How packaging can reduce your return rates

Your packaging protects products during transit, and the right packaging can prevent damage. Unlike a customer returning something because it was not what they envisioned, preventing returns of damaged products as a result of problematic packaging is well within your control.

According to uShip, up to 1 in 5 ecommerce packages arrives damaged. A survey by payment services provider Barclaycard found 26% of goods that are refunded are unfit for resale. And according to CNBC, retailers get mere pennies on the dollar for re-sellable returns, which then have to be sent through a lengthy re-selling process.

Let’s examine the true impact of returns and how damaged goods affects the bottom line.

Cost of damaged products

A report by UPS found the average manufacturer will spend between 9% to 15% of total revenue on returns. Costs are caused by:

• The inability to determine how returns should be dealt with (sent to the vendor, moved into inventory, discarded, etc.)
• Inefficiencies in the supply chain due to disruption caused by returns
• Lost inventory due to returns not being stored correctly

According to a report by Shopify, the return and repair process accounts for 10% of total supply chain costs. That percentage can climb and reduce profit by 30% when the supply chain is impacted by inefficient processes.

When a customer returns an item damaged because of packaging, it triggers the reverse supply chain, with goods moving from customer to vendor. Reverse logistics, the process of executing an efficient flow of goods that are returned, is a process that costs companies up to $260 billion.

Hidden costs in the reverse supply chain include:

• Labor to process returns
• Customer communication regarding returns
• Damage to brand reputation
• Inability to forecast sales prediction

And then there are the products that are too badly damaged to be sold again, the unsellables.

The first step of evaluating your packaging to avoid returns due to damaged goods is calculating the dollar cost of the damage caused. This number, together with the industry average cost for returns, will serve as benchmarks when you evaluate your improvements. 

How packaging damage occurs

Damage can occur at any point in the supply chain as the product goes from factory to shipping to warehouse to retailer to consumer. Packaging may not protect the product throughout its entire lengthy and diverse journey, but the damage may be caused by the handling of the package too.

Damage caused by handling can occur for a wide variety of reasons: poor use of tools like box cutters, rough handling of fragile items, or improper environmental control amongst others. At some point in the supply chain, unoptimized packaging could fail at protection, which could result in damaged goods upon arrival. 

Unoptimized packaging can also cause inefficiencies in the supply chain, which could result in handling issues. For example, a product like a toilet can weigh as much as 80 pounds/36 kilograms. The hand-holds for the packaging must support that weight when lifted and carried. If the hand-holds break, this is a packaging issue.

If you are getting a substantial amount of damaged goods returns, you must pinpoint what is causing the damage. Here's a look at the factors that can affect packaging throughout the supply chain:

• Compression: How does the package hold up when placed below other packages? 
• Time: How long does your packaging stay stacked and in what environment?
• Drop/impact: How does the package handle being dropped from various distances?
• Vibration: As the package is being transported, can it withstand vibration? How does vibration on different types of transportation (conveyor belt, truck, airplane, etc.) affect the package?
• Environment/weather/moisture/dust: How do environmental factors impact packaging?
• Distance: How far is the package traveling through the supply chain? Do special considerations need to be made for longer journeys, such as cross-continental versus interstate?

Any of these issues may be caused by handling, packaging or a combination of both. Address handling problems with handling solutions, and address packaging problems with packaging solutions. If damage is happening because of a combination of both, then combine your solutions. You can identify where damage is being caused and what's causing it during a packaging audit.

Invest in supply chain improvements

Investing in supply chain improvements can reduce the cost of the reverse supply chain. For example, when HP wanted to switch to more sustainable packaging, they were concerned that recycled fibres were weaker and would result in damaged products. Billerud updated the packaging to maintain protection, while also lowering freight costs as well as HP’s carbon footprint. The new packaging could withstand the wear and tear of transport, lowering product waste. 

Source: Billerud

Billerud uses custom package prototype testing to test packaging at every step of the supply chain. Adopting an optimized packaging solution can result in an operational savings of 15 to 30% and sometimes higher. 

Other positive results include improving customer sentiment, getting better reviews and more referrals, and increasing your loyal customer base and the value of each customer.

We can help you navigate this complex journey, optimize your packaging for your supply chain and decrease returns caused by damaged goods that can also damage profits and your relationship with customers. Learn how Billerud simplifies the entire supply chain.