reasons. Warehouseman must understand the dispositions.
- Try to control the returns process through Returns Authorizations that are preferably tied to the return label. With Return Authorizations, the preapproved returns can be received quickly thereby simplifying the returns identification and speeding overall processing.
- Stage saleable merchandise by a put away zone. Most of the returned merchandise is generally in saleable condition and will be returned to the storage area. To streamline the subsequent put away process, saleable products should be staged on pallets by destination zone.
- Track un-saleable merchandise with a bar-coded label. Any merchandise that is not saleable and cannot be discarded is usually stored according to vendor guidelines. While some vendors simply require an inventory report to issue credits, others will send a sales representative to inspect the goods or to ship to the vendor. A complete audit trail consisting of return reason, date of initial shipment, date of return, customer name, etc. will assure legitimacy of the claim and improve supplier relationships.
Your return handling modules should be integrated into your WMS and make sure it considers: cross-docking to a shipping dock, immediate inventory allocation, real-time inventory control, and quick picking from the returns area.
In an ideal world returns would not exist. Since we have to deal with reality, with the right Parcel TMS – that allows you to expand your return options to utilize those that make the most sense for your business/your customers and then processing those returns efficiently on the backend – your returns cost should be dramatically decreased. (It could be a profit center if in-store purchases upon return are dramatic enough.)
Often it only takes a small change to make a big impact. In this series we discussed how to increase cost savings and customer satisfaction through expanding your carrier services and agility, understanding DIM weight, and freight consolidation. We’ve also explored methods to collect the right data and how to utilize it effectively. Finally, we’ve examined reverse logistics, and offered ideas to expand your return offerings for your customers, and how to more efficiently process those returns.
We hope this series has helped you evaluate if your platform is enabling or hindering your ability to respond to the ever-increasing magnitude of change in the shipping industry. While implementing all of these changes may be unrealistic, implementing just a few of will help adjust your business to adapt to the increasing demands brought on by consumers. Just make sure that your Parcel TMS isn’t the constraint to change.
We realize this piece is very high-level, and if you’d like to drill down on any of our observations, please reach out to us with questions or comments. We also welcome opportunities to deliberate or dispute our insights and recommendations – no conversation is off limits. You are an expert and we'd love to speak with you.