Reverse logistics planning for the retail supply chain

by | Jan 26, 2018

There’s more to returns than simply people getting the wrong sized aquamarine sweater or Grandma getting you a Star Wars lunchbox when you really wanted a Star Trek thermos. Holiday returns only account for 24% of retailers’ annual returns – most happen outside of January, throughout the year.

More than retailers are impacted by returns, as omnichannel strategy often has vendors shipping orders directly to consumers on behalf of retailers, as well as a variety of other possible fulfillment options. Making sure the return policy and process is as smooth and fast as possible makes consumers happy and more likely to buy more, but it also reduces costs of returns to all involved parties parties. All players in the retail supply chain, from the e-commerce retailers to retail stores to the 3PLs to the vendors to the manufacturers, need to have a reverse logistics plan in place. That’s as true for late December and early January as it is throughout the year.

Mass amounts of product can be making their way backwards through the supply chain at any time, for a variety of reasons – recalls on products, products that have to be handled in a special way when they reach the end of their life (batteries, refrigerators), items that cam be refurbished and resold (cell phones) and products that people get paid to recycle (computers, TVs).

With so much product moving up stream, the process must be handled just as carefully, if not more so, as when it’s flowing out to consumers.

Retail return volume vs. recall volume

Regular returns to retailers are easy – often they can just be brought back to the store, in most cases even if they were bought online. When mass amounts of product are flowing backwards through the supply chain, though, it can be a challenge. How do you handle the actual point-to-point logistics of getting a mass amounts of returned or recalled product back to where it needs to go?

Reverse logistics is a process you must have in place for the returned and recalled product to follow that is efficient, guarantees the item makes it back to the right inventory if necessary and costs the least amount of money. It’s a process that many businesses haven’t mastered yet, because the goal of the retail and retail supply chain is to send products out into the world, not bring them back to where they were made – it’s not just an afterthought, it’s an unwanted outcome.

Returns are an inevitability, though, and in some cases recalls are, too, so plans must be made to accommodate them in the most efficient and least costly way. With different sales and fulfillment channels, there may be different ways to handle the item or items. The least expensive return option for both the consumer and a retailer tends to be having the item returned to the store directly. Beyond that, there are a variety of methods and combinations of approaches for facilitating returns – to retailers, to venders and wholesalers, other parties and sometimes all the way to the manufacturer.

Reverse logistics optimization

For whatever approaches are offered for returns and reverse logistics, automation should be built into the system to carry out the process with the greatest efficiency and least cost. For example, return shipping labels sent along in each package with the appropriate addresses included (and preferably postage or shipping paid for!). Depending on where the item came from, automated processes ensure the right shipping labels are included so items make it back to where they need to go, whether it’s the retailer, drop shipper or other.

If there is only one distribution center, that makes it pretty easy to figure out where the returns and recalled products go should go. But what if you have more than one distribution center? Should you select a single central location for all the product? The shipping could be higher if you’re shipping from San Diego to a returns center in Charlotte, North Carolina or from Miami to Seattle, Washington.

Do the items have special handling instructions? Making sure that the items are treated accordingly is part of the planning process. That’s especially for dangerous or toxic recalled products.

Are the items headed to refurbishment or other reuse? Clearly, you’d like those items to arrive at their destination with as little damage as possible. Individual items, like returned cell phones, could be relatively easy to secure but the shipping costs could be high. Collecting a pallet full or other large quantity before shipment can reduce costs, but it takes up warehouse space. Pooling all the items into bins saves space compared to packaging them separately, but could result in damage to the items. With refurbished items, the pros and cons of the different ways to get the items back to where they need to go must be weighed carefully.

Finally, some returns shouldn’t necessarily go from the consumer to the retailer or the drop shipper. More and more third-party returns centers are entering the market to fulfill the need. For items like air conditioning units, refrigerators, batteries, and so on, as well as recyclable items, there are third-party companies that specialize in handling those items. Arrangements can be made with those companies to either have consumers take them there, or the retailers can work out a pick up or repalletizing-and-shipping arrangement to get those used items to wherever they need to go. Some third party returns services simply resell the items themselves.

Reverse logistics solutions

Because there are so many options and ways for products to make their way back up the supply chain, it can get confusing. However, there are tools and tricks that can help make the process easier.

First, as already discussed, for refund instructions with return labels can be included in every retail purchases order, whether the item is fulfilled by the retailer or a drop shipping vendor. Automation via EDI integration into the fulfillment process can ensure that the right return labels and instructions are sent along with the right products, and that the appropriate inventory information is updated. In well planned cases, consumers can simply box up the items in the original box it came in, attach the label and send it on its way.

EDI helps at more than the retail level, though. Vendors, distributors and other links in the supply chain can use EDI to transmit the appropriate information to the right trading partners to move recalled product back to the manufacturer. For returns to drop ship capable vendors, EDI makes sure the vendor gets the product back where it needs to be.

EDI transactions for reverse logistics

Once its determined that products need to be returned and/or return authorization requested, an EDI transaction can be sent to the seller requesting authorization to return or request disposition instructions, including product details (typically EDI document 180). In this process the seller would respond back to the request with an authorization number, Ship To instruction or product disposition through an EDI transaction.

If products go back to the seller, there could be a reverse advanced shipping notice (ASN) EDI transaction 856 so the seller is prepared for the return (this has started to be adopted by more and more businesses). Seller uses the Reverse ASN for inbound delivery visibility and to automate the receiving process for the return.

Some retailers will deduct the value of the return from the sellers next payment or wait for the supplier to issue a credit memo for the return where the retailer would apply that credit to the sellers next payment. This is also an EDI transaction (credit/debit adjustment document 812).

EDI and other technology solutions, of course, is just one part of solving the reverse logistics equation. Warehouse square footage and other space needs must be planned for to accommodate recalls and returns. Employees must be properly trained as to how returns and recalls are processed through the system.

Reverse logistics has many similarities to “forward logistics,” but not as profitable and can get pricey. Proper planning can smooth out the process, increase efficiencies and lower the costs of having to send product back, whether it’s going to the retailer, distributor, manufacturer or even recycling destination.

SPS Commerce can help your business better manage returns and recall reverse logistics processes. If you would like more information, please visit the SPS Commerce website and ask to speak to one of our supply chain solutions specialists.

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Scott Bolduc

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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