1. Reverse logistics has traditionally been under-resourced but is becoming more important due to factors like online shopping and environmental regulations. 2. UK retailers waste up to £200 million per year collecting and transporting £6 billion worth of returned goods, and returns management represents a big challenge due to the massive volumes involved. 3. An integrated returns process can minimize costs by improving coordination across the returns lifecycle from receipt to disposition.

1. WHITE PAPER
Reverse logistics
A Better Return
for Retailers?
Often it seems retailers only have a forward gear when it comes
to their supply chains. All the investment and attention is lavished on
distributing goods onwards from warehouses with a lot less thought
for products that swim against the tide.
Reverse logistics has traditionally been an under-resourced, minority
sport played in odd corners of the distribution network. However,
that is set to change. Events such as the rise of on line shopping and
home deliveries, growing pressure to make efficient use of transport,
and regulations requiring items such as electrical products and
cardboard waste to be recycled are already pushing reverse logistics
higher up the corporate agenda.
The financial and environmental cost of returns
Retailers could be The increased focus among retailers on the reverse supply chain is not before
time, given the hefty bill that UK businesses are footing for returns. The total cost of
wasting up to £200 returns for the UK retail sector is in the order of £500 million per annum, according
million per year to the survey Efficiency of Reverse Logistics published in 2004 and sponsored by
the Department of Transport. Retailers could be wasting up to £200 million per
on collecting and year on collecting and transporting £6bn of returned goods annually.
transporting £6bn The inefficient handling of reverse logistics also has a high environmental impact,
of returned goods the survey points out. With nearly a third of lorries running empty in the UK, there
annually. is a significant opportunity to reduce CO2 emissions by integrating reverse logistics
with the rest of the supply chain.
Cracking the reverse logistics problem isn’t easy, however, despite potential cost
savings from better integration of between 20% and 40%. Many logistics systems
aren’t well prepared to deal with reverse logistics processes. And the issue is easily
overlooked during supply chain planning because accounting for reverse logistics
losses is not a simple matter.
There are many reasons why goods are returned. Inaccurate demand forecasts,
faulty goods, liberal consumer return policies and a desire to maintain high on-shelf
availability are just some of the drivers.
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2. Effective returns management is critical
Returns represent a In some sectors with established sale returned each year: most returns of
or return models such as publishing paperbacks will be pulped rather than
big issue for retailers or catalogue retailing, as much as 30% be sold. In entertainment, it is estimated
because the amount of goods can end up coming back that some 25 million music products
through the supply chain, the Efficiency and 50 million DVDs are sent back
of goods involved is of Reverse Logistics survey reveals. each year having never left the shops.
massive. In the book In these businesses, effective returns Over 50% of goods returned to the
industry, for example, management is critical to overall supply chain come not from customers,
profitability, but even among enterprises but directly from stores. Sometimes
66m books are that are closer to the industry average sales outlets have been deliberately
returned each year: of 2.5% of sales returned, savings are over stocked. For example, at peak
possible by managing reverse logistics periods entertainment suppliers may
more effectively. flood stores with product to drive sales.
Returns represent a big issue for Similarly, publishers often use piles of
retailers because the amount of books as an alternative to conventional
goods involved is massive. In the book display materials.
industry, for example, 66m books are
Reverse logistics hampered by restructuring
Changes in the structure of the The rise of no quibble money back
In the consumer UK retail sector have not helped guarantees has also swollen the number
electricals and companies manage their reverse of goods being returned to shops and
entertainment logistics effectively. In the consumer created confusion for suppliers. On
electricals and entertainment sectors, average, a half of all returns described
sectors, new players new players such as supermarkets as faulty have no faults with them. And
such as supermarkets have entered the market, overturning while clothes retailers may be able
established distribution networks. The to return product to the racks, it is
have entered the reality is that some new entrants have usually impossible to resell undamaged
market, overturning moved into these sectors without consumer goods without discounting
established setting up proper provision for reverse them or disposing of them through
logistics. secondary markets.
distribution In the electrical sector, the practice Then there are the hidden costs of
networks. The reality of buying out guarantees on goods reverse logistics: the cost of handling
is that some new means that retailers have had to set and storing goods, as well as the
up their own internal returns centres possibility of repackaging items in order
entrants have moved to handle goods coming back under to sell them on. Although returned
into these sectors warranty. They have not all performed stock can benefit a retailer in that it
well. Retailers may not be considering remains on a company’s books at its
without setting up the true loss when they sell graded original value, in general returns are a
proper provision for products as ‘the manager’s special offer’ depreciating asset.
reverse logistics. and at a reduced price. The reality is
reduced spend by the customer and
another potential returns issue down
the road.
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3. An integrated returns process reduces costs
Clearly, it is important to manage that require store managers, for
the returns process to ensure that an example, to document their returns
organisation limits the negative effect and explain why items are being
on the bottom line. An integrated sent back bring discipline to returns
returns process (see diagram) is vital to management.
minimising the cost of reverse logistics, E-tailers need to develop systems
improving customer service and getting that make it easy for customers to
maximum recovery of the value of return goods by setting up areas on
returned goods. their websites to log returns, providing
Returns (Process)
Integrated System
ERP / Order Management / Carriers / Financials / Customer Service
Receive inventory Return to Tracking # Inventory
Update RMA Customer Update RMA
Return Warranty Debits
Reason Repair Credits
Etc.
Return to
Claims Vendor
Shipping
Return to
Returns Receiving Inspect Disposition Stock
Post
Refurbish Financials
Multi- Returns
Support Functions
Repairs Visibility
Lingual Fees Recover
Asset Value
RTV Inventory
Reporting Destroy Putaway
Portal Tracking
Disposition Execution
Integrated Workflow
However, the processes in a returns bar coded packaging to return goods
centre can be very complex. They and automation at their returns centres
involve inspecting goods, making to log, approve refunds and assign
decisions about what to do with them disposition codes.
and then carrying out a variety of Equally, they need to dispose of
repair or disposal activities. A systematic returned goods quickly. Here the rise
approach, backed by appropriate IT, can of a sophisticated secondary market
reduce the time lags between when that includes online channels such as
products arrive at a returns centre and e-bay and Amazon, where 70 per cent
product disposition. of sales are now of returned goods, has
What happens before goods reach speeded up the process and allowed
a centre can significantly affect the suppliers to reclaim more of the value
efficiency of reverse logistics. Processes of returns.
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4. An integrated returns process reduces costs (cont)
Transport costs involved in returning goods from retailers to manufacturers
can be significant, especially where part loads lead to low vehicle utilisation. Back
hauling saves costs by integrating returns into the outbound logistics network.
As returns management becomes more important, retailers are developing
better in-house capabilities or outsourcing the operation to third party logistics
providers. The third party option is likely to grow as the number of providers
offering specialist solutions increases.
Reverse logistics is one area where retailers have an opportunity to make
considerable cost savings by taking a holistic supply chain management approach
to the issue. But they need to be taking proactive action now.
Author: Rob Mitchell
Rob Mitchell has over twenty five years’ experience in
reverse logistics, supply chain management, operations
and 3PL’s, in the retail sector. Rob has successfully run
a specialist reverse logistics company and managed high
profile companies such as Virgin, Safeway, Woolworths and
LVMH. He joins Unipart Consumer Logistics to add his
vast experience to the return logistics and asset recovery
business sector.
email: robert.l.mitchell@unipart.co.uk
Unipart Logistics’ e-fulfilment and multi-channel fulfilment expertise comes as a result of successful
partnerships with clients such as asos.com, Play.com, Pets at Home,Vodafone, and
Jessops. For these clients we provide flexibility and a breadth of experience to manage their forward
and reverse supply chain operations, to ensure a continuity of excellent service for their customers.
Please contact us if you want to improve the management of variability and seasonality in your supply
chain, take cost out of your pick and pack operations, or improve your returns handling capability.
Unipart Logistics is part of the Unipart Group of Companies, one of Europe’s leading providers of
outsourced logistics and distribution services.
For more information contact:
Mark Mearns,
Head of e-fulfilment & reverse logistics
Unipart Logistics
Unipart House, Garsington Road
Cowley, Oxford, OX4 2PG
Tel: +44 (0) 7963 275660
mark.mearns@unipart.co.uk
or visit our website:
www.unipartlogistics.com
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