Returns management: A challenge for warehouse logistics
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Published on: May 16, 2014 / Updated on: November 25, 2018 – Author: Konrad Wolfenstein
Shutterstock / Quant Ho
introduction
The e-commerce market has been characterized by steadily increasing sales for years, so it's no surprise that the number of returns is also rising in tandem with these increases. Customer returns pose a growing challenge for online retailers, making targeted returns management a crucial success factor for businesses. Successful returns management doesn't just focus on processing returns as efficiently as possible; it also includes proactive planning to prevent returns even before the purchase process begins. This includes, for example, creating detailed product descriptions and optimizing customer communication, giving customers the opportunity to contact the retailer before, during, and after their purchase. Financial aspects, such as selecting suitable payment methods (PayPal, credit card, etc.), are also crucial.
Below, we outline the challenges posed by the increase in returns and how companies are adapting their warehouse logistics to meet them.
Returns – a major problem, especially in Germany
Efficient returns processing is therefore essential for online retailers to remain competitive. Its benefits can be easily illustrated with an example: An online shop with an annual volume of 1.5 million shipments has a return rate of 40%. With annual labor costs of €30,000 per employee, every minute saved per return would equate to an annual saving of €180,000.
For the area of warehouse logistics, this means, on the one hand, the constant pressure to optimize transport logistics processes (efficient location strategy, easily handled packaging, etc.). Above all, however, it requires the optimal design of internal processing procedures, which often involves significant investments in warehousing.
Returns and warehousing
Shuttle systems manage processes in Europe's largest returns operation
As returns increase, so does the importance of professional handling of returned goods. Hermes Fulfilment GmbH Otto Versand , has continuously expanded its returns facility in Hamburg since 2010, making it the largest returns center in Europe. Around 1,200 employees work there in three shifts across 13,500 square meters, processing between 50 and 60 million returned items annually. To achieve this, the company invested in the installation of the world's largest shuttle warehouse system. The centerpiece of the new returns warehouse is a dynamic OSR shuttle system with approximately 176,000 storage locations. This provides a storage capacity of around 1 million items, of which up to 15,000 can be processed and picked per hour during peak periods. This enables the mail-order company to process, inspect, and prepare returned goods for resale quickly and with a high degree of automation.
With the help of a fully electronic sorting robot (the so-called sorter ), the automated transport of returns from goods receipt to restocking is enabled. Since the introduction of this system, returned goods can be processed even more efficiently, stored more quickly in the shuttle high-bay warehouses, and released for reshipment more rapidly. The fully automated recording of order data and return reasons via computer-aided cameras also leads to an additional increase in productivity. As a result, the operational throughput time for textile returns has been reduced to one hour, significantly lowering the costs for processing and re-picking the items.
The returns process in the warehouse
The following illustrates the process using the example of the returns warehouse of Hermes Fulfilment in Hamburg. Returns processing comprises the following steps:
- Goods received
- Product preparation
- Product evaluation
- Packaging
- Restoration
The goal in each step is to reduce the resources used to the bare minimum in order to keep the returns process as short as possible.
GOODS RECEIPT
GOODS PREPARATION
Here, the sorter controls both the flow of goods and the workload of the workstations in goods preparation. It sorts and transports the returned shipments via chutes to the individual workstations, where photocells installed there continuously monitor the allocated workload, thus preventing overloading of the respective workstations with packages.
MERCHANDISE ASSESSMENT
Textiles make up the majority of incoming returns. At nearly 200 computer-aided workstations, the items are first identified using their barcode labels. Employees scan the item and check whether the goods match the specified data. The employees involved in merchandise assessment possess specially trained expertise to carefully check all items for newness.
Up to 98 percent of returned textiles are resold, with only about two percent requiring reprocessing. Subsequently, 80 percent of these can be reintegrated into inventory as new.
In cases where a returned item is declared not to be in new condition, it is either returned to the manufacturer, resold at a discount, or destroyed.
PACKAGING
If the items are assessed as being in like-new condition, they are automatically repackaged in most cases. They are transported via conveyor belt to one of the film packaging machines, where so-called polypackers automatically seal the items in film and affix new barcode labels. Each machine can seal more than 1,000 items per hour. Afterwards, the sorter directs the majority of the items to restocking.
RE-STOCKING
Larger items and shoes are sorted manually. The remaining items, however, are automatically collected in return bins and prepared for immediate resale. Using item barcodes, volume specifications, and quantity limits, the sorter can optimally assemble and utilize these bins.
Conveyor belts transport the filled containers to the goods dispatch area and the corresponding loading points. There, they are loaded fully automatically for transport.
Simplifying the re-sorting process through dynamic intermediate buffers
However, returns intended for resale do not necessarily have to be returned to the original warehouse. In some cases, they can be stored in a dynamic buffer, where retailers keep (primarily fast-moving) goods in easily accessible locations within the warehouse until they are sold. The advantage of these buffers lies, firstly, in the reduced logistical lead time and the resulting faster availability of the goods for sale. Secondly, it reduces the effort required for storing returned goods. However, their use is not always economically viable, as it requires a "critical" quantity of goods to be profitable. Therefore, in this specific case, a higher volume of returns may be what makes setting up a buffer worthwhile.
Strategies for avoiding returns
The problem of exceptionally high return rates is not unique to Germany, although the situation is particularly strained here. But why is the situation so different in France or England? Their online marketplaces are characterized by customers returning up to four times fewer products than their German counterparts.
Return prevention can begin with the fact that our European neighbors prefer to pay by credit card or prepayment, and sometimes even by check (in France). According to retailers, the return rate is directly related to the payment methods offered. In Germany, almost two-thirds of end customers order on account. They are accustomed to only paying for goods once they have received them. This tempts customers to order more than they actually intend to keep. As a result, an average of four out of ten ordered items are returned to the sender, according to industry figures. This makes Germans the European champions in returning goods. In France, for example, retailers ship 90 percent of orders only after prepayment, which significantly increases the reluctance to return purchased items.
For companies, adding credit card payments while simultaneously reducing payments on account represents a first step towards improving their return rate.
Furthermore, surveys among participating retailers consistently show that detailed product descriptions and accurate product presentations are the foundation for low return rates. As a result, retailers are increasingly providing their customers with as much information as possible upfront: zoom functions, 360° views, detailed product descriptions, and customer reviews already have a positive impact on return rates. Size charts can also help keep the number of returns to a minimum. For technical devices, it is also important to provide customers with the option of contacting the retailer if needed, in addition to detailed product information.
Appealing to customer purchasing behavior also helps. For example, the French luxury goods retailer Vente Privée openly communicates the dilemma of returns to the press and its more than 17 million customers in Europe. Jean-Michel, the company's CEO, explains: "We tell our members: We offer branded goods at very competitive prices. If you want to continue to do so, we both have to play by the rules." According to Guarneri, the company has been very successful with this strategy.
Conclusion
The profitability of online retailers hinges on the efficient handling of returns. They are therefore compelled to optimize their returns logistics to keep costs under control. Crucially, in addition to preparatory measures to reduce the return rate, it is essential to reintegrate returned goods into inventory as quickly as possible and prepare them for resale. This is best achieved by companies with sophisticated logistics and extensive automation in their returns warehouses. Only in this way can goods classified as new be returned to the market within the shortest possible time.
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