There is a common mistake that many companies make that costs them additional transportation dollars, that could easily be avoided. That mistake is that they use UPS, FedEx, or other expense shipping options to get product back from their customer and/ or send returned goods back to their suppliers. This usually happens because nobody really thought about the mode of transportation used for returns.
Many companies will ship product back using the same mode of transportation that was used to deliver the product. This is especially true for e-commerce and catalog retailers. If the shipping requirements for outbound orders are first class, overnight, or similar forms of special delivery, many companies instruct their customers to return product using the same mode of transportation. The majority of the time this is a big waste of money.
There is a big difference between outbound orders and returns. The difference is that nobody cares how long it takes for returns to get FROM the customer back to the company. If an item that is returned takes two or three extra days, nobody cares. Unless there are special handling requirement due to the type of item that is returned, set up transportation using the cheapest method available.
Of course, like everything else, one size doesn’t fit all. Many will have some SKU’s that should be shipped back using the more expensive options. However, for the majority of SKU’s, the cheaper transportation options will do just fine. Retailers, distributors and manufacturers should all have systems that can tailor transportation directions based on SKU. This is usually a fairly easy thing to do but can result in significant transportation savings.
Attention manufacturers, OEM’s, and retailers, you can work together to reduce the cost of transporting returned goods from the retailer to the manufacturer simply by working together. Most retailers do a lot more business with carriers than do their suppliers, manufacturers, and OEM’s. As a result, retailers are able to negotiate better LTL, Truckload, and small package rates.
However, many times when it comes to who pays transportation bills for goods moving from the retailer to the manufacturer in the reverse logistics pipeline, the manufacturer end up paying the carrier directly, at a higher rate. This is often the default assumption, but it doesn’t have to be.
If you are a supplier or OEM that does this, I have a great tip for you. Go to your retail customer and ask them to pay for shipping and bill you. Of course you will want to see what their transportation rates will be, but for the vast majority of suppliers, they will see a significant savings.
Savvy manufacturers often encourage their retail customers to work with them on this by agreeing on a mark up on the rates paid by the retailer, which is still lower than they would pay with their rates. With this arrangement the retailers make the spread between what they pay the carrier and what they bill their supplier. This also helps by providing the retailer more volume with their favorite carriers that the retailer can leverage to get better rates in the future on all their freight. The manufacturers saves big because they can dramatically reduce their transportation costs on returns by using the retailers rates which will be much better than what they can typically get from their carriers.