Legend has it that Henry Ford forgot to put a reverse gear in the first Model T. Nearly a century later, businesses are still making a similar error.


Returns moving goods backward from buyer to seller are often perceived as a costly nuisance to doing business, and that impression, based on the experience of many businesses, is well-founded. For many businesses, returns are as inevitable as taxes and represent an area where there are costs and profit leakage. Nonetheless, on average, 20% of any business' sales will be returned. And many consumer surveys cite that an easy returns policy is a major factor in purchasing decisions.


"Reverse logistics" is a fancy term for the mundane function of returning a shipment or order from the recipient back to the shipper. Reasons can include order inaccuracy, customer dissatisfaction, diagnostics and repair, damage or return of goods into inventory. Though the returns function might be mundane, it is not an easy one to master. It requires reversing the direction of the supply chain, and that has implications for physical and information components of the business process.


However, the experts of outbound shipments have developed a range of return solutions over the years that simplify the process as well as provide cost-effective means of keeping track of returns, managing costs and meeting customer expectations for both business to business and consumer-to-business returns.


It All Begins with Customer Service

When managing returns, costs must be carefully balanced against customer service concerns. It's not the size of a business that determines what return services are appropriate, as much as the number of returns a business is processing, the level of customer service it wants to provide, the brand attributes it wants to convey, the amount of package information it desires and the cost of the service. A high-tech manufacturer managing returns from its distributors will, obviously, have very different needs from a catalog clothing retailer managing returns from its consumers.


The keys to transforming the returns function into a competitive advantage include integration, speed convenience. There are four general tactics that can work for any business:


1. Link returns to a tracking authorization number. Tracking numbers will not only enable the business to process returns faster once they reach the warehouse, but they can also help warehouse personnel plan staffing levels before the packages even arrive. Equally important, tracking numbers tied to accounting and customer service systems can ensure faster credits to customer accounts.


2. Include pre-printed return shipping labels in the original package and/or offer a pickup service. Pre-printed labels offer convenience for the customer and a way to tie returns to other parts of the supply chain. For defective or incorrectly shipped items, businesses should also offer customers a prepaid return service.


3. Offer the most appropriate shipping methods. The urgency of the shipping method should be determined by the value of the goods or how they will be processed. Most retail returns can be shipped via cost-effective ground transportation. Goods such as electronic equipment might be better shipped overnight or by two-day air service.


4. Manage third-party returns vendors closely. For businesses that outsource the entire returns function, pay careful attention to how the third party deals with your customers. Third-party vendors should be treated as an extension of your own company, and they should treat your customers as their own. How they respond to your customers when something goes wrong can make the difference between losing a customer and gaining a loyal, life-long client.


Don't Forget about Pre-returns Processes

Although tactics like these can enhance the returns process, returns are, in the final analysis, a cost center that takes time away from core operations. That said, it makes sense for businesses to analyze the upstream processes that lead to returns because there are several ways to reduce the number of returns before they cost businesses time and money:


  • Include a cancellation button on your Web site. Give impulsive buyers up to two or three hours to cancel orders, which can reduce fulfillment and shipping costs.

  • Get the merchandise to your customers faster. Sending everything within two or three days of order placement can help minimize buyer's remorse.

  • Pack carefully. The number of items damaged in shipping can be reduced if you use appropriate containers and pack carefully.

  • Automate your fulfillment process. Whether you use a third-party fulfillment house or you pick and pack out of your own warehouse, automated systems can increase shipping accuracy.


    Cost Efficiencies

    Enhancing the efficiency of the returns processing cycle can also add value. Instead of blindly sending product to a returns center, why not begin to sort it in the beginning of the returns process? Many of the traditional carriers offer solutions that automate the disposition of product early in the returns process, which enables businesses to gain efficiencies and avoid significant costs.


    If a business can capture why something came back, it can better fine-tune operations, including what products are succeeding or failing as well as where problems in engineering, manufacturing or distribution might be arising. Additionally, the destination of the return can be redirected to allow for re-stocking, repair or dismantling the parts and reusing them to make new products. Linking return product information to a business's back-end database can reduce costs while improving customer service.


    An effective returns infrastructure is like the reverse gear on Henry Ford's Model T. Ideally, businesses won't have to use returns all that much. But when they need to, businesses should always be able to shift smoothly and quickly into reverse.


    Geoff Light is vice president, Customer Relationship Management (CRM) for UPS. Light is responsible for the positioning of UPS products and services to the marketplace. Light's group uses product marketing, US segment marketing and global systems development strategies to create solutions for UPS customers. For more information, visit www.ups.com.

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