Highlights of the Case Study:
|Client||A leading E-Commerce giant headquartered in the US|
|Business Challenge||The client needed to improve its product return policies, pro-actively reduce its volume of returns, and thereby reduce its logistics costs.|
|Impact||The logistics optimization solution helped our client reduce its quarterly average return rate by around 9%.|
Game-changing Solutions for E-Commerce Retailers:
The global e-commerce market will total about $5.55 trillion in 2022. This figure is likely to witness steady growth over the coming years. As the success of the e-commerce channel lies in the concept of fast delivery and easy returns, logistic services play a significant role in this industry. The percentage of returned e-commerce products will continue to grow over the years because of the growth of online retail stores.
Players in the e-commerce industry often deal with challenges and bottlenecks such as skyrocketing delivery costs and the complexities associated with transportation and logistics management. Therefore, they need to optimize their logistics to meet the volatile consumer demand. Moderate product return policies such as ‘Buy Online, Return in Store’ can create unexpected additional costs. Players need to allot extra space in their shops to store returns and use store staff to process them.
The Challenges of the Client:
Our client, an E-Commerce giant headquartered in the US, struggled to improve its product return policies. It sought to reduce its volume of returns proactively, which would help reduce its logistics costs. Our client often offered deals such as free shipping or low shipping charges on products to increase its customer base and widen its reach, which burdened it with high logistic costs. In the case of product returns, there was the additional hassle of processing returns and dealing with additional costs incurred in collecting and dispatching the returned product, followed by the sorting and re-packaging overheads back at the warehouse.
Our client’s lenient product return policies overwhelmed it in terms of dealing with the substantial physical volumes of returns that were as high as 30% of the products ordered annually. Moreover, 24% of its product returns occurred because customers received the wrong items, 22% because the products received were not as portrayed on the client’s e-commerce portal, and 23% resulted from damaged products. Together, these issues resulted in a problem of mammoth proportions for our client, which negatively impacted its revenues. In addition, our client had limited capabilities in operating its existing returns management software. Its customer service team could not initiate a return if it did not meet the pre-determined return rules as per its policies.
Our client did not want to compromise its liberal product return policy but, at the same time, sought to lower its operating expenses, including logistics costs, and maintain a healthy inventory turnover. They approached Quantzig’s supply chain management team to identify actionable opportunities which would help it reduce wastage associated with returns, protect its brand image, and improve its revenues.
Quantzig’s Reverse Logistics Management Approach:
In an industry with a return rate of 25%-30%, reverse fulfillment logistics can be a considerable expense for players in the e-commerce industry. Quantzig’s reverse logistics management approach proactively focused on reducing the amount of e-commerce product returns and the logistic costs associated with them. Our approach involved nine steps in lowering the number of e-commerce product returns. They are as follows:
- Quality control to reduce returns
- Represent products accurately
- Represent sizing correctly
- Encourage customer reviews and feedback
- Proper packaging of products
- Clear display of delivery estimates
- Offer live chat and real-time support
- Adopt a liberal return policy
Impact Analysis of Quantzig’s Logistics Optimization Process
Our engagement helped the client reduce its product return rate, and its quarterly average return rate declined by around 9%. Our logistics optimization process helped our client better understand its reverse logistics process. Over the years, our client can continue to use the metrics designed by the Quantzig team to refine its product assortment. The client was highly receptive to the data offered by Quantzig and found numerous ways to act on our insights, including the following:
- Understanding controllable and uncontrollable returns
- Understanding the cost of returns
- Developing a clear return policy
- Analyzing the product returns
- Processing e-commerce returns quickly
- Visibility into e-commerce returns through tracking
- Using a fulfillment center for returns management
Our client cited that our website optimization solutions, including improved product descriptions, new product images, and better size charts, helped improve customer experience, allowing them to make wiser purchases. For instance, these solutions reduced multi-size clothing purchases by almost 15%. Besides providing our client with a software solution to manage returns, our team also leveraged returns data to help our client optimize its business.
The overall result of these interventions translated into a 9% reduction in the quarterly average return rate. In addition, the client witnessed a 30% increase in-store credit, ensuring repeat purchases from the customer. The refund rate also decreased by 10%. The impact of better product descriptions, images, and accurate size charts was illustrated by a 15% reduction in multi-size clothing purchases. Quantzig’s supply chain management team helped curate a logistics optimization strategy for our client to minimize cost and increase customer satisfaction. The primary goal of logistics optimization was to deliver products to customers at the lowest possible price and improve profit margins to the maximum value.
Broad Perspective on Logistics Optimization in the E-Commerce Industry:
As online retailers and e-commerce players have emerged stronger from the disruptions caused during the pandemic, they are now focusing on staying competitive. Logistics optimization, including e-commerce products and returns management, has become as critical as outbound freight. Some of the emerging trends in reverse fulfillment logistics include the following:
- Automation within reverse logistics for routing the return requests of customers
- Leveraging robotics process automation (RPA) to audit processes
- Introduction of blockchain in the supply chain for better traceability of products
- Inclusion of IoT, RPA, AI, and machine learning (ML) for better planning
- Reduced the quarterly average return rate by around 9%
- Optimized return merchandise authorization (RMA) processing time to 1.5 days.
- Decreased the number of e-mails regarding returns in less than 90 days.
- Improved store credit requests to 30%
- Reduced refund rate by 10%
- Reduced multi-size purchases of clothing by 15%
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