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Using Artificial Intelligence for Returns Management

by Joey De Leon

The Rise of E-Commerce Returns: How AI Can Improve Returns Management

In today’s fast-paced world, the convenience of online shopping has become an integral part of our lives. However, with the growth of e-commerce comes a new challenge that retailers and logistics providers must tackle: returns management. The process of handling product returns can be complex and costly, but it is also an opportunity to provide exceptional customer service and drive customer loyalty. This is where the power of artificial intelligence (AI) comes into play.

According to a study conducted by researchers at the University of Alabama, 30% of e-commerce orders are returned by consumers, compared to only 9% for brick-and-mortar stores. This significant difference highlights the need for a different approach to returns management in the e-commerce industry. Unlike physical stores, returned items in e-commerce cannot simply be inspected, repackaged, and put back on the shelves. Outbound and returns processes require different strategies and logistics.

The total number of e-commerce orders surpassed $5.2 trillion in 2021, and if the current trend continues, the cost of e-commerce returns is projected to reach over a trillion dollars annually for online sellers. Returns have a high cost for retailers and third-party logistics providers, as they can erode already narrow margins. Many businesses opt to offer refunds and take a loss on returned products, as the alternative returns process can be time-consuming and expensive. According to CBRE, the average cost of an e-commerce return ranges from $20.75 to $45.25, factoring in transportation, processing, markdowns, and liquidation costs. Ineffective returns management can lead to brand damage and financial losses.

This is where AI comes in as a game-changer. AI-powered warehouse management systems can improve the quality and efficiency of returns for high-volume direct-to-consumer (DTC) operations. AI algorithms can assess product condition, resale price, processing costs, future touch points, transportation fees, and storage requirements to sort returns for the highest possible recovery rate. With real-time data and intelligent decision-making, AI can cut returns processing time by 75% and optimize the allocation of returned goods.

AI can also help identify the underlying causes of returns. By analyzing customer reviews and tracking returns communication channels, AI can pinpoint problems in fulfillment operations, allowing organizations to make necessary changes and reduce returns rates. Additionally, AI can assist in recovering higher profits from returned goods. Instead of listing second-hand items at a fixed price, intelligent dynamic pricing ensures that the maximum value is earned on all returned items.

Furthermore, AI can effectively route returns to the best fulfillment centers. Based on demand, item availability, and costs, AI can determine the most suitable internal storage location, fulfillment center, or geographic region for returned orders. With smart inventory management and directed putaway algorithms, AI provides clarity and control in managing returned inventory.

For DTC e-commerce businesses, customer returns are inevitable. However, return rates can be managed and their negative impact reduced with the help of AI-powered warehouse management systems. It is crucial for e-commerce organizations to prioritize returns management and assess their operations to handle the challenges that come with it. Returns management and reverse logistics have become essential factors in achieving long-term DTC success for retailers and 3PLs.

In conclusion, the rise of e-commerce returns calls for a transformative approach to returns management. AI offers numerous benefits, including faster integration of returned goods into the supply chain, identification of underlying causes of returns, higher profits from returned goods, and optimized routing of returns. By leveraging the power of AI, e-commerce businesses can provide a seamless end-to-end experience for consumers and turn returns management into a competitive advantage.

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