Where the Reverse Supply Chain Takes Us

Recently I picked up a birthday cake that, I soon discovered, was for someone else. When I reported the error to the ice cream store, at first, they asked me to return the cake. What, I wondered, do you do with a used ice cream cake? Happily, they quickly changed their mind and said to keep the cake.

Today though, let’s ask what happens to everything that is returnable.

The Reverse Supply Chain

How Much

Perhaps it all began with Zappos. Radical at the time, its ethos encouraged us to buy, try on, and return the shoes we did not want. Similarly, Warby Parker has had a try it and return it policy. But now, they ask us to use a virtual tool that lets us try on their glasses online to minimize the return expense. Meanwhile L.L. Bean has asked shoe buyers to include an outline of their foot, a request that created more hassle than the returns it minimized.

Soaring from two percent a century ago at stores like J.C. Penney (founded by James Cash Penney), the internet created a world of returning one fifth of what we buy. Correspondingly, worth more than a whopping $300 billion, one year’s winter holiday returns is close to one third of what we send back annually.

Why

Easy returns are a way to boost revenue by keeping customers happy. Sometimes firms instruct us to keep the return and send us the refund anyhow. Most others, though, send our returns to reverse logistics people. Specializing in returns, they are good at deciding what can and cannot be repaired and then funneling salvageable items to the people that want them. They sort and reload and send it to resellers. Value though plummets with a typical shipment initially worth more than $500,000 selling for $925.

In addition, there is a whole refurbished world. With robot vacs, people don’t read the directions because they have a tough time with WIFI connections. As a result, the refurbished vac gets a cable. It is also possible that a return firm does the repair. Then, the appliance, for example, is sold at stores like Ollies where refurbished items can be as good as new but much cheaper.

Looking for a common thread, we can only say that every return category has a different issue.

Our Bottom Line: Land, Labor, and Capital

We can also say that the reverse supply chain requires considerable land, labor, and capital. Like we use the factors of production to make our goods and services, we undo the process with the same resources. When large and small firms get returns, they need land for all they receive, the labor funnels the rejected goods and services to the people and places that want (or destroy) them, and we have a delivery network that does everything backwards.

Indeed, as an example of the reverse supply chain, my ice cream cake was not typical.

My sources and more: Thanks to the writer David Owen for my return to returns. Combined with our April econlife post on returns, we had most of the story.