Industry Q&A: Jim McNally

In this interview series, the USPS will share the unique knowledge and insights it has gained from serving businesses, both small and large.

Acing return logistics presents its fair share of challenges for any-size business. How does a company measure the success of their return model? What steps can it take to combat higher-than-average return rates? The average retailer must answer these questions and more to keep their business afloat. Finding the answers can be time-consuming and frustrating, so we’ve brought the key information to you. Here we talk to the Director of Operations Integration at the USPS, Jim McNally, about the worth of analytics, loyalty programs and how to leverage your return rates.

What are the cornerstones of a good return strategy?

The answer depends on a company’s business model. At the end of the day, what experience does a company want the customer to have? That depends on customer needs and business needs. For some, returns are a function of revenue. One of the fastest-growing industries is saliva swab DNA testing. Companies in that sector want to see 100% of their shipments returned. As a result, they focus on providing crystal-clear instructions and pre-paid envelopes as incentives.

If you look at standard retail clothing companies, returns are also part of the business. Though these retailers want to keep returns down, they understand some customer groups tend to buy things in multiple sizes and multiple colors, and so they institute a liberal returns policy to keep their customers shopping. In comparison, electronics or appliance companies would rather keep their return rates low to cut back on expensive shipping costs. They’d rather customers call into a service line before sending anything back. Whatever strategy a company settles on, it’s important to strive for simplicity. This will drive additional loyalty and revenue.

What data should a company analyze?

First off, you want to know your return rates. Restocking charges can weigh a business down. Data can help you combat high return rates. The more sophisticated your measurements are, the easier it’ll be to pinpoint your problem areas. Trunk time is an important factor any business should consider. It indicates how long the shipment sits at the customer’s home before it’s dropped back into the mail stream. Being able to measure that time will help you understand whether or not you should include a late fee for packages sent back after a certain date. This will help you restock as frequently as possible.

Companies should also look to qualitative factors. Is one product being returned all the time? Is sizing becoming a major concern? Reading customer feedback and reviews can offer clues to these issues. Maybe it can help you improve the way you message something on your website. Maybe it’ll push you to include sizing guidelines. Studying this collected data can help a company improve its return rate over time.

Where can a company find this return data?

There are simple ways to do this. Companies can measure trunk time and transit times by printing their own return labels and utilizing the tracking information available to them. For those looking to get to the heart of their numbers, they could consider investing in a shipping software provider. These providers can support you with analytics to help you better manage your cost and services. They can help you collect the nitty gritty data. In some cases, they can even help gather information by product. For example, if you’re a mom-and-pop shop with a jewelry line and a shoe line, your reports could be separated by ounce-based returns and pound-based returns.

How should a company manage shipping costs?

We’ve seen this done a few ways. One company wanted their products to be at the top of the search engines, so they priced their items low and charged for shipping. Another company sold similar items but at a higher price point that included the shipping costs. Their items may have been more expensive, but as a result, the company was able to offer free shipping. Why take this route? They believed a liberal shipping policy would allow customers to order more items, which would result in higher profit margins. Some companies go even further and offer free return shipping as an even greater incentive for customers to shop with them. The fact is many shoppers seek out the cheapest shipping options available before choosing a retailer. In the end, a company should weigh the pros and cons of these strategies and consider their own long-term priorities before deciding which choice is best for them.

How can a business leverage credentialed accounts and loyalty programs to improve their return process?

Credentialed accounts are saved customer accounts with valid login and credit card information. When it comes to shipping, companies can use the data in these accounts—everything from order history to credit card information—to handle and optimize a return. How? From order history, they know exactly what weight the returns will be, because on the back end they have stock-keeping units, or SKUs, with all that information.

If they’re dealing with repeat customers or preferred customers who pay for a higher-level service, as soon as they see the tracking number for the return shipment hit the mail stream, they can credit the customer’s payment source. Any company with a strong loyalty program has the option to give credit immediately versus doing it at a later time, once they receive and scan the package in their shipping area. Refund time can have a profound effect on customer experience. Being able to offer your loyal shoppers an almost immediate refund leaves a positive impression, and may push them to frequent your business in the future.

How can a company make their warehouse return process more efficient?

It’s important to designate special areas for returns. A company doesn’t know which products are coming back when. If they have a catalog with a lot of SKUs, they could have pieces worth $25 and pieces worth $900 sitting in their returns area. To keep the packages safe and separate from outbound shipments, companies should, at a minimum, lock them in cages or keep them in a designated space. That way, you don’t mix them in with your outbound operations. To help ease this process, a company should also dedicate a special person or group of people to handle the products in the cage or designated area. They should be the ones to scan the products and ultimately restock them.

How can a home try-on company improve their refinement process?

We actually touched upon this with one of our clients a couple of weeks ago. Their clothing club business functions off stylist suggestions and algorithms. As the algorithm grows stronger, stylists are able to make smarter product decisions and the refinement process becomes more efficient. Here’s how they do it. Working off customers’ profiles, the company sends products tailored to their preferences. Once someone returns the shipment, the company keeps track of what’s sent back, plus any comments customers submit about what they liked and what they didn’t like. The algorithm then becomes more and more intelligent as the customers deepen their relationship with the company. As a result, customers are sent products they’re more likely to purchase, and profits go up. Not all companies will be able to invest in an algorithm, but including questionnaires on return forms can help a business learn more about their customers’ preferences and understand why their products are being sent back.

How else can returns help a business keep margins down?

Companies that see, through tracking, a large amount of returns coming back can plan around that volume. They can hire people to handle these difficult times. There’s nothing worse than being understaffed during the holidays or after the holidays—a big returns season. All of a sudden the volume is too high to handle, and there’s not enough personnel to keep your return process working smoothly. You need those extra hands to get your products restocked in a speedy manner. When dealing with temporary workers, companies should look at their return rates to help decide exactly how many people to hire.

A strong return strategy is instrumental to any retail business, especially a growing one. It’s important to nail logistics, look at analytics and tackle inefficiencies. Mastering these aspects will only make your business stronger, your profits higher and your customers happier.

Planning for Success Around the Holidays with Shutterfly COO Dwayne Black

Preparing for peak holiday season presents a constant stream of challenges—from ensuring equipment functions properly to training the influx of temporary employees, it takes wisdom and planning to make the most profit in the final quarter of the year. We sat down with Dwayne Black, Senior Vice President of Operations at Shutterfly, to understand just how the website—which turns personal photos into books, holiday cards and gifts—tackles the holiday season. Read on for tips on forecasting stock needs, perfecting inbound and outbound processes and the importance of smooth communication along the way.  

How much of your business occurs during the holiday season?

Well over 50% of our revenue comes in the fourth quarter. Our highest volume of orders comes between November 15 and December 20, which is really our peak season right around Thanksgiving and Christmas. 

How do you plan and prepare for the holiday season? How do you forecast stock and staffing needs, for example?

Ten years ago, when I started, we started our Q4 planning in June. Now, Q4 planning is a year-long activity, from equipment purchases to workflow improvements. When the holidays are over, we’ll immediately go into postmortems. We’ll evaluate the entire model. We’ll go through what went well and what we can improve. Then, the following year, we’re fixing the things we can improve and augmenting the areas that performed well. It’s a full-year planning process.

During planning, what is the cutoff date for implementing new ideas?

As an online digital retailer, we have a code freeze, so we don’t make any changes to our website or workflows after October. All equipment will be installed and tested before then. Labor-wise, we bring in 3,000+ temporary employees in the fourth quarter to augment our workforce. The fourth quarter is the time of year when everything comes together–we bring people in and get them trained to ensure we deliver the best possible experience for our customers.

What role does your permanent staff play in holiday planning?

Everyone takes part in the employee onboarding process. My team focuses on the supply chain, which deals with the transportation side, and manufacturing which makes sure that the equipment runs and that we have the people in the right places. It all comes back to ensuring we deliver on our 100% customer happiness guarantee.

When it comes to postmortems, what kinds of activities do you do in order to single out successes and failures?

Postmortems are key to our continued success and happen in early January, right after the holidays. Our teams hold postmortems at all of our locations and divide them by department: calendars, holiday cards, personalized stationery, photo books and gifts. Those departments will really dig into areas that exceed expectations as well as areas where we can improve.

There’s one challenge I think every company is being faced with. Black Friday and Cyber Monday create huge peaks of demand. I’m sure it impacts the carriers as well. We work really hard to ensure that we can meet our customers’ needs during the rush.

Are there any tactics you use to increase processing speeds around those dates? Since you have customized products, pre-packaging isn’t an option, but what advice can you give to alleviate those demand peaks?

You’re 100% right, everything we do is custom and on-demand; we don’t pre-package or pre-produce anything. What we can do, however, is make sure our workflows and processes are perfect. It’s not only making sure the processes work and the equipment is running right. It’s also making sure we have the technicians on board so that if something does go wrong and a piece of equipment goes down, we can get it up and running right away.

The other thing is, even in our automated processes, we have backup plans. We always have a plan B and in some cases a plan C and D. We know if a piece of equipment goes down, there are ways for us to produce the product and get it out the door without using that piece of equipment. It might require more resources until we can get things working again, but it keeps our process moving.

So one piece of advice you could give is pre-plan and understand where your potential pitfalls are, have plans a, b and c ready. And the second part is to make sure your staff is properly trained, everyone’s on the same page and knows how to deal with potential risk situations.

One of the things we do internally, we call it the five P’s. It stands for: Prior Planning Prevents Poor Performance. That’s what everybody looks at. You have to expect the unexpected, and stay calm and communicate. If we encounter a challenge, it’s best to admit that there’s a challenge and develop a plan to solve it. It sounds cliché, but communication during peak is especially key. We have multiple meetings daily at all hours of the day; we’re always talking, so that everybody is in alignment.

Do you have that level of communication with all of your facilities across the country?

Absolutely, yes. Communication is not just held within the manufacturing facilities, it’s also with the teams working on the website, engineering and promotions.

With such massive operations, with so many moving parts and people involved, how do you keep that communication clear and how do you keep it from overwhelming the system?

In Q4, we have people in each department who are the communicators. You can’t expect a production manager on the production floor to be sitting in meetings all day and managing a workforce. We provide updates as needed so that we’re not inundating our workers.

Let’s change gears and tap into the subject of stock and inventory during the holiday season. Shutterfly has tons of SKUs and a ton of different product offerings. How do you organize your inventory to make it more efficient for processing, picking, packing and shipping?

It’s twofold. If you look at it from a floor perspective, we have what we call “supermarkets.” With raw materials and supplies, we have a visual factory in our locations. Everything is in its place, so you can easily look at it and determine if anything is low on inventory. We also have backup stock in our facilities. Nine months out of the year, I can keep everything I need to run our business within our own production facilities.

When we get into the fourth quarter, it’s all about planning. Our teams are really focused on creating a strong supply-chain strategy. When we get our forecast from our revenue teams, we’ll go through and extrapolate what we need for raw materials. We also calculate scrap, damage, etc. The worst thing I could do in the fourth quarter is run out of paper.

Everyone thinks, “Ok, just make sure you have enough paper,” but that’s easier said than done. People don’t often realize it, but paper is perishable; it has a certain moisture content to it. If you store it in a dry area, it’s going to dry out and it’s not going to print or cut as well. There’s a lot of planning that goes into the process. It’s a very orchestrated model. You just have to manage all the raw materials.

Do you have strong communication with your suppliers and your carriers?

We absolutely do. We know that our partners need to plan out their supply chain as well. For our carriers, we know they need to figure out how many trucks they need on the road, how many drivers to staff, etc. It’s a major orchestrated effort.

In terms of the shipping and carrier component, when do you start talking to the carriers about the holidays?

We give our carriers forecasts as soon as we can. We understand that they need to build their platform internally as well, and we give them a hard commitment of what we think we will be shipping about 3 to 4 months before the season.

It seems like you’ve figured out a way to manage all the obstacles that come with the holidays.

It’s a beautiful thing when everything comes together. When you’re shipping those packages, you’re making a lot of people happy. They’re not just ordering everyday staples. Everything we send out is customized and personal. Sometimes it’s Christmas cards and sometimes it’s a photo book from a special vacation. All in all, it’s things that make people smile and how we share life’s joy.