How to Reduce Costs and Create a Value Chain in Reverse Logistics

Fashion fulfilment centres continue to face a significant increase in the rate of returns as omnichannel shopping becomes more and more prevalent. But while being a pain point for many fashion logistics companies, within the challenge of returns lies opportunity. 

By Harald Hanaweg

 

In this article, we explore how logistics facilities can start to reduce handling costs and create a value chain from returns.

The problem of reverse logistics to the fashion logistics industry

The challenge that fashion logistics operators face with the overwhelming number of returns is well known. Studies have estimated that returns rates may exceed 60 percent for e-commerce fashion retailers.

For the fashion warehouse, this “returns culture” poses many challenges:

  • The cost of items that cannot be resold or discarded;
  • The time in which staff handle and reclassify the product;
  • The extra cost in extra space needed to handle and store the goods;
  • The environmental impact of transporting the goods back to the warehouse; and
  • The actual monitoring of the products.

Altogether, these challenges mean that a third of fashion logistics operations is now spent on handling returns and that handling costs have substantially increased.

Can reverse logistics be turned around?

In a world where the growth in fashion e-commerce is not going to slow down and where a returns policy is essential to retaining customers, how can fashion logistics companies respond to the challenges of reverse logistics?

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There are a couple of solutions that fashion logistics businesses can explore:

  • Reducing the steps involved in their reverse logistics management; and
  • Creating a healthy, viable value chain from their returns.

How to reduce manual intervention in handling returns

One of the key challenges to handling returns is the many steps involved in the process, as illustrated below by the number of manual touches needed to handle returns.

An illustration of how items and returns are handled at a warehouse without pouch sorter technology.
A total of 13 touches are required to process a returned item. 

 

But what if the logistics centre could remove many of the touches to not only reduce the labour required but also the time in which the returns could be made available again?

How pouch sorter systems can minimise the touches needed in the returns process

That’s where the pouch (or pocket) sorter system comes into play. This specialised e-commerce fulfilment technology is able to transport, sort, sequence and store both outbound and returned items. As such, it can simplify and streamline a number of steps in e-commerce fulfilment in general.

The pouch technology eases the handling of returns by placing each item directly into a pouch rather than sending it back to the shelf or regular storage where it has to be picked again if it is ordered. The pouch system serves as an intermediate buffer for return items which are typically re-sold within three days. Returns needed to fulfil an order are automatically retrieved from the dynamic buffer and sent to sortation. Only those items which are not sold after a few days are returned to shelf storage – or shipped for recycling – as part of an automatic, easy housekeeping process which is run during low-throughput periods. And even these non-sold items can be sorted to any sortation criteria needed. For example, all pieces of a non-sold SKU can be brought together to a packing station where they can be put in a tote or carton and sent back to storage as a single SKU tote or carton.

In this way, the pouch system dramatically reduces the cost of handling returns; the fewer times an item is touched – and the shorter and cleaner the process – the more value the item retains.

An illustration of how items and returns are handled at a warehouse with pouch sorter technology.
A total of 7 touches, down from 13, are required to process a returned item. Note that the ‘Packing’ process can be automated with robots.

How to make reverse logistics a value chain

If fashion distributors can capture the potential benefits of returns, they may even start to maximise their recovery rates on returns. By taking advantage of the automation of a high-end sortation system, for example, it is possible for fashion distributors to create a value chain from returns.

 

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The value of automated sortation is that it can be very accurate. It can achieve a finer sortation that would typically take labour and time. For example, once the distribution facility has handled the initial receipt of the returns, the automated system can perform sortations into individual SKU master packs or gaylords destined for the next market segment. Large, heavy items can be sorted first to the bottom, followed by the medium and the lighter items on top.

 Through this type of sortation, the facility knows exactly what’s in every package. And if it opts to on-sell its returns on the secondary market, it can receive a higher value because of the way they have been sorted, segmented and treated.

Instead of returns being a loss, this higher level sortation can create a value chain within the supply chain. Fashion distributors can realise the hidden opportunities in reverse logistics and arbitrage its returns.

Conclusion

Logistics companies in today’s fashion e-commerce environment may be able to get to the point of “no returns” if they find ways to adjust and ameliorate their returns management. Pouch sorter technology can reduce the touches and the manual intervention typically needed in the returns process, refining the process and significantly reducing costs. Fashion distribution facilities can even design their sortation processes to recapture value and uncover the hidden potential of returned assets.

 

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