How To Transform Your Business’ Supply Chain By Embedding Returns Management

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Returns have long been the bane of a retail business–chipping away at your margins, cluttering your warehouses, and silently eating away at customer satisfaction. It is a harsh reality that as your business grows, the rate of returns also rises. This can become a problem if there are no efficient processes in place to address them.

The good news is, businesses can transform returns from a sunk cost into a driver for overall profitability. This can be accomplished by embedding effective returns management policies into your supply chain.  

Returns management is historically a murky aspect of running a retail business. Many businesses view it as an expense that must be dealt with, possibly harming their bottom line in the process.

But tapping into returns management can be super beneficial. You can expect a reduction on the cost of managing returns, but also to increase customer loyalty and repeat purchases. After all, offering liberal return policies is a growing trend in today’s retail landscape. Taking on this trend can be very rewarding, if applied correctly.

Case in point is the poster boy for returns management: Zappos. They offer a very liberal returns policy, resulting in a high return rate. But on the flip side they also have extremely high reorder rates. They’ve managed to turn returns into an effective differentiator and the result is loyalty from their satisfied customers.

Many businesses are taking a page from their book in order to remain competitive. However, there is so much more to it than just updating your policies. Is it better to hire a third party logistics provider and be done with it? Or should you take matters into your own hands?

Read on for some important things to consider as you look into managing your returns and building it up to a viable strategy.

First things first: determine your goals

Having clear goals in mind as you develop your returns strategy will help you make decisions at crucial points in the process. One size does not fit all. Purely online retailers will manage return inventory differently from retailers who have brick and mortar stores across the country. Fashion retailers and tech stores will have different needs.

You’re either working to preserve your bottom line as a business, or enhancing the experience of your customers. A good strategy is a mix of both. You may be tempted to follow the likes of Zappos and provide a very liberal returns policy. Oftentimes, this may not be needed. It may even lead to abuse and lost profitability, most especially without proper measures put in place.

A more realistic policy that does not over-extend your business, but provides comparable service against your competitors, is best. Take a look at competitor offerings and use this information as you update your own policies.

Additionally, it’s important to take into consideration why customers might be returning your products. There are many possible reasons, some specific to your business. Focusing on the most common ones will give you the most bang for your buck. Any of the following hit home?

  • Defective items are one of the most common reasons for returns and exchanges.
  • If you’re in the fashion industry, are your customers ordering multiple variants of your products to try on and returning the rest?
  • Are there common expectation gaps between advertized/displayed products and what customers receive?
  • Are mis-ships common in your business?

The above examples and more may come up when you take a closer look into your returns. They may alert you to gaps within your forward logistics process. You can then address these separately, and in turn, minimize returns over time.

Ensure you have a centralized information system

Larger retail businesses face more challenges in managing data. It is important to ensure you have a central repository of information that employees can easily access. This can take the form of different complex systems that cover everything from your warehouses to customers. But simple document collaboration tools can also be useful for getting the job done. 

Take a look at your business’ context over the course of the returns process. Your employees may need to have the following information at their disposal:

1. Your returns workflow

Some transparency on the process will help employees carry out your returns strategy efficiently. Support personnel will need this information when dealing with customers needing assistance with your policies. 

The need may extend past support operations. So employees and partners across your supply chain will find this information useful as a reminder of what the next steps are.

And if there is a need to control what’s shared, ensure that there is at least enough detail for employees. They will need to have some insight on the full process to support the customer and the business.

2. Criteria for accepting returns

A standardized criteria that outlines what can be accepted for returns is important. This will reduce customer dissatisfaction and unnecessary back and forth between customers and support personnel. 

Consider publishing these criteria for transparency with your customers. Availability of online tools and tests, where applicable, can also reduce customer service handling time.

3. Criteria for returns assessment and forwarding

Disseminate clear criteria and instructions to personnel that assess movement of returned goods. These may be retail shops accepting returns, or personnel at a warehouse receiving returned parcels. Your personnel’s ability to make quick but accurate assessments about returned items will minimize handling time of returned inventory.

Provide clear instructions as to the next steps of an assessed item. Are undamaged items released back to available stock immediately? Where will items for repair be sent, is there any information needed to facilitate this process? Is there a specific process or overseer for releasing returned inventory into secondary markets or disposal? Clear forwarding instructions are key to make sure returned inventory does not stagnate.

4. Inventory availability and levels

Some policies warrant an immediate replacement after successful receipt of the returned product. In this scenario, careful management of stock levels are important. 

Ensuring that there are appropriate levels of inventory in locations that handle the most returns will be crucial in the smooth flow of goods. This will minimize or eliminate the need for expensive freight of inventory to fulfill sudden demands.

5. Customer profile

Insight into your customers’ buying habits is important in maximizing possible gains with a successful returns strategy. A capable customer relationship management system will help you track and maintain your customers’ journey through your processes. This will give you valuable insight to both individual and overall trends.

Source: Nextiva.com

Using these tracking tools and trend monitoring can help you target your profitable customers through other aspects of your business. A good example is the ability to shift your marketing budget away from serial returners. 

However, it’s important to match this against customers’ net sales in order to continue to encourage profitable customers regardless of their return rates.

Assess current operational issues for ongoing returns

The current logistical challenges you face when it comes to fulfilling returns is the most natural place to start enhancing your supply chain.

Does your returned inventory disappear into a nebulous corner of your warehouse until it’s time to count stock? Assessing your warehouse efficiency will be key to pinpointing possible improvement areas and may impact both forward and reverse supply chains.

Accurate tagging of returned items and their state in the workflow will ensure they don’t get lost in the day to day operation of your business. Your employees will then know where to send them on for further processing–whether the product is put back on the shelf, sent for repairs, or disposed of.

If you need to send products for repair or disposal often, you may gain significant freight savings by sending on returned items in bulk. Consider immediately replacing defective items versus offering repairs within warranty. This way, you can leverage bulk arrangements instead of costly individual repairs.

If possible, slow integration of returns processing will help employees with the inevitable learning curve. A more drastic overhaul of your current processes may take more time to roll out and can result in confusion and delays as the entire process changes.

Analysis of where most of your returns are coming from will also provide you with information regarding staffing and resourcing.

Leverage your available customer contact points

The most cost-efficient way for a business to offer and manage returns is to ensure that they fully utilize your current system. This includes when you are in contact with your customer, whether offline or online.

If your business has brick and mortar shops, consider allowing customers to return purchases through these shops. You can then leverage bulk arrangements to further process returned inventory, but ensure that returned items are properly tagged. This will speed up handling of goods by the next person in charge.

Providing return labels can help your business beyond enhancing customer experience; they also help reduce the hidden cost of providing customer support to an irate customer. Additionally, they ensure that the items are returned to the correct locations for processing. Printing barcodes on these labels can also provide important information for handling returns.

Availability of customer information will also help you in managing your customers. Customer data is an important part of any strategy to increase repurchase rates. Sending an email to your customer when there is progress on their returned order helps manage expectations. Having this data is also valuable in being able to segment or target your customers depending on their buying and returning habits.

Additionally, there are many ways you can streamline your supply chain even before the return process starts. Think about providing online tools for your customer. If there are ways for them to check for their warranty privileges or to test their purchased products, you can weed out unacceptable returns from the start.

Monitor and assess your reverse supply chain regularly

If you’re monitoring your forward supply chain, the reverse is also important. Establish metrics and measure accordingly. These will highlight both areas you need to improve and places where you’re doing well in an objective manner. Seeing gaps in the whole process will also inform where you need to focus on next.

Make sure that you are able to differentiate the cost between your forward and reverse logistics. This will make it easier to assess progress and budget appropriately as you continue to fine-tune your supply chain focusing on performance accelerators.


Continue monitoring the reasons for returning your products. Any notable changes as you move into improving your returns management will be important in assessing your progress. Reports such as average turnaround times will also be key. Faster turnaround times throughout the process will give better customer experience and also ensure your returns inventory does not stagnate.

Monitoring your returns that are due to defects, functionality issues, warranty, etc. will also help improve your product quality over time. Choosing to act upon these issues will reduce your overall returns over time for the same problems. A lack of improvement here may also signal a more systematic problem, such as the need for more stringent quality assurance protocols, a change in suppliers, and the like.

It goes without saying that continued monitoring of overall customer satisfaction and data gathered is important. You can match these against returns data and see any possible correlation and improvement. Additional data gathered can help with customer segmentation and be used in other aspects of your business as well.

To outsource or not to outsource – that is the question

It may be tempting to simply write off returns management as a cost to doing business and focus on the benefits of outsourcing all returns handling to a third party. But it is not always so straightforward. There are hidden costs that you should be aware of, as with any search for partners and suppliers.

Incremental costs can add up without being monitored properly. Managing and coordinating suppliers and contractors take up valuable time. Freight to and from different locations across or even outside the country are another source of incremental cost. Without economies of scale working in your favor, you may be taking on more cost than you might need to.

A careful assessment of your business’ particular needs will arm you with knowledge you need to either embark on this task yourself, or select a partner to work with. It’s important to be aware of this even before you reach out to possible partners. This granular knowledge of how returns management can be integrated into your supply chain will help you choose a partner that works with your business–not the other way around.

A returns strategy is essential

Returns will only grow more frequent. We serve more and more customers due to the ubiquity of online shopping, not to mention through the natural growth of any retail business venture. Many businesses today continue to look at returns as a waste of money and sunk cost.

However, this necessary aspect of running a retail business can yield surprising results if leveraged properly. A smart returns strategy coupled with efficient returns management can be more than beneficial for your business. 

It can be part of a solid approach to increase customer loyalty while enhancing profitability. You can reap these same results if you start transforming your supply chain now.