Managing Returned Goods in Warehouses: Processes and Disruptions Explained
| (i) Returns may have to be collected by driver and transport from end customers, who could be individuals located anywhere in the warehouse’s radius of service. Returns might also be conveyed by a postal service or another third party. However they are returned, the collection and reception will have to be coordinated, and each returned item will have to be rechecked-in. Receipting, de-packaging, and QC operations must be performed on each item returned. If volumes are high and regular, then a significant portion of the warehouse will have to be reserved and staffed exclusively to handle returns. Returns may have to be isolated from the main cycle stock/picking area or despatched elsewhere, which will entail repackaging, relabelling, loading, inventory record adjustment, and despatch. Thus, returns handling requires all the operations involved in forward logistics plus duplication and special operations, such as QC. (ii) The returns process disrupts the general flow and efficiency of the warehouse for various reasons. Firstly, in a typical warehouse, the dominant direction of product flow is from source to consumer, with the warehouse playing an intermediary role of storage/distribution. Ideally storage is as brief as possible, and distribution is made economical by consolidation and high-volume goods handling. Returns come from diverse sources, so are rarely bulk receipts. They require individual processing and restocking processes. Above all, disruption occurs because the flow of goods and capital is reversed: returns come back from the customer to the warehouse, and then the warehouse sends them to the manufacturer or reconditions and repackages goods for resale. The cost of managing the reverse flow is higher than the cost of the forward flow. Secondly, accommodation of the reverse flow requires areas of the warehouse to be reserved and operatives to be engaged in receipting and checking returned goods. Returns handling is unlikely to represent a profitable allocation of resources. These operations are rarely value-adding. Some capital maybe recoverable from returned goods, but this depends on further orders for the same item and the quality of the returns being as-new. Quality checking, receipting, inventory logging, repackaging, and putting away all have to be performed, and the cost of these activities may not be justified by the profit in the resale, if a resale occurs. Thirdly, returns handling tasks the warehouse’s management with operations and KPIs that might not be a natural fit with core activities and the design of the facility. For example, quality inspection of returned goods, end customer services, and reconditioning of returned goods are likely to require specialist skills that are uncommon in and difficult to integrate into a generalist operation whose design was originally without such considerations. NB. In 2021, staff at the FASTFASHION distribution centre in NORTHWEST UNITED KINGDOM told me (reluctantly) that around 35% of product were returned due to sizing problems. Only about 50% of those returns were resold, and of that 50%, only around 25% were sold at non-discounted prices. Fast fashion items lose value very quickly, so the management was at that time considering abandoning returns processing. That is, customers would be refunded and told to keep the product, or the product would be returned but sent straight to a textile recycling centre. Returns inspection and handling consumed about 20% of the operation’s resources so constituted major value-subtractive operations. |