The Christmas Returns Challenge

The Christmas Returns Challenge

 

Happy New Year!  I hope that you all had an enjoyable holiday season and managed to relax after the challenges of running a supply chain in the run-up to the festive break.

 

Like many people, I found myself wandering around the retail outlets before and after Christmas. Predictably, the store employees were exceptionally busy, dealing with new season stock, sale items and returns all at the same time. 

 

Data in the US suggests that one-third of consumers are returning unwanted holiday gifts to stores–quite a step up on the usual 10% to 20% returns rates seen across retailers for the remainder of the year.  But as consumer markets have evolved over the past few years, many retailers have seen a rising trend in returns rates back to DCs.  The increase in home shopping has clearly played a part, but we are also seeing evidence that the recession has resulted in consumers exchanging gifts for more utilitarian items or swapping for store credits instead of alternative products.

 

Reverse logistics is a costly problem for supply chain executives–both in financial and environmental terms.  The cost of processing a return is typically two to three times the original shipping cost, with the total cost of reverse logistics in the US estimated to be equivalent to 0.5% of US GDP.  Environmental costs include the substantial proportion of returns that still ultimately end up in landfills–or that end up being dumped in developing economies through grey market processes.  Waste in each step of the process represents an opportunity to cut manufacturing costs as well as to reduce carbon emissions.

 

How to go about this?  From conversations with colleagues at some of the largest third-party logistics providers and consumer goods firms, three or four main principles emerge:

 

Right First Time:  Getting the product right in fulfillment and in the in-store process.  Accenture research shows that best-in-class supply chains are twice as likely to incorporate returns data into service development for continuous improvement.

 

Keep It Sold:  Discounting instead of taking back the return.  Or, for communications and high tech firms, increasing “fix in-situ” rates.

 

Ensure Returns are Legitimate:  Is the return compliant with policy? The non-compliance rate for one electrical retailer was 5% of returns.

 

Right Commercial Agreement:  Are there matching commercial terms back up the supply chain?

 

The major discussion point though is probably how to handle returns volumes more efficiently. A recent Accenture survey of supply chain executives found the best-performing logistics operations are twice as likely as others to make sure returns are managed out at the lowest cost point, typically the nearest inventory holding location.

 

Some work Accenture did recently showed a substantial opportunity for firms to focus on quick wins– such as providing more frequent store sales information to manufacturers--that improve production planning, sales forecasting and distribution efficiency.  And for distribution operations, there were opportunities to improve consolidation operations as flows go “many to one” back up the supply chain.

 

As trends such as increased home shopping and the development of “fast fashion” continue, I think we will continue to see management of returns become more of a core supply chain activity, and less “out of sight, out of mind.”  It’ll be interesting to see if the staff at my local retailers are just as busy next year!