- What is reverse logistics?
- Reverse logistics vs. traditional logistics.
- How to effectively handle reverse logistics in supply chain management
- Different types of reverse logistics
The coronavirus pandemic changed the way people shop. As a result, there appears to be a never-ending surge in online shopping, creating significant challenges for e-commerce retailers.
According to the National Retail Federation (NRF), As retail sales have continued to grow, return rates and return fraud rates have remained essentially flat year-over-year: 16.5% in 2022 compared with 16.6% in 2021
Customers not only expect to receive their orders quickly but for refunds and exchanges to be processed quicker than ever before. While some might minimise the importance of a reverse logistics strategy, transportation and logistics experts warn that the supply chain crisis cannot handle the expected surge in holiday returns.
Supply Chain Now CEO and Host Scott Luton said: “Growing emphasis on sustainability and a circular economy in the e-commerce age will see the reverse logistics industry only grow in importance.”
The impact of the labour shortage is also expected to collide with a historic level of returns, further increasing the strain on online retailers.
So, with fulfilment centres already struggling with record-high order volumes, how can organisations manage reverse logistics to meet consumer expectations?
Companies must plan and execute a reverse logistics strategy to streamline the return process and reduce losses.
What is Reverse Logistics?
Reverse logistics refers to returning goods to suppliers or manufacturers for resale or final disposal. It starts with the end consumer and moves backwards to the supplier or manufacturer through the supply chain.
The primary objective of reverse logistics is to recoup value and encourage repeat business, hence why most organisations offer exchanges.
Reverse logistics may also include processes that make the consumer responsible for the disposal of the product, such as reselling, recycling, lateral cycling and upselling.
When Should Reverse Logistics be Utilised?
In the age of a booming e-commerce market, retailers should use reverse logistics to recoup value from unwanted products.
While product disposal is part of the reverse logistics chain, it plays a much smaller role as the goal is to regain value from the product by reselling, reusing or recycling. Annually, returns are worth billions of dollars and, as a result, have become one of the drivers behind e-commerce growth.
According to official statistics, less than 10% of purchases made in brick-and-mortar stores are returned, compared to 30% of online orders.
A good strategy can add value to your bottom line as reusing materials reduces waste and increases profits from existing products. In addition, retailers could use reverse logistics to build customer loyalty and encourage repeat business to minimise loss further.
How is Reverse Logistics Different to Traditional Logistics?
The concept behind traditional logistics is to create goods to be consumed. With traditional logistics, the product flow starts with the supplier and moves through the supply chain, ending with the customer.
Reverse logistics is the opposite, whereby the product flow starts at the customers and travels “backwards” through the supply chain to the manufacturer or seller.
A well-designed and well-managed supply chain can respond accordingly to changes in logistic requirements to effectively process returns. Given that many organisations have tight margins, improving return management can positively impact bottom-line performance.
What is the Reverse Logistics Process?
The reverse logistics process tends to involve various components, including:
The process can differ depending on the industry, with some companies preferring to outsource the work and others managing the operation themselves.
Whether the work is outsourced or insourced, organisations should consider taking advantage of reverse logistics as there are economic incentives. For example, companies within the food industry could recycle and reuse returned packaging materials to recapture the value of these containers.
Similarly, firms within the construction industry could salvage returned goods and reuse these materials at new sites or manufacture new products.
Many companies don’t realise the economic benefits of becoming “greener”, but recycling and reusing materials can reduce the cost of production during manufacturing. Furthermore, the ever-growing emphasis on sustainability could help businesses with environmentally-friendly policies boost their reputation and create opportunities to build relationships with prospective customers.
Managing the Reverse Logistics Process
For most retailers, returns are inevitable, so manufacturers need to be ready to implement reverse logistics to ensure goods are quickly and safely processed.
E-commerce retailers can improve their reverse logistics strategy by embracing the following steps:
After customers signal that they want to return a product and the manufacturer receives the product, the condition of the item/s should be identified swiftly so that the refund or replacement can be approved.
The return process includes:
- Authorising the return
- Scheduling return shipments
- Processing the Refund
- Returning item to inventory for sale or final disposal
All returns should be inspected once they arrive at your order fulfilment centre or processing centre to determine their condition.
Sort the return into its appropriate category, for example, resell, recycle, dispose of, or repair.
Turn Returns into Revenue
Reduce losses by salvaging returns and sending them to a repair department or recycling the material for reuse or resale.
You may also want to offer free returns, which is an intelligent way of increasing revenues, as customers are more likely to purchase from your brand if they know they can quickly return items.
Remember that a good and hassle-free returns process will encourage repeat business and build customer loyalty, increasing profits.
Types of Reverse Logistics
While there are several types of reverse logistics, also known as reverse logistics components, the most common are:
Returns management refers to the supply chain management of all return activities. It involves interfacing with customers who want to return goods and managing the process quickly and transparently.
Customers tend to judge companies based on their return policies. Streamlining the process will help you keep the business impact of returns to a minimum.
Return Policy and Procedure (RPP)
While your service staff or dedicated gatekeepers will determine whether a product is eligible for return or refund, your company’s return policies should be visible and consistent across your e-commerce site.
Employees also need to be made aware of return policies and adhere to them to ensure they meet customer expectations.
The return policy should cover information such as:
- Return conditions
- Validity period
- Whether the product needs to be returned in its original packaging
- Whether shipping is free or not
Remanufacturing, Reconditioning or Refurbishment
Remanufacturing or refurbishing goods refers to using existing parts to repair, rebuild or rework new products.
Companies can reduce losses by reusing parts or materials from returns for resale. However, the perceived risk of remanufactured products underperforming has been proven to inhibit consumer purchasing decisions.
Packaging Management Strategy
Reusing durable packaging from returned goods such as beverage bottles can reduce waste and is also essential in the move to more sustainable packaging.
The rise of reusable packaging has exploded throughout the supply chain as it creates an opportunity to add value through reverse logistics.
Another type of reverse logistics is unsold goods, which refers to processing returns from retailers to distributors in line with the contract terms.
Retailers may return unsold goods to retailers due to poor sales, inventory obsolescence or cases where the consignee refused to receive the shipment.
Goods categorised as end-of-life have reached the end of their lifetime, meaning they may no longer be useful to the customer. For example, customers may return an old generation phone which no longer functions how it was intended at the time of manufacture.
Products defined as EOL are often recycled, reused or disposed of, as they can create environmental challenges for suppliers.
If a courier attempts to deliver a shipment to the recipient but is unsuccessful, the delivery failed.
When delivery failure occurs, the courier returns the product to the sorting centre. If the customer doesn’t attempt to have the package redelivered, these sorting centres return the goods to the point of origin.
Rentals and Leasing
If a product comes to the end of its lease or rental period, customers will return it to the company.
Suppliers will need to decide whether to sell, recycle or reloan the item to another customer.
Repairs and Maintenance
Some organisations, such as jewellers and phone companies, allow customers to return products for repairs and maintenance if defects occur.
In some cases, the manufacturer might ship a new product out to the customer and resell the damaged product to another consumer after repair.
One of the biggest challenges of reverse logistics is managing these activities effectively, especially amid the ongoing e-commerce boom and heightening demand. The use of new approaches, such as automation and artificial intelligence (AI) could streamline the process further and help manufacturers overcome challenges related to reverse logistics.
At Pointbid, we implement order fulfilment solutions for a range of e-commerce brands from start-ups to medium-sized businesses. If you think that outsourcing your order fulfilment could help your business grow in 2023/24, please give us a call on 0121 326 7368.
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