Turning a Negative Into a Positive

Jan. 19, 2007
In retail, and particularly footwear, how a company handles customer returns drives future business. "We position our returns as a customer benefit,"

In retail, and particularly footwear, how a company handles customer returns drives future business. "We position our returns as a customer benefit," explains Magnus Gustafsson, v.p. of direct marketing for Edison, N.J.-based Aerosoles (www.aerosoles.com). He estimates the company receives between 35,000 and 40,000 return packages each year.

"In the footwear world in which we live, where fit is the biggest point of customer interaction and experience," he notes, "we live within an environment— especially in mail order and e-commerce—where the return world has to be lived with and optimized and managed. We have to make sure we turn that process into a customer benefit that you can hang your hat on and make sure the reverse logisrics chain is easy to understand from a customer point of view, and that the burden is removed as much as possible from the end consumer."

Aerosoles offers a full line of women's footwear, including boots, dress shoes, sandals, and athletic shoes, under a variety of brand names. The footwear is sold through a number of channels, including wholesale, retail stores, catalog and online sales. Gustafsson oversees the company's catalog and e-commerce sales.

Aerosoles has experienced a large channel shift from the retail store to the online environment and even from catalog to online. In many cases the customer will receive a catalog by mail but will order over the Internet. To serve these changing purchasing patterns, Aerosoles had to develop a hassle-free returns process.

Previously the responsibility for returns was on the customer, requiring her to re-package her goods or write, "Return to Sender, Refused," and then take it to a local post office or to a small parcel carrier for shipment. Today there are a variety of ways for the customer to return the footwear, some 80% of which come through the company's logistics systems, according to Gustaffson.

For the past four years, Aerosoles has worked with Newgistics, Inc. (www.newgistics.com), with headquarters in Austin, Texas, to manage its reverse logistics process. At the heart of Newgistics' service is its SmartLabel, a pre-paid return label that goes out with the original shipment as it leaves the Aerosoles warehouse.

"SmartLabel's intent is to make it as convenient for the customer as possible to make a return," explains Ken Johnson, the company's v.p. of corporate strategy, "to remove any inhibitors for that customer to purchase direct."

Each SmartLabel contains a bar code with data unique to the customer and the item being returned. When a return is made, within 24 to 48 hours Newgistics is able to notify the customer the shipment has been received, provide some additional information about the return and the opportunity to purchase a replacement product. All the customer needs to do is put the return label on a package and place it in any U.S. Postal System drop off point.

"Once the postal system is in possession of the goods," explains Gustaffson, "they scan the bar coded label and the data enters our system so that we know which customer is returning which merchandise. Those packages next move to a Newgistics DC, and from there back to our warehouse. We see three scans: at the post office; when the goods arrive at the Newgistics DC; and finally when the package hits our warehouse."

Johnson characterizes the Newgistics DCs as advance sortation centers, with a cross-dock environment, where the company will do minor processing if necessary before returning packages to the merchant.

Not only is Aerosoles improving the product return experience for its customers, the data it receives allows it to plan and manage the reverse chain better, allowing it to allocate adequate warehouse staff to process returns.

"We can also know where our exposure is to return merchandise," says Gustafsson. "It's possible to analyze to see if it's one style coming back quicker or at a larger rate than we had anticipated. It offers a red flag that we may have an issue with one style. Importantly, we can quickly credit the customer's credit card so she understands the process and has a better customer experience."

It's not necessary to outsource the returns process to a third party. That's the theme in Taking Control of Your Aftermarket Supply Chain: Best Practices to Build a Foundation for Reverse Logistics Success, a report from Forrester Research, Inc. (Cambridge, Mass., www.forrester.com).

The authors ask why any brand owner would want to "outsource a process that can make or break a customer relationship?" While it's one thing to want to keep reverse logistics in house to maintain control, such a strategy presents some daunting challenges.

Among the problems to be resolved are IT systems that can't handle the returns process, lacking ways to monitor the reverse product flow. Additional well-trained workers also must be added to warehouse staffs to make sense out of the jumble of package sizes with little or poor identification. Inspection and testing of returns is critical for their proper disposition. Products being re-entered into sales stock that are not up to usual standards create even more problems.

For companies wanting to start or regain its own hold on its reverse logistics process, the report provides a summary of best practices that are similar in many ways to how third-party providers operate. Based on interviews with supply chain executives, consultants and independent service providers—including GENCO, IBM, Manhattan Associates, Motorola, Newgistics and Subaru of America—who reportedly operate successful returns programs, three fundamental steps were identified "that enable aftermarket supply chain transformation":

  1. Move returns validation and ‘avoidance' upstream.
  2. Automate the reverse logistics processes with technology.
  3. Measure and report on performance to drive improvements.

With these ideas in mind, the report offers a self evaluation tool that identifies the to measures that need to be undertaken or improved in order to successfully bring the reverse logistics function inside. (See box.)

Contact Patrick Connaughton ([email protected]), report author, for more details on the study.

Reverse Logistics Best Practices — Self-Diagnostic

Part 1: Returns avoidance



Have you enabled an online customer returns authorization solution?

Can your customers print bar-coded returns labels for return from the site?

Is your retail returns desk and/or call center integrated with your website?

Part 2: Technology automation



Have you implemented a WMS solution at the warehouse to automate returns processing?

Is the WMS integrated in real time with the crediting system to ensure timely customer credits? For service operations, do you have a parts planning and forecasting system in place?

For service operations, do you have a parts planning and forecasting system in place?

Have you implemented electronic messaging to support the reverse logistics flow?

Part 3: Performance management



Do you have an executive-level resource with complete responsibility for all aftermarket operations?

Do you have a formal performance measurement system and KPIs in place to measure the success/failure of aftermarket efforts?

Are return reason codes tracked and reported across all product groups and suppliers today?

Are formal governance procedures in place to take action based on performance reports to improve operations or product quality?

Do you have a PLM (product life-cycle management) solution in place?

Do you have staff in place to perform periodic audits and quality checks on any outsourced parts aftermarket operations?

Source: Forrester Research, Inc
This chart is modified slightly from the one suggested by Forrester. Use your answers to these questions for an understanding of challenges to be met in conducting a good reverse logistics operation and to gauge your readiness.

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