Enjoy the Christmas carols, the smell of fresh pine and cinnamon in your vestibules; the red, green, gold and silver decor; and the impossibly high weekend revenues while you have them. For the 26th is nigh, and we all know what happens then: the holiday hangover.
Every year, businesses lose tens of billions of dollars on returned holiday goods, according to Optoro. If the offset profit margins and desolate, post-holiday sales numbers weren’t problematic enough, retailers and affiliate carriers face an even greater challenge: reverse logistics.
Attempting to optimize a supply chain for two-way product flows (off to the customer; back to the distribution or recycling center) is no simple feat, and the holidays have a way of amplifying the magnitude of the struggle.
The holidays only tell half the story, though
“High return rates are a year-round problem.”
Large numbers of returns are par for the holiday course (e.g., customers who want to cash in on their loot or return not-so-thoughtful gifts). But Americans return nearly $285 billion of merchandise annually, which means the majority of returns have nothing to do with the holidays. And while returns have always been a part of doing business, that part appears to be getting bigger. According to Supply Chain Dive, 8 percent of all merchandise is now returned. Hone in on online shipping though, and the return rate reaches 30 percent.
We partially fault the “Warby Parker” consumer – that is, the customer who buys products just to trial them and then returns them if they’re unsatisfied. For context, Warby Parker provides customers with a home try-on service where up to five pairs of glasses are shipped to the customer, who then decides which pair they would like to keep. For Warby Parker, that’s the business model – it’s genius, and clearly it’s worked for them. But for other businesses, having to process and ship online customer returns is an inconvenient reality of the omnichannel world we live in.
As supply chain expert Dr. Ron Lembke put it, customers who explore a new channel will “find ways to use—and maybe abuse—it that you never anticipated.” Today’s consumers can complete an online purchase with just a few taps of a finger. Pair that with free return shipping and you have what The Atlantic refers to as, “Buy first, think later.”
For retailers and carriers, this means more resource allocation toward managing reverse logistics.
How to solve the problem
Organizations with a brick-and-mortar presence have sought to reduce overall shipping costs and work returns going upstream into their supply chain by encouraging in-store returns. For the customer, the benefit is faster refund processing since the exchange happens immediately at a physical point of sale. For the retailer, it means returned goods can be factored into a brick-and-mortar franchise’s inventory. Alternatively, the returns can more easily flow back upstream since the physical location is presumably integrated into the supply chain.
But then there’s the more innovative option: the two-way supply chain. Traditionally, retailers and carriers have looked at the supply chain as a two-lane road. One part of the supply chain goes one way (downstream) and the other goes back upstream, and they never intersect. However, this isn’t necessarily the most efficient way to move shipments up and down the supply chain. Sometimes it makes sense to put returns and deliveries on the same truck, if say, they’re going to the same place, or one set of freight can be dropped off en route to the other’s destination. Who knows, you may even be able to make yet a third stop along the way.
The point is, the supply chain can no longer be treated like two straight lines moving in opposite directions. All your touch points, and the flow of products between them, need to be factored into the equation of routing efficiency. This will help deal with the reviled holiday hangover. But more importantly, it will facilitate year-round efficiency for your entire supply chain.
And that’s the gift that keeps on giving.