The Fulfillment Doctor Pays a House call to…Reverse Logistics

This is the first in an occasional series with Curt Barry, president of Richmond, VA-based operations consultancy F. Curtis Barry & Company. Feel free to send Curt your questions at cbarry@fcbco.com

Question: I’ve read about the advantages of reverse logistics. I’m a $15 million multichannel business, processing 50,000 orders with a 4% return rate. Are reverse logistics services really going to be able to help me?

Answer: Reverse logistics probably won’t work for 75% of the catalog and Internet businesses; the services work best in larger companies or in high return categories, such as apparel, shoes, and electronics, to name a few. Also, few service providers may be willing to work with you because of your low return transaction volume. One service that we know of requires a 10,000 return transaction minimum annually. At your 4% return rate you’d have to have an order level of 250,000 orders annually to meet the minimum. Another downside is that many of the reverse logistics services operate on the basis of consolidating packages, and with small volumes this might take four to five weeks to get the packages into your distribution center. So this might work against you if you’re using re-saleable returns to fill customer orders.

I would complete your research and see if the vendor minimums and consolidation time frame is acceptable to your business. We recommend the following initiatives to reduce returns and improve customer service:

Understand your merchandise categories’ return rates. Here are some typical return rates by category:
Business products <1%-5%
Hard goods and gifts 5%-9%
Home decor 5%-10%
Shoes 10%-25%
Casual apparel 10%-20%
High-tech products 15%-20%
Fitted apparel 20%-30%
Fashion apparel 25%-40%

Undertake an enterprise wide initiative to understand the reasons for returns (e.g. vendor sizing and coloration, damage in transit, customer choice, creative depiction, etc.) and take action to reduce returns where possible. Which of these can you control and decrease realistically?

2. Returns cost more than orders to process. You paid for the acquisition of the customer, contact center and order processing costs, credit card processing costs, processing the return, lost gross margin and the shipping and handling. Undertake a fulfillment and finance initiative to simplify and reduce the steps required to process returns and exchanges including issuing credits and refunds. If you eliminate steps in processing you generally reduce costs and elapsed time.

3. Restrictive returns policies may inhibit customer purchases, especially with gifts. Reverse logistics services have at their heart making it easy for the customer to return product. Surveys show that a high percentage of consumers say that difficult return policies affect whether they will buy again from a business. We have seen smaller businesses implement a pre-paid return address label through inhouse efforts, which eases some of the customer’s pain. Some business owners that feel making returns easy by incorporating returns labels pre-printed on the order, will encourage and increase returns. But as a consumer, I would rather order from a company with an easy and unconditional return policy.

4. Online return label printing and tracking of returns. Can your customers track the status of their returns and credits using the Web? Self-serve will take some of the traffic from your customer contact center. Recognize that many consumers are living at their credit card limits. Most customer surveys show that they expect you to credit their accounts within seven days of receiving the return. Alter response often adds calls and costs to the contact center.

5. If you have a technical or complex product, how can your returns procedure save the customer sale?

I once heard Bill Crutchfield, founder of consumer electronics marketer Crutchfield, say that years ago he almost went out of business until he realized that customers needed to have wiring diagrams and instructions to assist them in installing the products in their cars and trucks. For years now Crutchfield has an advanced database and printed instructions for literally thousands of vehicles that their products can be installed in. The instructions are printed and merged with the outgoing product. The company’s customer service is superior in being able to help with the installation and save the sale. What can you do that saves the sale and reduces returns?

Every customer contact can be viewed as an opportunity to sell more product.

6. Make the returns process smoother, and you get the product back quicker. Most businesses buy to the net sales unit plan and therefore need the returns to fill orders. Easy customer service helps provide better service to the next customer rather than sending a potential backorder notice.