Your planning for this year’s peak season is well underway. One area that often gets less attention is the returns processing area. Returns are a necessary evil in an e-commerce business and if returns handling is not efficient, it will hurt profitability and customer service.
Planning a new warehouse without giving returns processing the appropriate attention can lead to many serious problems in the warehouse and with your customers. Processing returns can be a costly and time-consuming venture without proper planning. Here are 12 ways to get your warehouse ready for peak season this year:
Identify number of returns
Two aspects are important: the rate of return of categories and number of returns expected in the peak return week. The following table shows the typical return rates (as a percent of demand) for consumer e-commerce categories.
| Category | Return Rate |
|---|---|
| Hard-Goods, Gifts | 1% - 5% |
| Home Décor | 5% - 9% |
| Shoes | 10% - 25% |
| Casual Apparel | 10% - 20% |
| High-Tech Products | 15% - 20% |
| Fitted Apparel | 20% - 30% |
| High Fashion | 25% - 40% |
Returns lag the order shipment curve by two to three weeks. How many returns will you need to process in a peak return day and week? This should be used to review space use and layout.
Identify return costs
Returns cost more than orders to process. Identify these operational costs:
- Processing - to unload returns; process the return through all customer service and merchandise disposition steps; merchandise put away for future picking.
- Refurbishing – products such as apparel items require processing to prepare them for resale. You’ll have to rebag and rebox the product, too.
- Processing new customer shipment - for exchanges, which can be as much as 30% of the returns received; labor, materials and shipping costs.
- Merchandise expense – if the item is damaged during the fulfillment.
- Lost gross margin on a sale – if not an exchange.
- Customer confidence – potential loss of customer and lifetime value caused by poor return handling, damaged or poor product quality
Consider these costs as you look to improve the process.
Recommendations to consider
- Returns turnaround. Best in class companies process returns within 24 hours of receipt for all steps including crediting customer accounts.
- Formalize the return processing area and layout. Is the area near the inbound docks right-sized considering the return rate and the weekly flow that can be anticipated? Unless your return rate is very low, don’t just stick the department wherever you can find space. Locate it strategically so you’re not creating congestion in the warehouse and develop a functional layout that makes sense.
All supplies and equipment should be readily accessible without excessive delays or travel time to obtain. Also, provide adequate staging areas to store and organize product coming into returns and completed returns ready for restocking.
Consider the work station table top square inches (often undersized) needed to house a terminal, open boxes, process paperwork. Provide mats to reduce fatigue.
Set up separate areas for refurbishing and rebagging and boxing. - Trash removal. Returns generate a lot of trash from cartons and dunnage. How will it be removed from the area, bailed and stored for recycling? Clearing trash is essential to keeping working space freed up. Can you employ take away conveyors?
- Simplify paperwork. Consider a bar coded return label as part of the customer order inserted in the outgoing carton. Include instructions and return conditions for returning, as well as a simple "reason for return" question.
- Simplify the process. Some fulfillment warehouses utilize a single person to do all the steps in the return process for an order. Others have found a two-person team can work more efficiently. One person deals with opening the carton, inspecting the item, determining the disposition steps to take. The other person processes the return paperwork and all the computer steps for customer service and processing the return back into stock.
- Restocking. Formalize the restocking process where possible to identify and sort the items prior to putting them away in picking locations. Provide adequate storage for items ready to be put away even though most effective returns processors return stock within 24 hours of getting the receipt. Picking location for items should be clearly identified. Consider when the status of a returned item is visible for picking.
- Third party logistics. For high return rate businesses, consider the use of a third party reverse logistics company. They can often give you visibility of which products are being returned from customers before the return arrives at the center. Because they focus on improving the return process, it may improve your customer service.
- Pick from returns. In high returns categories, companies have set up returns picking locations for returned products. This eliminates long walk times restocking small quantities of product. The downside is setting up additional forward pick faces. Single item orders can be picked from these pick faces.
- Experienced people. It might go without saying, but use efficient and experienced people in returns to reduce costs and speed up the process.
- Reasons for returns reporting. The first step in designing the process is to quantify the reasons customers are returning your product. Some of it is a function of the product itself, but there may be some controllable reasons that you can address to reduce the number of returns. Instead of focusing all of your attention on how to process them effectively (although that part is critical), try to find ways to eliminate the return in the first place.
Typical reasons for returns by multichannel companies include:
- Poor product quality
- Damaged in shipping
- Wrong size
- Wrong item sent (mis-pick)
- Received late
- Not as pictured or described
- Unspecified choice
You can control or reduce occurrences in all but the last reason in the above list.
You’re never going to eliminate all returns. Each type of business has a natural level of returns. With reasons for returns reporting, provide feedback daily to merchandising, creative and inventory control. Make it a priority to improve customer satisfaction and reduce costs.
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