Supply chain challenges: Handling returns

Evolving customer expectations have forced retailers to figure out how to better manage the ripple effects that the pandemic, increased online shopping and supply chain disruptions have created— including handling customer returns. On the surface, returns may seem like a fairly straightforward problem, but there are many nuances and tradeoffs to consider. 

Customers want easy returns. For merchandise delivered to the home, the return experience can be a critical reason why consumers stick with a given retailer. Take Zappos, for example, their generous return policy for shoes—an item that’s tricky to buy without trying on—was one important ingredient in their early success.

At the same time, generosity and great customer experience need to be balanced against the costs of fraudulent or excessive returns and the losses of various types that inevitably take place as goods are repackaged and sent back. 

Organizations also need to be able to identify and track returned items with hazardous materials, alongside general items as they come in—like categorizing items for recycling, disposal or resale (either as new, an open box sale, or some other title).

Recent trends

Many organizations need to handle returns. Some of the more recent trends, brought on by the pandemic will likely be transitory, while others look to be longer-term.

Not accepting returns at all is likely in the former category. In the face of health concerns around viruses lingering on surfaces for extended periods of time, some retailers stopped accepting product returns at all. However, in general, returns are seen as a necessary practice for most retail businesses.

The more common return process is limiting returns on some items. Once a retailer identifies an item that has a high number of returns, that item may be flagged and its returns may be limited--think of the latest and greatest graphics processing unit card that gets used for a period and then returned. Of course, a large number of returns may also signal a product quality or description problem.

Overall, returns are up because e-commerce is up. Even if many people have gotten more comfortable with shopping online over the years, judging color, fabric and fit of items on a website is always going to be prone to error. And, return windows are getting even longer, beyond what used to be a standard 30-day window. 

Minimizing return losses

Making returns easy is an easy way to create a loyal customer. But, you still need to minimize return losses. 

A good way to meet both objectives is to sell the right item. This major step eliminates a possible return by making sure you sell the right item to the right customer. Customers who buy the right item are typically happier since returns always have a degree of hassle. Personalized shopping experiences that make recommendations based on past purchases or otherwise connect shoppers to products that are best for them can help the right product and the right customer find each other.

Retailers can give shoppers greater flexibility by allowing them to purchase online and then pick up in-store. While there to pick up, customers can test or try products they’ve ordered and make an exchange via curbside processing if needed. Returning to a physical store can be especially attractive for heavy, bulky or fragile items that may be challenging to ship back to the merchant.

Once a product is returned, smart returns require a connected network that provides inventory visibility and predicts demand. Data plays a vital role when predicting returns, like tracking the reason for a return (whether provided by the customer—such as damage to the item or one that didn’t fit or wasn’t as-pictured—or something learned through predictive analytics. Throughout the workflow, it’s important to process returns quickly and efficiently, reducing the number of employee hours spent on return tasks.

Solution overview

The solution below uses the following technologies, which can be grouped into three main categories as shown in Figure 1:

• Core application systems. These are often customer-provided technologies, such as order management and facilities management. These systems can include standalone applications, on-premises and cloud services or databases.
• Foundational infrastructure. This Red Hat and IBM solution is built on Red Hat OpenShift. Data is routed through application programming interface management and events are routed through business automation tools such as IBM Business Automation Workflow.
• Supply chain optimization platform. This consists of a supply assurance control panel, fulfillment optimization, inventory analysis and artificial intelligence.

Figure 1. Overview of returns management solution, including major components and business drivers.

Returns management workflow

The figure in this section shows a returns workflow in the context of a retail scenario with branch stores.

Figure 2. Returns workflow in the context of a retail scenario with branch stores.

The customer first initiates a return, providing a reason at a kiosk, store or within a mobile application. At this point, it’s important to set customer expectations about what happens next—including available options. For example, they may elect to take a refund. Or, if an item just arrived damaged in shipment, they may prefer a replacement. The customer will also need to understand their options for returning the item, like printing out a barcode label.

Business automation now orchestrates the return item process. The item is first returned to a warehouse or store location—whether physically dropped off by a customer or sent through a logistics company like UPS. The disposition system then determines whether the item should be disposed of, resold or refurbished based on business rules.

Subsequent data associated with this return will be analyzed together with data from other returns for patterns that may indicate fraud or a supplier problem. Any necessary hazardous materials that need to be disposed also should be tracked.

Summary

Efficient and customer-friendly return processes are important for brick and mortar retailers—and they’re absolutely essential for online sales. When customers know they can easily return an item if they are not satisfied, they are likely more inclined to make a purchase. And when customers have a positive experience returning an item, they are also probably more likely to shop with the retailer again in the future. This can help to build customer loyalty and repeat business.

At a high level, there are several main steps your organization can take to innovate and modernize your supply chain using automation, modernization and sustainability. For specific steps on this approach, check out the Action Guide details in this survey of 1500 chief supply chain officers across 24 industries.

If you are interested in more solutions built with these and other products in the Red Hat portfolio, check out the handling returns portfolio architecture as part of our broader portfolio architecture website.

Supply chain blog series

• Supply chain optimization imperative blog
• Supply chain optimization blog and portfolio architecture
• Demand risk blog and portfolio architecture
• Loss and waste management blog and portfolio architecture
• Product timeliness blog and portfolio architecture
• Perfect order blog and portfolio architecture
• Intelligent order blog and portfolio architecture
• Sustainable supply chain blog and portfolio architecture
• Supply chain challenges: handling returns portfolio architecture
• Protect your supply chain from disasters blog and portfolio architecture (blog coming soon)

References

• "The Future of Digital Returns." IBM, June 30, 2020. 
• “How returns can be a retail ‘superpower.’” Digital Commerce 360, February 28, 2023.
• “Loop processes 60,000 returns a day during 2022 holiday season.” Digital Commerce 360, January 9, 2023.