April 4 2022 06:09 AM

Sorry, folks. The last mile is not necessarily the end of a supply chain. Instead, we at the Reverse Logistics Association view the supply chain as circular, encompassing reverse logistics practices. A reverse logistics process may occur at any time within a supply chain.

Regardless of if it is a sale by a manufacturer, distributor, wholesaler, retailer, or other business-to-business players, everything that happens after a sale is an aspect of reverse logistics — a return, a repair or refurbished item, a repackaged item, a resell, reuse or recycled item.

Reverse logistics processes are complicated and costly for businesses across all industries. As many as 20 vendors, including carriers and storage, may touch the product.

The most recognized type of reverse logistics, returns, has witnessed dramatic increases and has also created the most angst for retailers thanks to the ease of online shopping. The National Retail Federation (NRF) estimates that in 2020, online returns more than doubled and are a major driver of the overall growth of returns.

Retailers have made it easy for consumers to return items by providing friendly returns policies, including returns. These policies allow customers to order more items such as two different sizes of shoes or perhaps three different colors of sweaters, knowing full well that one, two, or all will be returned if the shoe size doesn’t fit or if the colors do not match what’s on the retailer’s website.

While returns happen year-round, the holiday season is when it is most noticeable due to the rise in holiday shopping. As retail (including online) sales rise, so do returns, and the 2021 holiday was no exception.

From November 14 to January 22, 2021, UPS expects to handle more than 60 million return packages, a record amount and a 10% increase from 2020.

According to a UPS survey, 79% of customers say a positive returns experience influences the decision to make future purchases, and 84% expect online retailers to offer a no-cost return option.

However, handling returns is expensive for retailers – shipping costs, warehousing costs, staffing costs, and more. According to returns processor Optoro, it costs retailers $33 to process a $50 returned item.

The NRF found that for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns.

Similar results were found from the Reverse Logistics Association’s first quarterly survey on returns management, conducted in October 2021. Over half of survey respondents indicated that the cost of returns increased during the third quarter. Several comments highlighted rising costs in transportation and labor, as well as warehouse space.

Indeed, rising supply chain costs play a more significant role in returns management these days. A growing number of retailers such as Amazon and Home Depot are refunding and allowing customers to keep some returns instead of taking them back because of the higher supply chain costs associated with them.

The consulting firm, AlixPartners, estimates the value of all the refunds for goods that were not sent back will total as much as $4.4 billion across the retail industry.

This is not the best practice for retailers to pursue. Besides potentially leaving money on the table, the environmental impact alone is huge as most people may throw the goods away. Five billion pounds of returned goods end up in US landfills each year, according to Optoro.

Brand name impact should also be considered, particularly when these goods appear in flea markets, online marketplaces, or landfills.

Many startups have entered the reverse logistics space to streamline processes and reduce costs, but it will take more to help a part of the supply chain that has been overlooked for so long. In future columns, we will highlight best practices in managing reverse logistics processes. Stay tuned!

Tony Sciarrotta is Executive Director of the Reverse Logistics Association.

This article originally ran in the January/February, 2022 issue of PARCEL.

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