The growth of e-commerce during the COVID-19 pandemic saw online returns double in 2020, increasing the importance of a solid returns management program that serves both you and your customers.
Consumers in the US returned around $428 billion in purchases to retailers in 2020. That accounted for around 10.6 percent of total retail sales, according to the National Retail Federation (NRF).
Among the benefits of reverse logistics are substantial savings on the cost of handling returns. What is the link between reverse logistics and profit? How can using reverse logistics software save your company money? Here’s how.
The link between Reverse Logistics and Profit Margin
Let’s start by answering- what is reverse logistics? Reverse logistics is a form of returns management. It tracks products from the point of return from the customer and manages where they end up. Once returned, they can be resold, repaired, refurbished, or recycled, etc.
The cost of reverse logistics might seem prohibitive. But the money that businesses can save and money that can be recovered from activities such as recommerce with effective returns management more than makeup for the initial cost.
How does reverse logistics impact profit margin? As sales grow, companies can see profit margins eroded by the cost of managing the accompanying increase in returns. The NRF survey found that for every $1 billion in sales, the average retailer incurs costs of $106 million in returns. By employing a returns management strategy, businesses can recoup some of that money.
Many retailers and manufacturers choose to use a third-party logistics (3PL) provider to increase their reverse logistics profit margin.
Using a 3PL service can streamline the process and save money when compared with managing returns in-house. That frees up resources so that companies can focus on other areas of the business. They can be sure that their returns are being handled by an experienced service provider.
Cost Savings From Reverse Logistics
So how can reverse logistics create value? Retailers and business-to-business (B2B) companies in most industries deal with high processing costs to handle returns. Why? When they receive the returned products, they need to assess them for damage. And then they must repack and send the items to another location for resale. If the products have to be refurbished, they typically lose some of their resale value.
In some industries, recycling can be a costly and time-consuming process that requires companies to follow strict safety regulations to ensure items are disposed of properly. And some products that cannot be resold end up in landfills.
Many companies are unaware of the true cost of their product returns. Even if they collect returns data, they lack the knowledge to analyze it and spend little time focusing on the role of returns in the supply chain. Their focus is on sales growth. So, they have little visibility into their potential revenue loss. Having products tied up in warehouse inventory can have an impact on a company’s cash flow and expose credit issues.
An inefficient returns process can also affect the quality of customer interactions. That can cost a business in future sales if customers are left unsatisfied and don’t make future purchases.
A survey by consulting firm KPMG found that for nearly 15 percent of returns, it took more than two weeks for the customer to receive a refund. This has a negative effect on the customer experience and the retailer’s brand. Around 33% of repeat consumers in another survey said they would abandon a retailer if they had a difficult experience with a return.
Reverse logistics can tackle all these problems. An effective reverse logistics process creates value for businesses by converting waste into sales. They can get their returned products back into their supply chain with speed and efficiency. That reduces storage and distribution costs, saving time and money.
How Does Reverse Logistics Software Cut Costs?
Reverse logistics software helps to maximize the cost savings from returns management. It manages every stage of the returns lifecycle to get the highest return on investment (ROI).
Reverse logistics software automates the process of identifying the path for returned products that will generate the highest cost recovery. From the time the customer starts the returns process, the software can use machine learning to analyze products, returns rules, and sales demand to identify the right channel for the returned product. It can be tailored to the unique needs of the business to meet specific challenges.
Some of the advantages of reverse logistics software include:
- All-in-one returns management portal
- Automatic returns tracking
- Cloud-based technology for easy access and sharing
- Visibility into reasons for returns
- Data insights to help manage future returns
- Forecasting data
- Increased brand credibility and customer retention
These features help businesses to gain greater visibility into their returns. In that way, they can find the right destination for the products to maximize their profits. They can also identify recurring reasons that customers return products and find ways to address them.
Retailers and B2B companies can decide to set up reverse logistics software in-house. Or they can choose a 3PL provider that uses the latest technology as part of its service.
Save Money on Returns
A reverse logistics software can help businesses reduce the number of product returns they generate in the first place. When returns do occur, it cuts down on the cost of processing them through process efficiency and business rules integration, while providing enhanced customer service. Encouraging brand loyalty will make customers more likely to make repeat purchases, saving a company the cost of lost sales.
If you are looking to outsource your company’s returns management, you need a trusted partner. G2 Reverse Logistics can help. We handle the returns so you can focus on customer satisfaction. Our proprietary rules-based software maximizes each stage of the returns lifecycle to generate the highest cost recovery.
To learn how we can help you save money on your returns.