The cornerstone of the circular economy is reverse logistics

A year ago, I co-authored an article on reverse logistics based on research SCMR did with WERC and the Reverse Logistics Association. One of the things I learned from our research was that handling returns is still an after-thought at many organizations, but one that is quickly coming to the fore as companies expand their e-commerce operations and deal with more returns than ever. This week, to learn a little more about reverse logistics, I'm attending RLA's annual conference in Las Vegas. Dubbed the “Cornerstone of the Circular Economy, today was Day One. Based on the activity on the show floor and the three sessions I attended this afternoon, there is a lot of energy in the space and a lot of exciting activity beginning to take place.

Here are a couple of facts and figures to put returns in context. Based on the present growth rate for returns, by 2027, customers will return nearly $1 trillion in merchandise annually. Yes, that's trillion with a T going back to stores and distribution centers operated by retailers, wholesalers and manufacturers. Want another: Right now about 30% of e-commerce merchandise is returned, while the brick and mortar return rate is more like 10%. What that means is that by 2023, at $634 billion, e-commerce returns will be nearly double the $336 billion in brick and mortar returns.

Or how about this: Right now, up to 50% of returns cannot be resold at their full retail price. That means the original seller not only loses margin on the additional transportation and handling costs associated with getting merchandise back from a dissatisfied customer, they also lose more margin on the resale. Last, what's the number one reason for returns? Virtual shopping, a practice started by Zappos that allowed shoppers to order any number of shoes and return for free the ones they didn't want and promulgated by companies like Warby Parker, that ship you multiple pairs of eyeglass frames so you can pick the one you like. In those cases, free and easy returns is a business strategy. And, it's only going to get worse as e-commerce – and hence the volume of returns – grows and as the competitive landscape means that easy return policies are here to stay.

So, you'd think that managing returns would already be a best practice at leading companies. And indeed, for an organization like Walmart, which is investing in new technologies to better enable returns, it is. Others, and I suspect most others, are in the early stages of their reverse logistics journey. On one panel, Brie Lieto, a Whirlpool executive, noted that the appliance manufacturer has rigorous S&OP processes for the forward side of its manufacturing and sales processes. “On returns, you sell what you get back,” she said. “We are putting structure into this space and asking how we can leverage returns strategically, but to be honest, it was often an after-thought.”

That was echoed by Mike McCurry, a supply chain leader at Lowe's. Two years ago, he noted, there was no one really in charge of the overall returns process at the nation's largest appliance retailer. Today, he added, Lowe's is developing returns centers and a reverse logistics network. Still, “getting the kind of data we get from sales in the reverse space is a challenge,” he said.

That last point – figuring out ways to get at the data – was perhaps my biggest take away from today, and where it seems this space is headed. Walmart noted that it is investing in technologies like artificial intelligence to inform its reverse logistics processes, and I subsequently spoke to John Lee, a VP of business development for goTRG, a reverse logistics 3PL and technology provider that has put artificial intelligence and machine learning at the forefront of how it approaches the final disposition of returned items, along with robotics and automation in one of the returns centers it operates for customers. Or, as Walmart's Pam Rapp put it, “If you don't put technology behind your returns processes, you won't be here ten years from now.”

That’s a sobering note I expect to hear repeated tomorrow.

SC
MR