There’s a Growing Problem with Reverse Supply Chain: Here’s Why

If you ordered a pair of shoes on Amazon, you are probably pretty confident that if they don’t fit you can return them fairly easily. You just put a return label on the box your shoes came in and you typically pay nothing.

But the retailer that sold you that pair of shoes offering free merchandise returns will take a hit for it and the process to get that product back is much more complicated than shipping to you from a fulfillment center.

What is the Reverse Supply Chain and What’s Causing It?

Now think of all of the items you alone have had to return before? How many times have you sent something back at no cost to you? Alas you begin to see the problem with a roaring e-commerce environment where free shipping and returns are the norm.

E-commerce continues to explode with projections through the end of 2016 expected to surpass 15% growth. Meanwhile returns have accounted for close to 10% of losses for retailers since 2014, more than a quarter of a billion dollars last year, and amounts to over 2 million tons of waste if those products are not then resold.

Difficulties Presented by the Reverse Supply Chain

Why is it so hard to simply return items that have already been shipped out? First, most retailers are moving freight in bulk from warehouse to distribution center to fulfillment center. Local deliveries are almost always provided by a local courier.

USPS may have delivered your shoes to your door, but those shoes were one of 50,000 pair shipped in bulk to Amazon’s local distribution center where you live. If you want to return that pair of shoes, you’ll do it at a time of your choosing.

You may drop it in the mail or you may stick it in the UPS pickup pile at work. The route back to Amazon is not a simple reverse and many retailers have underestimated the need to deal with problems in the reverse supply chain.

SMEs Suffer the Most from the Reverse Supply Chain Problem

Unlike the many SMEs doing enormous amounts of online sales, Amazon can afford to suffer a 10% loss on returns. They have other outlets for unloading products that are returned. However, smaller retailers are taking a hefty hit to keep up with Amazon and other big retailers by offering free shipping and free returns.

On top of that, midsized and small enterprises typically rent space in distribution centers and fulfillment facilities throughout their sales regions. In order to return your products, they will also be out costs to store those returns – that is if there is any space available in the first place.

Fixing the Reverse Supply Chain Problem

Retailers are coming up with creative ways to ease the strain that merchandise returns put on reverse supply chains. Here are a few:

  • Figure out why items are being returned: Are your goods being damaged in transit? Do items appear differently online than in person? Is it the quality of the goods? If you can prevent more returns from the start, you can take some pressure off of the reverse supply chain.
  • Make returns easier to track: Besides offering a return label, send an e-mail after delivery asking if the customer intends to return the item. That will allow you to assess when and how the item will be returned.
  • Use convenient drop off locations for returns: If returns are being dropped off at your local PO Box you can save time and money by reverse shipping in bulk instead of one at a time.

Online sales are outpacing brick-and-mortar sales and will likely continue to surpass in-store shopping. Whether or not you are able to deal with the reverse supply chain problem will in part determine how healthy your bottom line will be at the end of the year.

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