LAS VEGAS — "In reverse logistics, everything is a loss — everything," said Tony Sciarrotta, executive director of the Reverse Logistics Association, at the ASCM 2019 conference Monday.

The rapid spread of e-commerce to more subjective and less-predictable purchases like apparel and consumer electronics, paired with some controversial, but common, consumer behavior like ordering multiple sizes with the intention of only keeping the best-fitting one, mean that e-commerce returns will surpass brick and mortar returns — in dollar amount — within two years, according to Sciarotta.

Though he conceded that some technologies, like artificial intelligence or augmented reality can help consumers make better purchases that they are less likely to return, the total tonnage is unlikely to decrease. Consumers expect returns to be free, easy and fast, so the burden is on supply chains to take the cost out of what is inherently a loss.

The dollar value of returns reached 10% of total retail sales for the first time in 2018, and though he expected this eventuality to grab the attention of supply chain professionals sooner, Abe Eshkenazi, CEO of the Association for Supply Chain Management, told Supply Chain Dive the issue was top of mind for attendees at this year’s conference due to the convergence of several issues. The now un-ignorable growth in return volume is just one.

Realizing the value of returns

Concurrent with growing awareness that returned merchandise is becoming too large a problem to ignore, it’s also increasingly viewed as a financial opportunity that shouldn’t be squandered, Eshkenazi said.

"I think what organizations are recognizing now is that the reverse logistics supply chain is a significant market opportunity for them," he said. "It used to be just an aftermarket and a cost of doing business — now it’s a revenue source or a potential revenue source."

But even if supply chains understand their returns have value, organizing these products in a productive way is an operational challenge that varies in difficulty with the nature of the product in question and the complexity of the supply chain.

Returns from audio technology company Bose, for example, touch 22 different points on the journey back from the customer to the manufacturer — presenting a lot of complexity to unravel and operational cost to mitigate against the selling price of a "refurbished" or "open box" product, Sciarotta said.

For many manufacturers, the solution has been to hand off the responsibility of processing and reselling to retailers. This is a fairly recent development driven by finance departments seeking to stabilize the associated costs and not necessarily the best operational or even revenue-based decisions, according to Sciarotta.

"Many brands have decided that they would rather ask the retailer to get rid of it," he said. "Ten to 15 years ago major retailers were sending 75% of returns back to the manufacturer. Now they keep 75% and get rid of it through consolidation loads."

Some retailers also hand their returns off to 3PLs. FedEx processed one million returned Dell computers last year, Sciarotta said.

But offloading the operational responsibility for returns presents a reputational risk, he said, and manufacturers with consumer-facing brands should think twice before doing so.

"Manufacturers are not considering the brand risk of their products circulating after return," Sciarotta said.

Analyzing returns from end to end

One way to ease the operational burden of returns is through new service offerings from the like of startup Happy Returns. By processing, evaluating and batching returns at a network of "returns bars" Happy Returns creates a nearly standard cost for each returned item, while leaning into the strong customer preference for in-person returns with instant refunds.

"The ability to offer in-person returns that allow for shipments to be aggregated and returned in bulk also provides a cost-effective alternative to return shipping. The financial burden of returns is one that can no longer be ignored," Happy Returns CEO David Sobie told Supply Chain Dive.

Sobie explained the quantity of returns is somewhat stable most of the time for most retailers or direct-to-consumer brands, with spikes around new product launches and promotions. It's the cost of each return that varies based on where it’s coming from and where it needs to go to be evaluated and recirculated. Happy Returns stabilizes that cost, while palletizing the returned items so they are easier to receive and process.

Once received, Sciarrotta said that for nearly any supply chain, same-day processing and disposition should be the ultimate goal.

Beyond how returns are gathered, processed and financially accounted for, experts at ASCM 2019 emphasized reverse logistics is not just an aftermarket problem. The issue must be factored in at every link in the supply chain in order to minimize returns and realize the opportunity of reverse logistics — as a revenue driver and as a lens through which businesses can see their waste and environmental impact more clearly.

"What’s happening is that the definition of sustainability has expanded beyond the environmental aspect that used to be the only discussion point for organizations on sustainability. Now it includes risk mitigation, now it includes resiliency, now it includes agility," said Eshkenazi.

Looking at returns, and sustainability, from end to end means scrutinizing a less-acknowledged, but equally important element of the reverse logistics juggernaut: the nature of the products themselves. Products designed to have short life cycles, like much of the apparel sold today, or unrepairable consumer electronics, lose value quickly.   

Sciarotta spent years managing returns at Phillips where he was granted the authority to block new products headed to market if they were at high risk for returns. This may be an extreme example of reverse logistics guiding a company’s behavior, but it’s proof that thinking about returns from end to end isn’t a futuristic concept.

"It had been sort of the wild west for a long time — thought of as a cost issue as opposed to a revenue item. I think what organizations are recognizing now is that the reverse logistics supply chain is a significant market opportunity for organizations. So now we’re seeing the extension of the full end to end supply chain," said Eshkenazi.