Erwin Schrödinger came up with his now-infamous cat partly out of frustration with the complexities of quantum physics and the apparent impossibility to know with certainty where things would be. That’s a relatable frustration to anyone who works in inventory management!

For the unfamiliar, the thought experiment involves a cat in a box with a complicated setup that could potentially kill the cat at any moment. The problem is that you would not know if the cat was dead or alive until you opened the box, so (according to quantum physicists) until the box is opened, the cat is both dead and alive.

Now, while retail inventory doesn’t usually have a pulse, it’s in a similar situation to Schrödinger’s cat when it heads out into the world. Once goods are in the hands of the customer, they might be sold forever, or they might be returned. They might be returned in good condition, or they might be broken. They might not even be what they should be. You won’t know which is true until time has passed, and the item does or doesn’t turn up.

Inventory management is already a key challenge for retailers, but with e-commerce return rates averaging 20% in many categories, and retail returns topping $743 billion in the U.S. for 2023, the uncertainties mixed in by returns adds a major layer of confusion.

Even in retailers where return rates are lower, say 10%, this still represents an incredible amount of inventory (and effectively cash) unchecked and unaccounted for. Many retailers have no understanding of this significant portion of their inventory – and gaining visibility and control requires an end-to-end understanding of returns.

The Duration of Uncertainty

  • A customer buys an item online. It takes 4-7 days to reach them.
  • They don’t have time to look at it for two days.
  • The customer is unsure and mulls their decision to keep or return it for a week.
  • Take into consideration the returns window. Let’s be positive and say two weeks.
  • A quick repackage with a returns form and a peel and stick label later, the item is taken to the post office.
  • Up to seven days on, it arrives at the warehouse.

Even in the most optimistic circumstances, the timeframes would make Schrödinger wince. A single piece of inventory can be in an unknown condition for around a month, longer for retailers with more generous return durations. And that’s true for every single item sold.

The Cost of the Cat Going Missing

If returns aren’t part of a digital trail connecting the order or purchase to the item restocked in the warehouse or returned to a store shelf, then there’s a risk that inventory will simply “disappear,” either temporarily or permanently.

This is a frequent issue when returns are simply packed, labelled and handed over. In a typical paper-based returns journey, once the item has been dropped off there’s no association between it and the customer. It’s just a box with a label. When refunds don’t arrive as expected, customers will naturally chase them, clogging up customer support.

If the whole end-to-end inventory cycle isn’t digitized and managed, it leaves the retailer open to so many unnecessary costs – investigation time, dispute resolution, disappearing inventory, and refunds that are easier to give than to challenge. In low volume sales, this is expensive. In high volumes, it can be the difference between a business staying alive or not. At the same time, because you do not know what is happening, you cannot truly understand the extent of the problem, or even realize that it’s a returns issue at all.

Making the Most of Returned Inventory

We don’t just need to make returns less of a mystery – we want to transform them into something valuable. As simple a change as knowing that the customer intends to make a return can add a ton of value to their experience and the retailer’s profitability. Once we understand the status of a product, we can maximize its value.

In fashion, for example, products have a fluctuating value – what’s hot now, might not be hot in a month. This makes it even more critical to have timely information that might prevent items from losing their market value. Let’s take a pair of trainers/sneakers, as an example. They’re a hot item when they hit the shelves, but by the time they’ve gone through the returns cycle once, they might no longer be the desirable kicks of the moment and end up being reduced in price in seasonal sales, at a factory outlet or channeled into the secondary market.

If your returns are managed end-to-end in a digital platform, you can know that a customer intends to return the item, even before they’ve packaged it up, and you have an understanding of the return reason and expected condition of the item. Even in its absence, it virtually becomes stock again. You also have an immediate understanding of when you are likely to receive it back into the warehouse and its value to your inventory. You could theoretically put it back on sale online before it’s even entered the building. And if it doesn’t arrive as expected, there is enough information available to claim against its loss.

It’s Not Quantum Mechanics, Just a Digital Workflow

The implementation of a returns management platform pretty much sends Schrödinger and his cat packing. Because where his theory centers around the absence of information, a digital journey is the opposite. A retailer can know precisely what is being returned, when, how and why. It is absolute clarity, yes, but it is also actionable clarity.

For example, you can reward loyal customers who make returns promptly and immaculately with immediate refunds. Regular customer status updates mean less time-consuming calls, emails and messages to customer service. And the jewel in the crown is that retailers can decide how and where the item is transported based on its value, making savings in transportation costs. With customizable rules, retailers can automatically set different locations based on item type (so the hot items get back into stores faster) or reason code (so broken and damaged items can go straight to the repair facility).

With so much at stake, one has to wonder why so much inventory is left in a state of guesswork? Even a Nobel Prize-winning physicist would struggle with that one.

Help Is at Hand for the Inventory Challenges Posed by Returns

Blue Yonder Returns Management is an end-to-end returns solution that gives retailers confidence in their inventory management. With clear visibility into returns and full control over the customer journey, intelligent decision-making allows retailers to maximize the value of their inventory – even when it’s with the customer. Discover more about Blue Yonder Returns Management by booking a call today.