E-commerce returns management
Published December 18, 2024
- Retail, Beauty & Luxury
Reverse logistics in the age of e-commerce
E-commerce boom means more and more shipments, with a simultaneous increase in product returns, making reverse logistic an essential part of supply chain management. Reverse logistic is the process of planning and managing flows (products, information, etc.) from the customer to the supplier, in order to recover and/or recreate value from these flows.
Although many e-commerce players acknowledge the need for optimization, reverse logistics remains one of the supply chain’s most complex components.
In fact, it depends on changing consumer behavior, current regulations and environmental challenges.
According to a 2023 survey by Statista in France, 44% of customers returned at least one package for an online purchase between 2022 and 2023. Fashion is the sector most affected by product returns, with return rates amounting to 23% for clothing, 14% for footwear and 13% for bags and accessories. Other categories are impacted too, such as electronics (8%), cultural products (6%) and cosmetics (6%).
Managing return flows: main challenges
Companies dealing with a significant volume of product returns are often uncertain about the best practices to adopt, particularly when it comes to choosing a return transport service provider and drawing up a return time policy in line with customer expectations.
They are also reflecting on their approach to, and processes for, managing warehouse returns. This includes not only decisions on how to channel returned products through various possible exits (resale, repair, recycling, destruction), but also rethinking product packaging and labeling to simplify sorting and processing operations.
At the same time, managing these return flows requires enough skilled manpower to ensure a smooth workflow at every stage of the process, including quality control.
Finally, reverse logistic operational models need to be integrated into the global supply chain and existing information systems (TMS, WMS, etc). This raises the issue of adaptability to existing systems, and the potential need for IT developments.
Why do customers return their purchase?
The first step is to carry out an in-depth analysis of return flows according to defined criteria (product range, geographical area, etc).
Most returns are related to shipping errors, product malfunctions, functional defects (size, color, etc), packaging problems, late deliveries and also to behaviour patterns that are more difficult to address (source: Gartner 2023).
What’s at stake for companies?
There are four major challenges in managing product returns:
- Client satisfaction, by improving the shopping experience from order to final delivery.
- Additional costs per product and return delivery times, that should be minimized.
- Processes and information system optimization, to improve responsiveness and competitiveness.
- Extending product life and meeting CSR objectives, within a stronger legal framework for product sustainability.
Flow management by Wavestone
A strategic and structured approach is required to meet the above challenges and optimize reverse logistics. Among the strategic and adjustment actions that can be taken:
To limit returns and improve customer experience, we recommend actions taking place before the product is even returned. These include improving purchasing tools and channels, notably through AI-based solutions or predictive tools. Alternatively, product return policies can be simplified, for example, by making them more flexible in terms of general sales conditions and return deadlines.
Other, more dissuasive measures, such as paying for product return or calculating the carbon footprint of a returned parcel, have already been deployed by several e-commerce players.
Another lever is end-to-end control of the product life cycle. This involves improving product quality upstream of the return flow, in order to encourage reuse. With the concept of “second life”, products can be assigned to different output channels downstream of the return flow. Developing and/or optimizing a quality assessment system for returned products is a priority. Depending on product ranges involved, real-time evaluation and monitoring of output channels is also necessary.
Improving product packaging simplifies return transport, sorting and processing operations in the warehouse. For example, many companies include a return label in the package, or opt for reusable cardboard.
Internally, returns management improvement focuses on post-return actions.
Returns management performance involves monitoring key indicators, such as financial costs, human resources and hours worked, and environmental performance.
Outsourcing all or part of the return flow management to specialized service providers lets companies focus on their core business and main flows, while optimizing their utilization of resources.
Conclusion
For e-commerce companies, reverse logistics is based on a clear definition of each function’s role in managing this specific flow. Based on the above-mentioned strategic orientations and levers, the Supply Chain is clearly in a position to assume primary responsibility. However, it can also call on other players (Marketing, Production, Purchasing, etc.), to broaden its fields of competence and share a cross-functional approach to this flow.
Special thanks to Alban Larchet, Si Miao-Renard and Samya Daghni.
Author
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Thomas Chotard
Partner – France
Wavestone
LinkedIn