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racy has led some to require minimum
in-store inventory levels for an order
to be allocated to the store. In addition,
retailers are still evaluating questions
pertaining to the complexity of orders
that can be effectively handled and the
volume each store can support. Some
are also following a “hub store” strategy,
focusing store fulfillment inside a few
larger and/or centrally located stores
rather than offering this capability across
the entire store network.
; Returns management. Responsibility
for handling returns from customers
generally lies with store operations,
while supply chain groups typically handle activities involving external logistics,
such as moving returned items out of
stores ( 61 percent), returning merchandise to vendors ( 58 percent), and executing the disposal process ( 50 percent).
Many retailers have taken “a very
casual attitude toward returns,” but
omnichannel commerce is causing more
of them to recognize that returns man-
agement is a big issue not only from a
customer service standpoint, but also in
terms of costs, says Dr. Brian J. Gibson,
professor of supply chain management at
Auburn University and the study’s lead-
er. One interviewee explained the mag-
nitude of the impact this way: “Taking
product back to a reprocessing center to
be scrapped or liquidated is a huge mar-
gin hit. Moving it around not only has
cost implications, but you are also losing
time. And when you lose time, you lose
margin, especially in fashion.”
The relative importance of returns
management to retailers depends to a
large degree on the type of products
they sell. For retailers of low-margin
merchandise (discount stores) and
perishable goods (grocers, pet supply
stores), returns are not a priority, as the
volume is either low or the product is
destroyed at the retail location, Gibson
notes. It’s different for retailers with
high stock-keeping unit (SKU) variety
(such as style, size, and color), high-val-
ue and high-margin goods, “perishable”
apparel, and online-only offerings. The
cost and complexity of those returns can
be high, especially when retailers allow
online orders to be returned to stores.
A product may not be sold in the store
where the return is made, the product
may be an online-only offering that is
not sold in any store, and there are tax
collection/refund issues, among other
potential complications, he points out.
The biggest challenges in this area
include maintaining visibility and control of returns, cited by 68 percent of
respondents, analyzing returns-process
performance ( 55 percent), and capturing maximum value from returned
goods ( 50 percent). Even so, 78 percent of respondents believe that their
customer returns policy is “
appropriately aligned” with their supply chain
capabilities. But that doesn’t mean they
have returns management completely
under their thumbs. Almost half of the
respondents ( 48 percent) said they needed to develop a more effective strategy
for omnichannel returns. Tellingly, only
one respondent strongly agreed with the
statement “Our return-to-vendor process is highly effective.” (See Exhibit 2.)
To address such challenges while protecting margins and customer service,
many of the retailers in the study are
making—or actively considering—
technology investments, and a number of
them are planning and executing process improvements, Gibson says. At a
macro level, some of the retailers are
engaging in network-design studies for
their reverse supply chains. At a facility
level, a few are streamlining processes,
creating dedicated returns teams, and
establishing engineered time standards
to promote operational consistency
and efficiency. And at an information
level, retailers are trying to use data to
improve visibility, understand the causes, and minimize the frequency and cost
of returns, he explains.
Editor’s note: The full results of the 6th
annual “State of the Retail Supply Chain”
survey will be publicly available on the
Retail Industry Leaders Association’s website ( www.rila.org) in early March, following the group’s 2016 Retail Supply Chain
Conference.
