Wednesday, July 13, 2016

Why Retail Has a Growing Reverse Supply Chain Problem—And How to Fix It

Over the years, retailers have become very good at the supply chain—the process of getting goods from the manufacturing plant to the customer. But today, many retailers face a different challenge: taking those goods back, a process referred to as the "reverse supply chain."

Every year, 2 million tons (or 4 billion pounds) of retail returns are loaded into landfills, according to Environmental Capital Group, many of which are already brimming to capacity and contributing to environmental problems like groundwater contamination and greenhouse gas emissions.

Many retailers expect the problem and cost of retail returns to grow, thanks to the rise of e-commerce and more retailers offering free shipping and free returns. A recent study from eMarketer forecasted e-commerce sales in the U.S. will grow 15.6% in 2016, with e-commerce’s share of total retail sales poised to surpass 10% by 2018. Large retailers from Macy’s to Target and Wal-Mart have vowed to grow their omnichannel and e-commerce capabilities, offering new options to customers in order to compete with Amazon.

As retailers ramp up their offerings to keep up with changing consumer expectations and shopping habits, experts say the industry must place a greater emphasis on the reverse supply chain. With the changing tide, retailers are finding they must be equipped to process returns from multiple channels in an efficient manner: an investment that makes environmental andbusiness sense, albeit one they have not traditionally focused on.

The forward supply chain's ugly stepsister

The reverse supply chain has historically been regarded as the forward supply chain's ugly stepsister, an unmanageable “nuisance” that siphoned away costs, according to Jonathan Byrnes, senior lecturer at MIT’s Center for Transportation & Logistics. But eventually, retailers couldn’t ignore lost profits.

As the costs stemming from a lax reverse supply chain hurt their margins,larger retailers began focusing in on it about 15-20 years ago. In 2016, it's becoming increasingly urgent.

“Today, retailers have serious margin problems, especially from omnichannel competitors,” Byrnes said. “So, they are looking under every rock,” including the reverse supply chain.

Part of the problem is that the process for returns hasn't changed much over the years. Many returns to stores were and still are treated more or less in the same way, according to Ann Calamai, director of sustainability for logistics technology company Optoro.

Once an item—let’s say a toaster—is returned, it is then kept at the store until the weekly arrival of a truck that transports the toaster and other returns to a central facility. At the warehouse, piles of unwanted merchandise are relegated to a corner to be dealt with—maybe in a week, maybe in a month. Retailers can choose to refurbish the toaster and resell it, recycle it for parts, sell it to a liquidator, or dispose of it right there.

“What we're seeing in that reverse supply chain is a lot of touches: The liquidator sells to other liquidator who sells to wholesaler and wholesaler has a flea market or it's an eBay shop—regular ol’ folks reselling merchandise,” Calamai said.

But if the goods do end up in the landfill, they will most likely stick around for years and years. Rubber boot soles take about 50-80 years to decompose in landfills; leather shoes, 25-40 years; wool clothing, one to five years. With the number of returns likely to grow each year, the number of rubber boot soles and leather shoes festering away in landfills for decades will likely only increase.

“It’s unsustainable to constantly take natural resources and produce a product that’s eventually going to be thrown away. Summarily, it’s unsustainable to run a business not making money and not growing," said Adam Siegel, vice president for sustainability and retail operations at the Retail Industry Leaders Association. "So sustainability, to me, goes hand-in-hand with business environmental opportunities.”

by Kelsey Lindsey, Retail Dive | Read more:
Image: Fotolia