The reverse supply chain challenge

The reverse supply chain challenge

Milan Panchmatia 4C Blog

Online shopping has resulted in a wealth of opportunities for retailers, but also an array of new challenges. In this post, 4C Associates’ Milan Panchmatia considers why retailers need to take a closer look at their reverse supply chains.

It is no secret that online retail is booming. According to figures from IMRG and Capgemini, UK retailers made £114bn from online sales in 2015, a figure expected to rise by 11% in 2016. The 2016 Black Friday event alone saw websites take home £1.23bn – a figure which jumps to £6.5bn if you factor in the week long marketing campaign leading up to it.

On top of this, the benefits of online retail are numerous and include reduced overheads, the potential for rapid growth and more importantly, the ability to collect customer data. This last element has paved the way for an array of opportunities focussed on targeting consumers and adapting to their changing needs in real time.

This data has in turn enabled retailers to work out the most efficient means to get products into customers’ hands. The range of delivery options available today dwarfs what was on offer just a few years ago and both retailers and consumers have benefited from having more solutions to choose from. Unfortunately for retailers, online shoppers expect the same service when it comes to returns.

Growing customer expectations

One of the downsides of the rapid growth of online retail is the rising rate of returns. According to digital consultancy Invesp, close to 30% of all products ordered online are sent back, as opposed to 8.89% of those bought in brick-and-mortar shops.

This is partly due to people being comfortable buying products over the internet which they never would have considered before. For example, in 2015 online sales of clothes went up 11% year on year. Some of these items are, however, more likely to be returned. Research has also found that 67% of online shoppers check a company’s returns policy before purchasing a product.

While plenty has been written about the logistics of getting products into the hands of customers, much less has been said about the opposite. Do not be fooled into thinking that means the reverse supply chain is not worth looking into – far from it. More and more companies are choosing to focus on what has become an essential part of their business strategy.

According to the National Retail Federation, in late 2015, 49% of retailers offered free online returns. This can come at a high price and in many cases a return can cost two or even three times as much as the initial delivery. However, it is a risk worth taking as 92% of consumers say they will buy again if the return process is easy. So how can retailers strike a balance between cost and customer expectations?

Walking a tight rope

This year’s Black Friday was the most successful yet and the event looks set to play an increasingly important role in many retailers’ financial results. However, retail data intelligence firm, Clear Returns estimates that one in five purchases made will be returned. This issue is further compounded by the time of year it takes place in as retailers will struggle to have their returned stock available for Christmas.

The first step for many retailers is to take a step back and consider the overall situation. Many clients I have worked with focus purely on the sales process and ignore returns until it is too late. Reverse logistics require an independently designed process, but also need to be factored in as part and parcel of overall sales activity. Secondly, data related to product sales and returns needs to be incorporated into the inventory management process. This enables companies to manage production in line with expected returns.

Flexibility and speed are two key features of successful reverse supply chains. Ensuring returned products transition into stock as quickly as possible can only be achieved through a well-crafted process. Finally, there are also opportunities to drive growth. In addition to customers being more likely to buy from retailers with an easy returns policy, some studies suggest that close to 70% of customers make a separate purchase during an in-store return. Certainly food for thought.

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