Retailers Failure In Supply Chain Design

Thought Leadership

Why Retailers have Resorted to Letting Customers Keep their Returned Items: A Failure in Supply Chain Design

I was baffled when I read about how global retailers like Target, Walmart, Gap, and American Eagle are opting to let customers keep their unwanted items instead of sending them back. Is this the new trend for retailers and consumers alike? While retailers face the challenge of excess inventory at unprecedented levels, the average American consumer wastes so many items by throwing them away - one example is in apparel where each US consumer is throwing away 81 pounds of clothes every year. Giving up and not accepting returns is a cop-out for Retailers. Instead, we need to incorporate closed-loop and sustainably designed supply chain practices throughout the retail ecosystem to help manage and mitigate unnecessary waste.

First, let’s take a deep dive into how poor supply chain planning processes have brought retailers to the breaking point they’re at today. Most retailers order products many seasons ahead, usually with suppliers being several weeks away (Asia, SE Asia, LATAM, etc). A big slug of inventory ends up in warehouses and stores, with Retailers using promotions and outlet channels to push product out so they can make way for more product for the upcoming season. And then the pandemic shook just about every industry to its core, but the retail industry traversed a particularly difficult road. This type of supply chain may be suitable when demand and supply variability are low - but doesn’t work great when variability is high. Throw in trade tensions, wars, the pandemic, and a continuing shift in consumer preferences to digital and more sustainable brands - and the retail planning process can’t handle those changing elements.

While Retailers spend a lot of time building their outbound distribution network, elements of the supply chain like returns, repair, and recycled items are usually not on the radar of the supply chain team. Have you ever been able to return packaging to retailers so they can use the material again? Metrics like contribution to landfill, water resource usage per sku, CO2 contribution per sku, and return cost per sku are usually not top of mind for executives. It’s usually about revenue, new store sales, and margin.

The combination of the Pandemic along with climate-conscious consumers, coupled with a shift to digital supply chains requires Retailers to rethink how they’ve designed their planning processes as well as to broaden the metrics that define supply chain excellence. While it may be "efficient" to let the consumer handle the unwanted item themselves, it seems to me like retailers are missing the point on what excellence in the supply chain truly means.

It's time to redefine supply chain design and determine what a successful supply chain looks like. In my opinion, telling your customers to keep their unwanted items is not the right thing to do across a number of fronts. What do you think?

About the Author:

John Ames

John is the Vice President of Business Development at Optilogic. Prior to joining, he was part of the leadership team at LLamasoft, Inc. helping the company go from 12 people to over 500 across 10 years, with roles in pre-sales, professional services, alliances, and country manager. John also worked in pre-sales and business development roles for several small supply chain companies with technologies in inventory optimization, demand planning and causal forecasting, network optimization, S&OP, and finite capacity scheduling.