Today it is already common to find people looking for products in traditional retail stores, but making the purchase in a virtual environment and vice versa. This new consumer behavior has challenged companies to effectively integrate the physical with the virtual to generate a seamless experience for the end customer. Companies around the world introduce new business models and technologies to support operations and deliver on the promise of low-freight product availability regardless of channel. Cases of new solutions abound, Amazon with its recent Amazon Flex (read more on Thatiana Nomi's post), transformation of stores into mini hubs, such as Target and Magazine Luiza, the emergence of numerous applications that connect companies, couriers and consumers, and even cases like FedEx, which announced tests with the SameDay Bot, autonomous robots for short-term deliveries distance.
However, all these technologies and news do little to address one of the great challenges for companies that work in this omnichannel world: the issue of returns and product exchange. Although transporting the famous last mile is one of the most costly stages of the operation, the increasing return of products driven by the growth of e-commerce, despite not being a new topic, is becoming an increasingly relevant challenge.
It is estimated that the annual cost in the United States with reverse logistics is around US$ 200 billion¹ and that it represents approximately 5% of the revenue of Brazilian companies².
Despite this, in Brazil there are few mature operations when it comes to reverse logistics. In general, companies make agreements with the Post Office in the case of B2C returns or hire carriers to return the products in B2B cases, in both cases disturbances are generated in storage operations and inventory management, resulting in rework and high costs involved.
Internationally, practices related to the reverse flow, whether in traditional retail or online commerce, are already more consolidated, with new solutions being proposed.
A common practice in the United States is for repositioning of products on the market. They are out-of-season products or returned from different stores, many branded, which are resold at lower prices in retail chains specializing in product replacement. This is the model of stores like Ross, Marshalls and Century21.
It is also common to observe in Europe and the United States centralized warehouses dedicated to reverse logistics, where there are large volumes of online purchases and the return flow is representative enough to justify the construction of facilities dedicated to this operation.
An important point to pay attention to is the product characteristics. In the case of white line products, companies generally prefer to send technicians to try to solve the problem signaled by the customer. Products with very low added value, in general, are not collected because the cost of collecting exceeds the value of the product, preferring a refund or sending a new product. This policy of sending a new product in the event of a defect to avoid reverse logistics costs, however, has its risks. That was the lesson learned by Amazon in 2018, when a return fraud scheme was discovered, in which customers, claiming defective merchandise, received new shipments and resold them in parallel markets. This scheme resulted in a loss of more than US$1.2 million for the company, a stricter return policy and six years in prison for the fraudsters³.
Another alternative is the use of return points in which the customer takes the product he wants to exchange and which will later be collected, generating fixed points for collection and greater volume. This is the strategy proposed by Walmart with its stores in the United States and by Amazon with its partnership with the Whole Foods chain. This is the service that companies like Happy Returns provide. They are independent points installed in strategic locations with easy access for the customer, which different companies can use as a return point, and the Happy Returns makes the collection stage as it gains scale by joining the reverse volume of different companies.
All these alternatives, however, are still little explored in Brazil, with a large gap reverse flow efficiency and its visibility. It presents itself in the management of reverse logistics, therefore, several opportunities to generate a competitive differential for companies and new business for start-ups and incumbents who can exploit this flow as a source of income and loyalty.
References
¹ Deloite https://www2.deloitte.com/content/dam/Deloitte/be/Documents/process-and-operations/BE_POV_Supply-chain-strategy_20140109.pdf accessed 12/07 at 11:37 AM
² http://www.sebrae.com.br/sites/PortalSebrae/artigos/gastos-com-retorno-de-produtos-chegam-a-5-do-faturamento,d1ee438af1c92410VgnVCM100000b272010aRCRD
³ https://www.engadget.com/2018/06/06/amazon-return-policy-abusers-sentenced-six-years-prison/
Jessica Silva
5 years of experience in training, consulting and market research projects in Supply Chain for companies from different sectors such as Coca-Cola, LASA, Silimed, O Boticário, Monsanto, among others. Worked on inventory planning projects, logistical master plan, transportation and indicator management. He also participated in the development of the ILOS online courses on Logistics and Supply Chain, Procurement Processes and Industrial Management, in addition to research in the pharmaceutical sector.
