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How our return culture alters the supply chain

As the world pays new attention to supply chains, much of the focus has been on delays in delivering products to stores and consumers, what is called the forward supply chain.

But process of returning a product also plays a significant role. Across all e-commerce, about 30% of purchases are returned and about half of all clothing is sent back.

The complicated act of retrieving a product from a customer is costly and inefficient.

A 2019 investigation brought transparency to the return process. It was conducted by the Canadian Broadcasting Co.’s watchdog program Marketplace and the Basel Action Network, an environmental advocacy group. They purchased a dozen products from Amazon Canada and returned them, hiding a GPS tracker in each one.

They found many returns took a circuitous route, often covering several hundred miles — sometimes even thousands — before reaching their final destinations. Toy blocks traveled 590 miles before being delivered to a new customer in Quebec, and a printer was hauled 620 miles while circling around southern Ontario.

Of the 12 items returned, only four had been resold when the story was published. The rest were still in transit months after their being returned. At least one, a new backpack, was found in a landfill.

Why are firms so wasteful in dealing with returns? One reason has to do with health and safety regulations. For instance, it is considered unsanitary to resell certain items, such as beauty products and swimwear. H&M, for example, will not accept swimwear if the hygienic seal has been opened. But the more prevalent reason is reverse logistics, the side of the supply chain that moves goods from customers back to the sellers or manufacturers.

Several ventures are trying to help firms manage their return process, using an analytics-driven solution so firms can make return decisions informed by logistical costs and customer lifetime value. For example, for certain products, the advice would be to let a loyal customer keep the product and get a refund, if the cost of shipping it is higher than its resell value.

Another solution is mixing the online and offline retail experience. For example, 44% of respondents in the online shopping survey said they still prefer to return an item in person, which can help firms reduce shipping costs. The same survey showed that 57% of customers returning an item would still shop from the same merchant even if they had to pay shipping costs to make a return.

The advantages of running an operation, in which firms integrate the different sales channels that include online and brick-and-mortar stores, can be significant, since the trend of favorable and flexible return policies is not going to go away.

Given the uncertainty around shipping dates and product availability, customers may be over-ordering and returning more than usual after the holidays.

So, during your holiday shopping, do your part to stem return culture by choosing carefully — and aiming to buy for keeps.

Gad Allon is faculty director of the Jerome Fisher Program in Management and Technology at the University of Pennsylvania.

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