Reverse Logistics

Not many companies understand the true cost of returns and it never ceases to surprise me how much work goes into managing outbound deliveries, and how little thought goes into reverse logistics. Yet it is a highly costly part of the supply chain.

The majority of retailers havent caught on to the fact that improving the management of returns through stores and the supply chain can reap big rewards. The rate of returns varies widely across sectors but according to a report issued by Cranfield School of Management, catalogue retailing sees returns of about 30 per cent, totalling about 2.8 million worth of goods. And that doesnt include other high return sectors such as the book, electrical and durable industries.

Over all, only 20 per cent of all returned goods are returned directly to manufacturers and this leaves a figure of 80 per cent unaccounted for which is worth a staggering 4.6 billion. The problem is also set to get worse with the forthcoming EC Directive on Waste Electrical and Electronic Equipment (WEEE) coming into force from August this year, which could require retailers to take back end-of-life electrical products from customers.

On top of this, current reverse logistics practices also have a cost implication for the environment. Im sure few realise how much merchandise is needlessly travelling up and down the country generating even more traffic on the roads. According to the Chartered Institute of Logistics, lorries are being utilised at only 20 per cent of their capacity. At any one time only 40 per cent are moving and they are only 40 per cent full by some estimates this adds up to billions of kilometres of empty container space every year.

So over the next year retailers really need to sharpen up their act and implement effective reverse logistics solutions. An effective returns management system can ensure that between 10 and 80 per cent of the returned goods value is recouped, a saving which goes straight back to the bottom line.

We work with a number of catalogue retailers including Modern Originals and Tearfund to provide warehousing, order processing and inventory management services. Weve developed a returns management system for the retailers we work with to ensure that returns are dealt with effectively.

Our system has been developed around a virtual depot system so everything thats returned is processed efficiently. Products are returned for a varity of reasons and many are written off with a faulty label on the box because customers have used that as an excuse to return the item. Items that are returned in perfect working order should go back into the stock warehouse, so that the item is available for the next round of orders.

Many items that are returned simply need repairing or reboxing because the content is fine but the cartoon is damaged. By carrying out a few simply repairs the items can be reworked and put back into stock. Goods that are genuinely faulty need to be sent back to the manufacturer and goods returned that are considerably damaged sometimes need to be disposed of in an environmentally friendly way.

Too many retailers ignore returns, in fact, 90 per cent of retailers do not have the appropriate systems in place to cope with returned items. This neglected stock is put to the back of the store and forgotten, taking up valuable space and ultimately losing value.

Returns management is an area where retailers have an opportunity to make considerable operational cost savings through the adoption of best practice returns management. The problem is likely to increase with the new environmental legislation and retailers desperately need to start taking a proactive approach to returns.

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