Managing post-holiday returns can be a headache for even the best-run distribution centers, and it’s getting more intense as the volume of returns soars in today’s era of e-commerce. Consumers returned about $760 billion worth of merchandise in 2021, according to data from the National Retail Federation (NRF)—a figure some industry watchers expect to top $1 trillion this year. The staggering volume is shining a light on reverse logistics, and more companies are looking for ways to better manage the process, including applying robotics and automation.
“Returns are a massive problem for the whole industry—because the volume is so high,” explains Gaurav Saran, founder and CEO of ReverseLogix, a developer of returns management software (RMS) for business-to-business (B2B) and business-to-consumer (B2C) clients. “And all indications are that we will continue the trend, with returns being exceptionally high every year.”
Retailers deal with an average 17% returns rate—also according to NRF data from 2021—but Saran and others say that figure can reach as high as 30% during peak holiday season. At those levels, reverse logistics is ripe for automation, but companies have been slow to apply it for a variety of reasons.
First and foremost, returns are a far more complex process than forward logistics, in which inventory is received in mint condition—often neatly stacked on pallets or in boxes—and can be scanned and entered into inventory without too much hassle. From there, companies can apply robotics in a variety of ways to help speed putaway, fulfillment, and shipping. Returns are another story, requiring additional layers of processing to check a product’s condition before determining whether it can be sent back to inventory or should be dispatched to one of many other possible destinations—layers that add time and labor to the process, making automating returns more challenging.
But there is progress. Companies with detailed, tech-enabled processes for handling returns are finding success applying robotics to the problem, and Saran and others say 2023 may be the year the application finally takes off.
“I think it’s becoming really relevant,” Saran explains, emphasizing the importance of an intelligent returns management process that can integrate with robotic solutions. “If robotics is helping on forward fulfillment, and you know [that as much as] 30% is coming back, then robotics can add value.”
There are two main stages of the returns journey: initiation of the return on the front end, with the customer; and then processing the return when it arrives at the DC. For the most part, robotics come into play at the DC. Items often arrive piled up in gaylords—large cardboard containers the size of a pallet—from which they must be removed, inspected, and sorted.
“When items come back to the physical warehouse, you want to be prepared, from a technology perspective, to process those returns as quickly as you can,” Saran says, explaining that a centralized software system that provides visibility from the start of the return through receipt of the item can help speed things along. Digital details about what type of item is being returned and why are vital, as is guidance on what to do at each step along the way.
Most commonly, DC workers will manually remove and scan each returned item to determine its next stop on the journey. The level of detail provided in that scan can streamline the process and allow robotics to kick in and help. Does a returned sweater simply require repackaging so it can be put back into stock as first quality, or is it slightly worn, requiring a different strategy? Robotics can only take over after the electronic scan tells the system where to send the item.
“The retailer or brand has to look at how they make the front-end experience good, but when it arrives, they have to be able to process it in the most efficient and transparent way and then ‘apply’ the right disposition,” Saran says. “Robotics can help with the movement, but if you don’t have the right system in place to improve the overall process, it won’t matter.”
Sean O’Farrell, vice president of operations for Tompkins Robotics, agrees. Companies can program their IT systems to sort returns to a variety of locations from the DC—a repair area; back to inventory; to a wholesaler, charity, or waste bin; or back to the vendor, for example—and that information can then be integrated with a robotics system. Tompkins Robotics is applying its tSort robots to returns with a handful of customers who have those technological capabilities, which account for about 10% of the company’s business. O’Farrell says he expects that business to grow considerably over the next few years, primarily because of the accelerating volume of returns and because companies are increasingly outsourcing returns to third-party logistics service providers (3PLs)—often large players with sophisticated DCs that are looking for high-tech solutions for handling returns.
“Because of the accelerating growth on the retail side of the business, companies are pushing returns out to 3PLs, who have been quite successful in securing that business,” O’Farrell explains. “Returns are labor intensive, and that means a push toward automation.”
The most common types of robotics used for returns are autonomous mobile robots (AMRs), robotic arms for pick and place, robotic pick walls, and automated guided vehicles (AGVs), which can be used to move full pallets and gaylords around the DC, according to O’Farrell. Tompkins Robotics’ tSort robots fall into the AMR category. The small robots act like a tilt-tray or crossbelt sorter without a fixed track, moving independently to any divert or induction station along the shortest path. The robots come in different sizes to accommodate a range of items—from jewelry and pharmaceuticals to cartons and heavy goods—and the robot fleets can be scaled up or down to meet seasonal demands. That scalability and flexibility have made AMRs an attractive option for many companies looking to automate their DCs, especially organizations that are looking to dip their toe into robotics without a large-scale investment.
“AMRs have really revolutionized warehousing with many companies over the last few years,” O’Farrell explains. “Companies understand the tangible benefits that AMRs bring to their operations, and they like not having automation fixed [or] fastened to the floor. AMR [systems] can easily be expanded, especially during peak holiday times. One of my favorite aspects of AMRs is [that they allow] smaller companies to get into automation to compete and grow their [business].”
Those factors are also what makes AMRs easily adaptable for returns. One of Tompkins Robotics’ 3PL customers is using tSort robots to handle cellphone returns for a manufacturing client, addressing a labor challenge that was slowing down the largely manual process the 3PL had been using. Workers at the DC were sorting the returns by hand and then walking them to their ultimate destination. Today, workers still remove the returned phones from a gaylord by hand, but they scan them into a returns management system and then place them on an AMR, which automatically delivers the items to the next stop on their journey. The robotic system knows to deliver the phone to a repair center, back to inventory, or to the vendor, among other possibilities, thanks to the information in the customer’s IT system.
Another Tompkins customer is applying the technology to sort and move returned apparel it buys in bulk from other retailers and then sells through its own inventory network. The customer needed a faster way to move items arriving in gaylords off the loading dock and into inventory for immediate sale. AGVs move the gaylords to an induction station, where workers remove and scan the items and, as with the cellphone example, place them on an AMR, which delivers them to the next destination.
In both examples, the customer has reduced the number of “touches” required for a return while also reducing the time required to process the material from receipt to disposition.
Such projects are likely to increase. ReverseLogix is working on partnerships with some of the industry’s major robotics companies to integrate its returns management software with existing robotics on the warehouse and DC floor, for example. Saran says the work stems from the company’s relationships with some of the industry’s largest 3PLs, who are using ReverseLogix to improve visibility into returns but need to take the next step to apply that insight to moving returns within the DC. Making that connection will be vital to handling accelerating returns volumes in the years ahead.
“More companies are realizing that returns need to be processed intelligently,” Saran says. “Then robotics can manage it the rest of the way.”
Consumer demands drive change in reverse logistics
A recent survey by last-mile logistics technology developer FarEye underscores the exponential growth in returns volumes worldwide and the resulting pressure on retailers and logistics service companies to find solutions that will ease the handling process.
The survey polled 1,000 U.S. and U.K. consumers about their expectations for the returns process this past holiday season and found that high return rates are here to stay, driven by recent changes in consumer buying behavior that have become permanent. FarEye found that roughly 61% of U.S. consumers and 51% of U.K. consumers made returns during the 2021 holiday season, and that 42% of U.S. consumers and 53% of U.K. consumers expected to make returns in the 2022 post-holiday season. Bracketing—the practice of buying multiple items online with the intention of returning some—is a driving factor, according to the report, which found that nearly 30% of U.S. consumers and almost half of U.K. consumers planned to do so during the recent peak season.
Flexibility and convenience also reign supreme in the returns process. FarEye found that 84% of U.S. consumers and 82% of U.K. consumers expect to be able to make a return anywhere from 30 to 90 days from the date of purchase, for example. In addition, both U.S. and U.K. consumers say they would like to be able to return items in store as well as at a post office or dropoff point.
“Consumer expectations will no doubt remain high throughout the holiday shopping season—one of the most profitable and critical revenue time periods for retailers,” said FarEye co-founder and CEO Kushal Nahata in a November press release. “As retailers continue to simplify the last-mile delivery experience, they cannot forget about the returns experience. This … should be just as simple as the delivery experience.”