Practical Ecommerce

Drop Shipping: How to Manage Returns

Drop shipping requires three major data integrations between the retailer and the supplier: product catalog, inventory, and orders. The order integration and workflow culminates with fulfillment and shipment from the supplier to the end customer. (If you’re new to drop shipping, read my 4-part series on the basics.)

To recap, managing product catalog data starts with the premise that drop shipping requires that the seller-retailer have a virtual representation — i.e., data — of a physical thing that it will never see, touch, or control. Product catalog is the collection of descriptive data — title, brand, category, attributes, images — of that physical thing.

Managing inventory visibility is the process that tells you where the item is, how many items there are, and what they cost you as the reseller.

Orders are when it all comes together. Managing orders occurs when a consumer has purchased a product that a retailer was selling virtually and the order and fulfillment information needs to be sent to the supplier that physically has the product so that it can ship to the consumer.

Assuming everything has gone well to this point with the other three data integrations (catalog, inventory, and orders), managing fulfillment is as simple as the supplier — or a third party logistics provider — boxing up an item and shipping it to the consumer.

Returns Complicated for Drop Shipping

Returns for ecommerce businesses are more complicated than the straightforward process that consumers use in physical retail stores. For drop shipping, returns add an additional layer of complexity. But with some online products seeing return rates approaching 25 percent, you need to figure out a plan for handling drop-shipping returns because they’re going to happen. Having a good policy and strategy that can be coordinated between retailers and suppliers will be critical to ensure the result both parties are seeking: happy consumers.

Here’s a list of the data that could be coordinated between retailers and suppliers for returns.

  • po_number. The unique order identifier generated by the retailer’s system from the original order.
  • rma_number. The unique return identifier generated by the supplier.
  • order_return_reason. The reason the order is being returned. This could be, for example, “item delivered didn’t fit,” “customer decided product was not needed or wanted,” “item didn’t match the product description,” “company shipped the incorrect product or size,” or “product was damaged or defective.”
  • line_item_sku. The SKU being referenced by this update.
  • line_item_return_reason. The reason the line_item_sku is being returned.
  • line_item_quantity. The quantity that is expected to be shipped in this return.
  • line_item_condition. The condition of the line_item_sku. This could be, for example, “new,” “used,” or “damaged.”
  • line_item_expected_credit. The credit that the retailer expects to receive for the given SKU.
  • note. Optional note about this returned item.
  • needs_special_handling. Check if the person receiving this return should be aware of special handling needs prior to receiving.
  • return_attention. The name or title where the return is being shipped.
  • return_company. The company’s name where the return is being shipped.
  • return_address_1. Address 1 line where the return is being shipped.
  • return_address_2. Address 2 line where the return is being shipped.
  • return_city. City where the return is being shipped.
  • return_region. Region where the return is being shipped.
  • return_postal. Postal code where the return is being shipped.
  • return_country. Country where the return is being shipped, using the two-character ISO country code.
  • return_phone. Phone number where the return is being shipped.
  • return_email. Email address of customer service to whom the return is being shipped.
  • ship_carrier. The name of the carrier that is preferred to be used for this order. Options could include: FedEx, UPS, USPS.
  • ship_method. Shipping method requested. Only those options supported by the supplier will be supported.
  • return_tracking_number. The tracking number of the return, as assigned by the carrier.
  • return_ship_cost. The cost to ship the return.
  • return_ship_date. The date that the given return shipped.
  • return_ship_carrier. The carrier that is shipping the return.
  • return_ship_method. The actual shipping method for the return.
  • return_received_on_date. The date that the return was received by the supplier.

Considerations for Supplier

All of the factors around the returns process are based on the relationship of the trading partners. The factors should be identified, discussed, and coordinated at the start of the relationship, rather than when a return actually occurs. Some of the things to consider and to make part of the supplier onboarding process are as follows.

  • Return to location: retailer-controlled location. There are pros and cons to any one method of handling returns. If you have infrastructure and processes in place to accept returns to your facilities and then send to suppliers, this can be used. It provides a single address for your customer service team to communicate with your consumers.
  • Return to location: supplier. Most retailers supporting returns inform the customer to send back directly to a supplier. Expectations and coordination are key with this plan.
  • Restocking fees. It’s important to understand if all, or some, of a supplier’s products will require a restocking fee. Many suppliers still use these fees because a high percentage of their business is B2B. Many suppliers are removing these fees as engage in direct-to-consumer selling.
  • Reverse logistics. Retailers who inventory and ship their own products can include prepaid return labels with the shipments. That strategy is very difficult, if not impossible, when working with suppliers. The best plan is to handle RMAs and return labels with the consumer through a process involving a customer service team. Packing slips — if you can provide them to the suppliers — should provide instructions to the customer as to how to handle a return.
  • Product category. It is helpful to understand the product category(s) you are selling. Return rates for apparel are multiples higher than for electronics, for example. Research, and then plan accordingly.
  • Return policy. It is best for the return policy to be consistent across all products from all suppliers and for the instructions be simple and clear for the customer. This includes restocking fees. Try to average things out so that you don’t need to provide what becomes an item-level return policy.

These points should provide a basis for an important part of the initial retailer-to-supplier partnership and the on-boarding discussions.

Ensuring Success

The retailers and suppliers that have the most success in dealing with drop-shipped returns are those that work diligently around the other data workflows and processes — especially product catalog and inventory visibility — as those processes lay the foundation for the best returns strategy: prevention.

Customers return products when they are disappointed with their purchase. In my experience, two of the top reasons for returns are “The customer ordered incorrect product or size” and “The product did not match the description on the website or in the catalog.”

Shoppers want to understand what they are considering to purchase. Having proper photographs and informative product descriptions that are as detailed as possible will greatly reduce the number of returns. I addressed this in “How to Manage Product Catalog Data” — the key is to use a heavy curation and standardization process. It’s critical that retailers and suppliers work together to get the best, most complete, and accurate virtual representation of these physical products as possible.

Returns are going to happen. Communicating closely with your trading partners for product catalog, orders, and fulfillment will help make returns the exception and not the rule.

Jeremy Hanks

Jeremy Hanks

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  1. Amitai Sasson April 21, 2015 Reply

    Really enjoyed your article. I think returns is a huge point of weakness for online retailers.

    Do you know of a good returns system? Are there any systems or SaaS services that handle Returns?

  2. niranjan July 16, 2015 Reply

    can you please throw some light on returns processing from india to usa and usa to india on the basis of courier shipping scenario, thanks in advance