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Home » Blogs » Think Tank » Using Artificial Intelligence for Returns Management


THINK TANK
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USING ARTIFICIAL INTELLIGENCE FOR RETURNS MANAGEMENT



Photo: iStock.com/Liubomyr Vorona


September 26, 2023
Erhan Musaoglu, SCB Contributor


In today’s world of direct-to-consumer (DTC) delivery, it’s no longer enough to
design an efficient warehouse layout or anticipate staffing levels to meet
demand. Warehouses today must consistently deliver a seamless end-to-end
experience for consumers, from order placement all the way through returns.

According to a study by University of Alabama researchers, “Information Search
and Product Returns Across Mobile and Traditional Online Channels,” 30% of
e-commerce orders are returned by consumers, compared with 9% for
brick-and-mortar stores. In physical stores returned items can inspected,
repackaged and often put back on shelves, But e-commerce returns require an
entirely different approach.  Outbound and returns are two different shipping
functions that require different processes.

In 2021, the total number of e-commerce orders surpassed $5.2 trillion. If the
current rate of e-commerce expansion continues on its current trajectory, the
anticipated cost of e-commerce returns will soon reach more than a trillion
dollars a year for online sellers.  Today’s warehouses are designed primarily
for outbound fulfillment, but returns are increasingly a customer service
differentiator.

The Cost of Poor Returns Management

Returns can come with a high cost for retailers and third-party logistics
providers, eroding already narrow margins.  Many simply refund the purchase and
take a loss on the returned product. The alternative returns process is often
more time-consuming and expensive than letting shoppers hang on to the returns
and offering their money back.

According to CBRE, the average cost of an e-commerce return ranges from $20.75
to $45.25. This amount factors in the costs of transportation, processing,
markdowns and liquidation to resell, regardless of item value. While this is not
an effective or affordable option for many warehouse operations, the
consequences of an ineffective returns operation can result in more than just
loss of product, operational efficiency and labor time. It can lead to
irreparable brand damage, and cause a snowball effect of financial losses. 

The Benefits of AI

In order fulfillment and many other supply chain functions, artificial
intelligence is now an indispensable asset in improving the quality
and efficiency of returns for high-volume DTC operations. To provide “free,
no-hassle” returns for customers and regain lost profits for the business, AI
helps in a variety of ways. Following are a few of the key benefits.

AI get returned goods back into the supply chain faster, with applications that
enable organizations to make returns allocation decisions based on real-time
data. AI algorithms can assess product condition, resale price, processing
costs, future touch points, transportation fees and storage requirements to get
returns sorted for the highest possible recovery rate. With the ability to
automatically calculate the total returns management cost, AI can determine the
best course of action for each return scenario and cut returns processing time
by 75%. 

AI can find the underlying causes of returns, including identifying problems in
fulfillment operations, which may be causing an influx of returns. Specifically,
it can evaluate data such as customer reviews or track returns communication
channels. This helps organizations react to consumer behavior, customize returns
management operations and make changes to fulfillment processes where needed.

AI can recover higher profits from returned goods. Once items are back in
inventory, a common mistake is to list second-hand items on a single online
marketplace at one set price. With AI support for returns management operations,
organizations can use intelligent dynamic pricing (or data-driven intelligent
pricing) to ensure that the maximum value can be earned on all returned items.

AI can route returns to the best fulfillment centers. Once a returned order
arrives at a warehouse or returns center, AI can route it to the next best
internal storage location, fulfillment center or geographic region. The decision
is based on demand, item availability and the costs associated with transferring
the item somewhere else in your fulfillment network. Just like smart inventory
management and directed putaway algorithms, AI provides clarity and control to
manage returned inventory like it never even left the warehouse.

For DTC e-commerce businesses, customer returns are inevitable and unavoidable.
But return rates are manageable, and their negative impact can be reduced with
the help of AI-powered warehouse management systems.

If your e-commerce organization hasn’t made returns a priority, now is the time
to assess your operations and ensure you’re equipped to handle the challenges of
returns management. For retailers and 3PLs, returns management and reverse
logistics have become two of the most impactful factors in long-term DTC
success. 

Erhan Musaoglu is the founder and chief executive officer of Logiwa, Inc.

Reverse Logistics Artificial Intelligence All Warehouse Services




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