Returns: The Inventory Nightmare After Christmas

12.02.2022

From its explosive, pandemic-driven growth in 2020 to the continued behavioral shift toward online and mobile shopping, the e-commerce market is still going strong. In fact, despite current supply chain and inflationary pressures, a recent a report from Morgan Stanley forecasts that e-commerce could increase from $3.3 trillion today to $5.4 trillion in 2026: 

“We believe that the Covid-driven bump will not flatten future e-commerce growth,” says Brian Nowak, an equity analyst covering the U.S. internet industry. He sees e-commerce reaching 27% of retail sales by 2026. “Across the world, we have yet to see a ceiling for e-commerce penetration.” 

More online shopping = more returns 

The permanent shift in the way people shop has also opened the floodgates to returns, especially after the holiday shopping frenzy.  

Like me, you’re probably doing more online shopping than ever before and perhaps even making buying decisions based on a retailer’s return policies. With an e-commerce penetration rate of 19%, CRBE predicts that there could be up to $85 billion worth of goods returned during or immediately after the 2022 holiday season. 

Returns from online shopping tend to be higher than in-store purchases (approximately 15-30%), as consumers are unable to truly visualize how an item will fit or feel, and may intentionally order multiple sizes or variations of the same product with the intention of keeping one and returning the rest. 

And while competitive pressures drive retailers to offer generous and frictionless return policies, free returns are both costly and labor-intensive. 

The operational challenges of returns processing 

Compared to the receipt of new inventory, returns typically require more warehouse space and labor. Associates need to check the condition of every returned product and determine what to do with it: restock, repackage, repair, dispose or quarantine.  

Once a returned item has been received and inspected, the associate assigns a destination based on its condition. This could be a specific rack location for restock or an area for repair or disposal. Returns are typically sorted into destination-specific totes, pallets or roll cages.  

Due to the high number of discrete products, managing the sorting and routing of each item to its final destination can be overwhelming. When a tote is filled to the brim with returned inventory, it takes a great deal of time to sort through it all and put it back in the correct location.  

With apparel and footwear in particular, anywhere from 25 to 30% of orders shipped can come back as returns. And when returns start piling up, it can cause tremendous strain on a warehouse’s space utilization, efficiency and inventory carrying costs. The longer a return sits unprocessed, the more likely that the inventory will need to be steeply discounted, especially in categories with high seasonality. 

The robotic warehouse: flexible AMRs  

With the meteoric rise of e-commerce, warehouse operators are turning to autonomous mobile robots (AMRs) to enable faster fulfillment of orders, increase efficiency and lower labor costs.  

Broadly speaking, there are three main types of autonomous robots that can: 

  • Assist in the picking process (rack to person, tote to person, and assisted picking or co-bots) 
  • Move pallets and cases of inventory within a facility 
  • Provide solutions for conveyance and sortation in the warehouse 

In addition to the obvious efficiency gains and immediate time-saving benefits, there’s one often overlooked benefit of robotic automation: With each implementation, your business gains valuable data and insights which can then be applied to other automation initiatives in your facility. This allows you to further optimize the business processes in your warehouse, including returns.  

Warehouse robotics technology in the form of cobots can improve fulfillment speed without the need for layout or infrastructure changes. They can be deployed and productive within days, boosting picking efficiency 2-3x and simplifying returns, including the disposition and putaway processes. Here’s how warehouse automation robots might look in your warehouse: 

Shorter time to restock 

Once a returned item is received into your returns system or retail warehouse management system, a cobot can take over and direct operators to sort the returned items for re-stocking, repair or disposal. Destination locations can be auto-determined dynamically based on real-time events in the warehouse or via rule-based selection.  

For example, returns classified for restocking can be sorted to the bot’s totes based on a destination zone. Once totes are full, the bot will autonomously travel to the first putaway location and meet an associate who will put the returned product to a location directed by the bot. The bot will also consider all the locations that need to be visited and create an optimized path to reduce walking time for the associate. Once all the putaways are completed in the zone, the bot will travel to the next zone to meet the next associate, thus reducing overall walking time so associates can be as efficient and productive as possible. 

Streamlined return flows 

AMRs can transport inventory on racks or in totes to a stationary operator, thus eliminating unproductive travel and allowing the associate to place it directly in the pick location. And if powered by AI-driven software, those same AMRs can also orchestrate further efficiencies by analyzing affinity and placing SKUs that are ordered together on the same mobile rack, multiplying productivity gains.  

Other bots can handle large item returns by delivering the payload from the returns area to the correct returns management area. Some autonomous pallet robots can independently move pallets from one point to another. 

For custom return flows, bots can sort and convey packages to the correct destinations based on multiple attributes, such as return reason code or SKU properties.  

The bottom line 

An automated returns process enables more efficient operations by eliminating unproductive travel and search time, minimizing labor needs during sortation, and reducing the space required to process returns. As a result, warehouses can return products more quickly to stock – reducing inventory carrying costs, the need for markdowns and the productivity dips that typically accompany the holiday return madness. 

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