n distribution centers near busy U.S. highways, crews work through shipments of unwanted or damaged goods, inspecting each box to determine what to do with each product. Some returns will be sent back to the manufacturer for refurbishing, others will be marked down, and still, others will be scrapped.
For the e-commerce industry, returns are a growing concern. Americans returned an estimated $32 billion worth of merchandise during the previous holiday season, according to CBRE Group’s calculations. Some returns are unavoidable: Customers change their mind and sometimes are not satisfied with their purchase.
But 20% of returns occur because of shipping damage, and the cost to replace a damaged product can be 17 times the original cost to ship. E-commerce companies can better prevent those losses.
“E-commerce companies underestimate the cost of damaged returns to their business and the environment,” says Chad Stephens, Vice President of Global Research & Development in the Product Care Division of Sealed Air. “We have conducted more than 60 e-commerce supply chain audits, and customers are typically surprised by the results.”
There are numerous costs associated with making a product. For example, cell phones, laptops and flat-screen televisions are made up of thousands of components and manufacturers purchase those parts from global suppliers. When electronics are damaged, the raw materials used to make these products are wasted. The e-commerce company loses money, and the entire supply chain is strained.
Damaged goods also require labor to physically move these items and additional warehouse space to store and process returns. The return of a damaged product and re-sending a replacement impacts the environment with increased energy usage and vehicle emissions. Some retailers are even adding dedicated facilities and teams for handling returns.
These resources are not something e-commerce companies have to spare. Forty-four percent of consumer goods executives said they faced labor challenges, according to the Global Resource Challenges Report. Another 31 percent said the same about facilities.
“E-commerce companies are already resource-challenged, and shipping damages compound that problem.”
“That extra labor and warehouse space comes at a cost,” Stephens says. “E-commerce companies are already resource-challenged, and damaged goods are just compounding that problem. If you had fewer returns, you would have a smaller returns department and, therefore, reduce the strain.”
Some companies are using packaging designed for traditional retail supply chains. In the past, companies delivered their products only to brick-and-mortar stores in truckload or pallet-sized quantities. Today, e-commerce supply chains are more complicated, shipping smaller numbers of products through parcel delivery providers. These two business models have different packaging requirements.
This shift in business models has also given rise to another packaging challenge: mixed packages. E-commerce companies often incentivize consumers to buy more than one product to minimize shipping costs. Everything from dish detergent to glassware could be shipped together. E-commerce companies can test to see if their packaging meets International Safe Transit Association standards for a single product, but the playing field gets complicated when multiple items are packed in a single box.
“These e-commerce fulfillment facilities have everything you can imagine,” Stephens says. “Just think of the multitude of packaging combinations a fulfillment center faces. It seems infinite when you first look at it. Our team's goal is to simplify complexities."
Stephens and his team are poised to be part of the solution. By working with manufacturers, they’re looking to reduce, eliminate, and optimize secondary packaging without sacrificing the ultimate goal of protecting the product. His group is also helping e-commerce companies provide better training through innovations that provide videos and illustrations right on the packaging equipment.
Right now, e-commerce is still in its infancy — sales grew an estimated 24 percent in 2016, reaching $1.9 trillion. Most e-commerce companies are scaling up to increase their volume as they begin to start optimizing their packaging processes, and Stephens already sees leading companies thinking about the role of packaging in their profits. And he knows more will follow in the next few years.
Stephens says: “Damaged goods are money that e-commerce companies are tossing into the fire.”
To learn how one company reduced shipping damage and increased profits, read “Preventing Returned Goods Was Worth $12M Annually to this Retailer.”