Monday 6th Jul 2020 - Logistics & Supply Chain

Back trouble

My good lady wife has recently been trying to buy a beige jacket for the summer. I thought this would be quite a simple task, a beige jacket being, er, beige. But, then, I’m only a man and what do I know?

So far, the purchasing process has involved several trips to return unsuitable garments to the stores. Retail chains that have had their returns policies tested to destruction during this saga are BhS (one jacket returned), Debenhams, and Marks & Spencer (two and counting). I mention this domestic detail because it highlights an issue that is becoming of concern to logistics professionals – reverse logistics in the retail supply chain.

Towards the end of last year, a piece of research estimated that returned retail goods could be costing British high street retailers as much as e300m a year in hidden logistics costs. There don’t yet appear to be any comparable Europe-wide stats, but I guess you could multiply that figure by around six to get an EU total.

Minimum impact
Whatever the figure, it’s certainly a big enough number to warrant doing something about. What seems rather alarming is that, so far, there are very few companies actively managing their reverse logistics to minimise impact on the bottom line. The main reason seems to be that the whole subject of returned goods in most firms has become part of a wider competitive agenda. Any retailer that wants to cut it in Europe’s shopping malls these days needs to be offering a liberal returns policy. That means the customer bringing the product back within the guarantee period pretty much for any reason.

The rate of return varies depending on the type of product. In consumer electronics, for example it’s about four or five per cent. For computers and printers, however, it’s around 10 per cent, for books about 10 to 12 per cent and for entertainment products, such as CDs and DVDs, it climbs to 12 per cent according to The Efficiency of Reverse Logistics, published by the Chartered Institute of Logistics and Transport.

So why is it that this problem is not getting priority attention in a lot of companies? One reason could be that it’s creating only a marginal extra logistics cost – around five per cent, but that will vary from company to company. Even so, at a time of tougher competition and falling sales in the high street, you would have thought managements would have been jumping at the chance to make even small cuts in costs.

In fact, there may be two reasons the issue isn’t getting the action-packed treatment. The first is that it’s not always clear who owns the problem. True, logistics is stuck with the job of conveying returned goods back to base but that doesn’t mean the cost of doing so falls within its budget. It’s possible to argue – and many do – that returns are really a sales or marketing cost.

But the real clincher is the fact that most companies don’t identify the true cost of returns anyway. It doesn’t appear as a separate line in the monthly management accounts. And what doesn’t get reported often doesn’t get done.

Logistics pros who want to make a name for themselves tackling this question will find not all the answers are the ones they’d expect. For example, a study at supermarket chain Safeway discovered that 60 per cent of returns of consumer durables was not because they were faulty but because people couldn’t figure out the complex operating instructions. Solution: set up a telephone helpdesk.

Another point is that though most goods need to be conveyed back to some central warehouse or distribution point, haulage isn’t always the biggest element of the cost. The expense of sorting the goods when they’ve been returned and then either reintroducing them into the supply chain or selling them through a secondary market also need close attention. In fact, the transportation of returned goods can often be managed quite cost-effectively through a well-planned back-hauling strategy. Companies that have tackled it successfully often control the process by aggregating returns on pallets that are bar coded into an information system for management control. 

This issue is going to become more troublesome to more companies. Reason: as the proportion of sales rise through non-store outlets such as catalogues and internet sites, the proportion of returns also increases – as high as 30 per cent for catalogues.

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