The Role of Artificial Intelligence (AI) in Returns Management

The larger the ecommerce sector grows, and the more complex supply chains become, the smarter warehouse operators need to be in their approach to high-volume order fulfillment. It is no longer enough to design an efficient warehouse layout or anticipate the right amount of staff to help manage demand: you must be able to ensure orders run smoothly in both directions. 

For retailers and third-party logistics (3PL) providers, returns management and reverse logistics have become two of the most impactful factors in long-term direct-to-consumer (DTC) success. But getting it right is easier said than done. Luckily, tools like artificial intelligence (AI) can help warehouses tackle returns head-on. 

In this guide, we’ll explore:

Ecommerce: A World of Returns 

According to University of Alabama’s study on “Information Search and Product Returns Across Mobile and Traditional Online Channels”,  30% of all ecommerce orders are returned by consumers, compared with 9% for brick-and-mortar stores. That statistic is staggering when one considers that the total number of ecommerce orders surpassed 5.2 trillion U.S. dollars worldwide in 2021 and is still steadily growing. 

Should the current rate of ecommerce expansion continue its current trajectory, the anticipated cost of ecommerce returns will soon reach more than a trillion dollars a year for online sellers. If you have not made mastering the art of returns a priority, now is the time to assess your operations and make improvements. 

The Cost of Poor Returns Management for Warehouses

The cost for retailers and 3PLs to manage reverse logistics is so high that many have begun to simply refund the purchase price and cut the losses directly when a customer wishes to make a return. The alternative returns process is considered more time consuming and expensive than letting shoppers hang on to the returns and offering their money back. 

According to CBRE, the average cost of an ecommerce return ranges from $20.75 to $45.25. That factors in the costs of transportation, processing, and markdowns/liquidation to resell regardless of item value. 

This is not an effective or affordable option for many warehouse operations. That said, the consequences of an ineffective returns operation can result in more than just loss of product, operational efficiency, and labor time. It can lead to irreparable brand damage and cause a snowball effect of financial losses. This makes the support of AI and machine learning solutions invaluable.