Rinse, return, and redeploy

It may be hard to fathom, but merchandise returns were once orderly processes. A consumer returned a product to the store where it was purchased. The merchant had straightforward guidelines for accepting returns, and the merchandise had to be returned in good, if not pristine, condition. By the way, there was no "e" before "commerce."

Today's returns are anything but straight-line events, due to the digital tsunami that has created what could be called a reverse omnichannel effect. Returns can come from anywhere, at any time, and be received at multiple locations. The convenience of shopping from mobile devices means the length of the returns pipeline is greater than ever before. Retailers with online footprints (which is everyone) and e-tailers tolerate, if not encourage, orders of multiple items in the hopes a buyer will order four and perhaps return two instead of three; that practice effectively stuffs the returns channels. Because merchants are loath to set stringent returns policies for fear of being skewered on social media, scruffy stuff that in the past would be ineligible for refunds or credits is instead accepted. The rise of a phenomenon known as "fast fashion," where new designs replace old at the blink of an eye, means that there are now 12 design seasons a year instead of the traditional four, and has dramatically increased returns turnover.

In the high-tech and electronics segments, tougher environmental regulations make it harder for companies to toss out a product with little residual value. For instance, a liquid crystal display (LCD) module can account for up to 75 percent of the greenhouse gas and carbon emissions of an entire device, according to Li Tong Group, a Hong Kong-based reverse logistics specialist that manages the reverse supply chains for dozens of original equipment manufacturers (OEMs).

These obstacles have not stopped revenue-hungry companies from trying to make lemonade out of lemons, however. The practice of repositioning returned merchandise for a new forward move has gained momentum as manufacturers, retailers, and their reverse logistics practitioners look to monetize returned goods that might otherwise be drastically marked down or simply thrown away. While the redeployment process wouldn't be considered a profit center, it could play a key role in mitigating sizable losses bound to incur from using the traditional disposal methods.

As a result, a tactic that had been executed sporadically and opportunistically has become strategic in nature, said David Vehec, business development specialist-retail at Pittsburgh-based Genco Supply Chain Solutions, a privately held reverse logistics specialist acquired earlier this year by FedEx Corp. "The use of redeployment strategies has grown exponentially in the last two years," said Vehec, without providing data to quantify the growth.

The more sophisticated organizations, perhaps unsurprisingly, have led the charge up to now. Yet virtually all companies can benefit from the availability of digital tools that experts said would provide the needed visibility to identify and ultimately reposition the goods that could fetch the most money in the secondary market. For example, order management systems commonplace across the supply chain contain "distributed order management" (DOM) modules that determine when a return—"eaches," "onesies," or "twosies" that, in aggregate, account for most of the e-commerce avalanche—should stay within a retailer's network for resale, or if the resale's value is so low as to not justify the costs of shipping, according to Victoria Brown, senior research analyst at consultancy IDC Retail Insights. "The DOM does the thinking for you," Brown said. However, many retailers have yet to leverage the module, she said.

In the high-tech world, the dynamics for returns redeployment are somewhat different. Today's high-value product can become low-value three to six months out, as more powerful technologies quickly push out the old standbys. Linda Li, Li Tong's chief strategy officer, said the company uses sophisticated algorithms to determine what aging inventory could fetch in the appropriate aftermarket and whether the return is best suited for refurbishing to close to its original form, or if its components should be harvested for incorporation into another product before it is shipped back out. Parts harvesting and remanufacturing account for about 70 percent of Li Tong's business, while refurbishment and repairs of damaged products account for the balance, according to the company. A component that Li Tong harvests from, say, a laptop, could end up being used in an air traffic control system, she said. The company handles the manufacturing and fulfillment from 21 global warehouses and factories, doing everything save for the transportation.

Li Tong primarily focuses on the information and physical security of redeployed returns, said Li. Data from the returned device must be purged "at the first point of contact" to ensure that personal information doesn't remain if the product is returned to the aftermarket in near-original condition, she said. Physical security is also critical, especially when it comes to shipping components like lithium-ion batteries, which are embedded in millions of computers, mobile devices, and even cars; concern about bulk shipments of batteries overheating in the cargo hold of a passenger aircraft has led the Federal Aviation Administration to push for a global ban on shipments moving in the planes' bellies. Loose batteries must be properly packaged and are subject to stringent controls, and Li Tong ensures that employees are properly trained in handling procedures before the goods leave its hands, Li said.

The volume and complexity of returns will only intensify as e-commerce becomes a more dominant force in all supply chains. Companies that make stuff that could be returned may have to think further outside the box than they ever have before. This could lead to the enlistment of customers in the effort. For example, there's talk of companies' providing discount vouchers to consumers if they return products to central receiving points rather than through other channels.

Then there's high-end clothier Lilly Pulitzer, whose stores annually store returns of merchandise that is damaged, returned after the season, or not carried at that location in the first place, and ship them en masse to the company's headquarters and main distribution center in King of Prussia, Pa. There, every June, the goods go on sale at a huge mall adjacent to the DC at fire-sale prices. Shoppers come from as far away as Canada to buy quality merchandise and, at the same time, help Lilly clear out its inventory. That, it seems, would be a popular way to reposition returns.