Without any question, there has been numerous disruptors in the digital market, but Supply Chain has intriguingly taken all these new innovations into steppingstones! Whether it is Ride share, Internet of Things, Drones, Artificial Intelligence, or Autonomous vehicles, Supply Chain is leveraging these technological advancements to deploy sophisticated Fulfillment Networks & Solutions.
Just a decade ago, Supply chain was all about cost cutting strategies. With the shift in consumer demand for Multi-Channel fulfillment, businesses are reacting to provide this service in hopes of increasing their sales volumes. This shift has changed business leaders’ thinking to evaluate Supply Chain not only from a “Cost” lens, but also with a “Sales” lens.
While Multi-Channel is certainly helping business with “Buy Anywhere – Fulfill Anywhere” slogan it has its own share of problems. Caveats are higher returns, Loss of sales, Locked Capital Investment on excess inventory, Loss of Profit in off-price items. The real concern is, one side shows positive trend in sales and another side paints different picture on business performance. This is a complex situation and it needs holistic approach. There is no point of return on this case other than facing the beast. Beast is no other than “Customer Returns”. Adding to this complexity, businesses are taking on new initiatives such as Same Day Delivery (SDD) and Next Day Delivery (NDD) to meet up with customer experience and competitor pressure reasons.
Multi-channel fulfillment is becoming a common prerequisite in this digital era, and businesses will need to adapt. This transformation requires a re-evaluation of business procedures, infrastructure, vendors, and IT teams to face that challenge and equip them to handle customer returns. Unless they map out “Returns” from standard delivery procedures, SDD would be hectic and catastrophic to their business.
Unlike the multi-channel trend, businesses still have time to decide if they should offer SDD or not. To make this plunge, a business needs to evaluate how much incremental sales volume SDD will bring. They should clearly map out current sales, net profit, SDD sales, net margin loss, loss of profit due to off-price, etc., and determine how that impacts other aspects of their business. Offering SDD also needs an upfront investment and a precise execution strategy in all levels. If not, it will result in catastrophic failure and will impact current elite customers, brand image, and revenue.
Returns in Multi-Channel
Businesses who offers multi-channel must have required infrastructure and business processes in place to maximize benefits and to contain the “returns” beast. The strategies that companies are taking to handle returns include:
Efficient Reverse Logistics Supply Chain
Unlike forward logistics, reverse logistics has plenty of challenges and potential to hurt the bottom line. Investing in reverse logistics projects must be part of multi-channel growth initiatives. Successful reverse logistics supply chain should have the below features:
- Plan & print return labels with tactical end points to collect returned goods at all lowest cost for mail-in returns
- Endpoints which generates return receipts should have the capability to add the stock back to the “Open to Buy” (OTB) pool in real time
- Ability to track returned products volumes & locations
- Enforce Short-Shelf-Life or seasonal products to take precedence in returns inspections to enable faster resale.
- Set stronger KPIs to monitor return logistics performance
Global Inventory Pooling
Some companies track inventory by channels for ownership profit and loss (P&L) calculations. This strategy can lead to unwanted capital spending and excess inventory:
- Allocating inventory to specific channels can lead to lost sales, stock-outs and overstocking. Listing inventory as company owned instead of channel owned will alleviate this problem
- Deploy efficient fulfillment rules across channels to track OTB units and shortages.
Captivating Cost & Policies
Research shows that customers tend to buy products online when businesses offer free shipping and returns. Although it is not economically possible to give free shipping for same day shippers, businesses can offer flexible returns options that could influence customer’s decisions and prevent cart abandonment and lost sale situation.
- Pushing returns cost to consumers with entitlement to receive shipping refund from original purchase
- Having Lead time returns policy permit consumers to get full refund and increases resale opportunity on full price
Same Day Delivery
Once returns have been addressed, companies can then consider implementing SDD as an offering.
It is advisable to run a pilot program to gather valuable information such as consumer buying patterns, return habits, and demographics. This in turn allows companies to evaluate their proposed line offerings and to calculate financial margins.
Without a doubt, SDD makes sense in larger cities for affordability and proximity reasons. Business must situate their fulfillment centers and stores with proper inventory and resources to keep with the demand without impacting mainstream orders and in-store customers.
It is proven that edible items such as Chinese take-out & pizza are prone to be delivered in shorter delivery cycle and have been successful when it comes to customer returns. Recently, amazon enabled 2 hours’ delivery schedule for liquor in specific zones.
On the same line, consumable products such as groceries, emergency items, seasonal gift items, and impulse purchases can be considered for SDD. Business can offer SDD on product lines where consumer tend to order yet minimal returns situation. Also, high margin items / luxury items like jewels or “emotional” gifts such as flowers are good offerings under SDD. Ideally, SDD product lines should either have good margins or high demand from consumers.
Businesses should invest with the right hardware and software to equip warehouses and stores to execute SDD smoothly.
- Investing on Gadgets:
◦ RFID – Real-time inventory
◦ IoT – Track Carriers, Carrier performance & Order Progress status
- Investing on software solutions with capabilities to:
◦ Seamless integration with critical systems
◦ Order management solutions
◦ Store picking solutions
◦ Inhouse or 3rd party order dispatch & tracking solutions
◦ POS Solutions
Businesses may bear the initial cost to implement, but in the long run consumer loyalty will offset this price tag. With a solid customer base, businesses can look to explore offering small membership programs in exchange for short term services. Furthermore, partnering with 3rd party vendors which typically are not used in standard shipping like ride sharing can also be considered
Consumers will certainly welcome free returns on SDD, but it will be a huge undertaking for businesses. They can strategically offer this for products where they have higher margins. They can also combine with lead time returns policies to take advantage of resale opportunities to further reduce the risks.
Although SDD sales have lower margins, it is still a good opportunity. Businesses can mitigate the risk by targeting specific geos, product lines, and tactically derive SDD cost & return policies. SDD sales have big potential to reduce customer returns, increase sales volumes and improve overall revenue. Both Amazon & Adidas have proved that SDD can reduce customer returns.
Ultimately, businesses should continue to improve their forward & reverse logistics in-line with consumer expectations and their competition. Multi-Channel Returns require a sound reverse logistics supply chain, and mechanisms to track inventory at the global and reverse to channel level to minimize cost. Once that milestone is achieved, they can assess if SDD is the right path for their business. Businesses going down this route should be ready to evaluate initial costs, introduce or revise current business processes, target the right customer base, carefully curate the product lines, and invest in technology to make SDD a reality and reduce returns.