Robustness of reverse logistics

Leading e-tailers are trying to build a customer friendly reverse logistics infrastructure and network  to gain strategic advantage

The online retail market in India has grown by leaps and bounds from its nascent state in the mid-2000s to its current market of $19.5 billion worth of transactions at a gross level before returns and rejections.

This market which has about 80-100 million online shoppers, is growing organically with the increasing employment ecosystem and new shoppers who are already among the 450 million Internet users in India predominantly from the tier II and below cities and towns in India.

E-Commerce retail logistics in India

The Indian e-commerce retail industry has been on an upward growth trajectory with a lot of growth potential, and logistics is a key enabler. The e-commerce retail logistics market is valued at $1.35 billion in 2018, and is projected to witness a growth of 36 per cent in the coming five years.

Reverse logistics in India

The e-commerce retail industry is witnessing movement of over 19 lakh shipments per day. An important aspect of e-commerce retail is the high number of return shipments. Rise in e-commerce retail shipments has led to a rise in the number of return shipments. Three primary reasons observed for returns are customer initiated returns after acceptance, returns due to order cancellation before first delivery attempt and 3PL returns (delivery failure of 3PLs).

As a result of the above, return shipments in e-commerce retail constitute 18-20 per cent of total shipments. The returned goods are cycled back into the inventory, restocked and relisted or sent back to sellers. These can however lead to complications like refunds, exchanges and replacements, which increase the overall supply chain cost.

However, with stricter return policies and improvement in processes, returns are expected to reduce to 10-12 per cent by 2020. E-tailers are introducing innovative mechanisms to minimize returns such as size recommendation features to help shoppers make informed choices, reconfirmation via mails and the option of cancelling the order before the shipment is processed.

Recent trends further suggest that number of return shipments is expected to decrease. Some of these trends are given below:

          Increase in local and zonal shipments may potentially increase speed to customer which in turn is expected to reduce the returns due to reduction in delivery failures

          Better operational processes and reliability may also reduce returns

          Change in category mix and implementation of stricter return policies may reduce customer initiated returns.

However, currently, with a high number of return shipments, reverse logistics is critical for the success of e-commerce retail players. While retail penetration has increased multi fold, reverse logistics is lagging behind and not being able to keep up with this growth.

Reverse logistics covers all the activities associated with a product after point of sale. Fulfilment and returns are two critical factors of the supply chain that go hand in hand. On one hand, fulfilment refers to bringing the product to the customer, on the other hand returns refer to taking the product back from the customer through the supply chain in reverse flow.

Activities covered under reverse logistics can be explained with the help of the Five R’s :

1.        Returns and exchanges: Major element of reverse logistics, majority of high-tech online shoppers have returned or exchanged an item

2.        Reselling returned products: Major revenue generator, industry has witnessed springing up of companies solely focused on processing and reselling returned goods

3.        Repairs: In order to maintain low inventory levels, e-tailers prefer to repair and return goods instead of replacing them

4.        Recycling and disposal: Companies are focusing on becoming environment friendly. Recycling helps in achieving this goal in addition to generating additional revenue for the company

5.        Replacements: Many buyers face difficulties in replacing goods post purchase as replacements have complex supply chain requirements.

Customer loyalty is the key to success of any company. It has been observed that customers tend to switch companies due to poor customer service and good customer service builds a loyal customer base. Therefore, the robustness of an e-retailer’s reverse logistics network will have a huge impact on the growth of the company. Effective reverse logistics management is critical for customer satisfaction. Hence, leading e-tailers are focusing on building a customer-friendly reverse logistics infrastructure and network in order to use it as a strategic tool enabling it to have a strategic advantage over its competitors.

While reverse logistics is gaining importance, it poses its own set of challenges. Primary being technology - 3PL providers use the same airway bill/tracking ID for reverse shipments as used in the forward leg. This reduces the sorting efficiency and leads to incorrect delivery. Also, players have developed their first mile capabilities - 3PL providers have built their capacity, infrastructure and resources for the forward leg. This set-up is not suitable to handle the reverse leg efficiently; therefore 3PLs need to build separate capabilities to handle reverse shipments. Lastly, one of the greatest challenges e-tailers face is geographical constraints, especially in Tier III cities and beyond. Limited infrastructure in these areas makes it difficult for e-tailers to provide services here.

Despite the challenges it poses, reverse logistics is a necessary evil. A robust reverse logistics network can open up a plethora of opportunities to e-tailers. E-tailers must focus on developing their reverse logistics solutions in order to not only attain greater sustainability but also reduce overall costs and achieve customer satisfaction and retention.

 

Jaideep Ghosh is Partner and Head, Transport, Leisure and Sports KPMG in India

Devika Kapur is Senior Consultant, Transport and Logistics, KPMG in India

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