If you are a retail or an eCommerce business, ‘reverse logistics’ might be one of the business terms that you dread the most. After all reverse logistics seems like a nightmare which costs your company additional money, cuts into your profit and results in a loss of value.
But now, reverse logistics has become a fact of life for most businesses, all thanks to the explosion of eCommerce. Today, if a company wants to achieve high levels of customer satisfaction and repeat business, it needs to have a hassle-free reverse logistics process. Don’t believe it? According to one study, 92% of consumers will buy something again if returns are easy. Moreover, the returns process influences purchasing decision to such a great extent that 67% of shoppers check the returns page before buying a product. So now it has become more important than ever for retail and eCommerce businesses to effectively manage their reverse logistics process.
But what exactly is reverse logistics?
1. What is Reverse Logistics?
Reverse logistics is similar to the traditional supply chain but it moves in the opposite direction. It refers to the process of returning products from the customer to the seller, distributor or manufacturer and dispositioning the returned product properly. Returns occur for different reasons; customers return unwanted products while sellers return unsold inventory to the wholesaler or supplier. The objective of reverse logistics is proper disposition, customer satisfaction and maximizing net recovery by gaining the highest net benefit for each return regardless of channel.
2. What is the difference between Forward Logistics and Reverse Logistics?
Forward Logistics, also known as traditional logistics, refers to the physical flow of goods from the manufacturer to the customer. It involves procuring raw materials from different places, product development, production, marketing, sales, and distribution. Traditional logistics focuses on getting the product to the market and into the hands of the customer. Customer demand highly influences forward logistics.
Conversely, reverse logistics is the exact opposite as the movement of the goods is in the other direction, i.e. from consumer to the supplier or manufacturer. It deals with recapturing the value of products returned by customers. Reverse logistics encompasses restocking, repackaging, repairs, refurbishment, recycling and proper disposition.
3. What is the difference between Returns Management and Reverse Logistics?
Returns management is the customer-facing aspect of reverse logistics. It entails collecting a product the customer wishes to return or exchange, organizing and restocking it into inventory. On the other hand, reverse logistics not only deals with handling product returns, but also repairing, remanufacturing, refurbishing, recycling and disposing returns in the most optimal way possible.
Simply stated, returns management is a part of reverse logistics.
4. What are the Reverse Logistics Components?
Types of reverse logistics relate to any of the following activities that occur after the initial purchase:
i. Returns Management:
It is a process that involves dealing with customers who wish to return or exchange a product and then collecting, organizing, restocking the product. Returns management is a combination of reverse logistics, customer service, and inventory management.
ii. Returns Avoidance:
It refers to the practices implemented by a business to ensure that returns are avoided as much as possible. Quality control, user-friendly policies and strategic policies such as offering store credits or exchanges instead of refunds, are ways to avoid returns.
iii. Returns Policies & Procedures:
Also known as RPP, Returns Policies & Procedures refers to the framework a business uses to manage returns. Returns policies are shared with the customer
s as it enables them to follow the protocol required for a smooth returns experience.
It is the process of rebuilding a returned product to the original specifications using a combination of reused, repaired and new parts.
Refurbishing is when the manufacturer or seller revamps the returned product so that it can be resold. This might involve repairs or cosmetic changes to the returned item.
vi. Repairs & Maintenance
In this type of reverse logistics, the company repairs the product or its components and returns it to the customer.
Packing reverse logistics focuses on reusing packaging materials to reduce waste and disposal.
viii. Unsold Goods
Reverse logistics of unsold goods mostly occur upstream when retailers return products to distributors or manufacturers. This type of return happens because of product obsolescence or lack of adequate sales, also known as overstock.
ix. End-of-Life (EOL)
When the product is at the end of its life cycle, it means it is no longer useful. Products that are EOL are either recycled or disposed off.
5. Why is Reverse Logistics Important?
Reverse logistics is important to not only businesses but also customers and the environment. Reverse logistics helps businesses in reducing costs and improving bottom line while improving customer satisfaction and promoting sustainability.
i. Importance of Reverse Logistics for Businesses
As returned products are resold after restocking, repair, refurbishment or recycling, businesses can recapture value. Moreover, reverse logistics helps businesses in building lasting relations and gaining brand loyalty as customers are more likely to repurchase from a brand that has an easy returns process.
ii. Importance of Reverse Logistics for Customers
Customers might want to return the products for a multitude of reasons such as the receipt of a damaged product, wrong size, or difference in product picture and real version among other reasons. An efficient reverse logistics system allows customers to return products without any hassle.
iii. Importance of Reverse Logistics for the Environment
Reverse logistics promotes sustainability as it helps reduce harmful emissions, optimize energy usage, decrease waste through recycling, reduce the amount of landfills and dispose off products and components in the most effective way possible.
6. How Does Reverse Logistics Create Value?
In the reverse logistics process, returned products are either returned to stock, repaired, refurbished or recycled. This helps companies in recapturing value of the returned goods. Here are some of the ways reverse logistics helps companies in recapturing value:
When the returned products are resold for cash, especially at a discounted rate, it is called liquidation.
Products often come with a warranty or a guarantee for repair or replacement. When a part or a component of the product breaks down, customers usually prefer to have the product repaired rather than buy an entirely new one. Under such circumstances, the seller or the manufacturer repairs the returned product and gives it back to the customer.
It is the process whereby the manufacturer or the seller revamps the returned product so that it is fit to hit the shelves again. Refurbishment might involve repairing the product or simply carrying out a cosmetic change.
Sometimes, it is possible to recycle either the returned product or some of its components. Recycled products or components are further used for sales purposes thus generating monetary value for the business.
When returned products are not restocked but they are still fit for use, they are donated to charities and organizations dedicated to social welfare activities.
7. What are the Benefits of Reverse Logistics?
An efficient reverse logistics system benefits not only the business but also the customers it serves and the environment it functions within. Optimizing reverse logistics helps a business in saving money as well as improving customer relations. Here are some of the major benefits of reverse logistics:
Businesses can reduce their inventory or production costs by generating money from returns. Rather than discarding returned products, businesses can repair, refurbish and consequently resell the item in a good condition to generate revenue. Similarly, manufacturers can recycle products or certain components of a product to generate revenue.
Although at first glance it might seem counterintuitive, expending on reverse logistics increases revenue. How? When consumers have to return something they are more likely to buy from a retailer that offers a convenient returns policy. Thus, an efficient reverse logistics process inspires repeat purchases resulting in an increase in sales revenue.
And in addition to that, reverse logistics can help reduce returns in the long run. Sounds far-fetched, right? It’s really straightforward. Through the analysis of returns data, we can understand the pattern or the reason for the returns. Maybe the item is too small or too big. Maybe there’s a sizing issue and we need to adjust our size charts. By reducing the number of returns, reverse logistics data also helps in saving money in the long run.
Optimized reverse logistics uses data modelling and Artificial Intelligence (AI) to streamline operations. As the system gathers more and more data, it becomes better at categorizing items for resale, repairs, refurbish and recycling; even before the returned product reaches the sorting center. This cuts down on transportation costs as well as increases operational efficiency.
Moreover, real time visibility offered by optimized reverse logistics goes a long way in routing products through the most effective channel and utilizing storage space in an efficient manner.
The growth of eCommerce has had a tremendous impact on the importance of reverse logistics. By providing a fast, efficient and seamless returns experience, businesses can not only improve customer service but also enhance brand loyalty. According to a study, 9 in 10 consumers will buy from a business again if the returns process is easy. Considering the statistics, it isn’t much of a stretch to say that businesses should focus on improving their returns experience to retain their customers and keep them coming back.
The process of reverse logistics facilitates the formation of a circular economy where waste is reduced as much as possible. It reduces toxic waste, pollution and carbon emissions. Through repairs, refurbishment, recycling and reselling, businesses save money while protecting the environment and earning goodwill among consumers. Hence, reverse logistics benefits the environment and adds to the company’s revenue streams too!
8. How to Implement Reverse Logistics?
Although the reverse logistics process seems complicated, it is straightforward. The implementation of traditional reverse logistics process mainly involves two major steps:
Returns processing begins when the customer indicates they want to return a product. The returns management capability of your business may allow customers to return a product in-store, drop it off at a specified location or return it through the online portal. This stage also involves arranging for shipment of the product as well as approving refunds and/or replacements.
Inspection & Disposition
The returned products are received at the fulfillment center. Here, the condition of the returned product is gauged to understand whether it is fit for restocking, resale, repair or refurbishment. If the returned product is in a suitable condition, it is restocked in the inventory for resale. If not, it is repaired or refurbished and then restocked. In case it is not possible to repair or refurbish the product and/or some of its components, it is recycled.
In modern reverse logistics process, businesses through the use of advanced technology can determine whether a product should be sent back to stock, repaired/refurbished, liquidated or recycled even before it reaches the fulfillment center.
9. What is the Cost of Implementing Reverse Logistics?
The cost of implementing reverse logistics depends on numerous factors including the following:
- Scope of the program
- Nature of the products
- Unique business needs
- Technology integration
- Disposal methods
Given its complexity, it would not be surprising to learn that reverse logistics faces several challenges. Managing financial resources, regulating process efficiency, meeting customer expectations, complying with legalities and dealing with risk are the most pressing challenges when it comes to the reverse logistics process.
Managing Financial Resources: From receiving and transporting the returned product to refurbishing and reselling it, the reverse logistics process can be costly. Businesses need to manage their cash flows to ensure a smooth returns process while ensuring reverse logistics costs remain low. Hence, managing financial resources becomes one of the top challenges faced during the reverse logistics process.
Maintaining Process Efficiency: From the time the returns are initiated, several parties – such as the consumer, carrier, sorting center – are involved in the process. The flow of the returned goods needs to be orchestrated in such a manner that there is minimal waste of time and resources to ensure costs are kept down. Hence, reverse logistics requires co-ordination between multiple processes, people and touch points to maintain process efficiency.
Meeting Customer Expectations: Customers are increasingly demanding a free and smooth returns experience. Today, before shoppers purchase a product, they review the returns policies, procedures and returns experience of past consumers. Consumers now want convenient and flexible ways to return products. So, now it is more important than ever for brands to develop customer-friendly ways to manage returns and meet customer expectations.
Legal Compliance: The reverse logistics process is riddled with legal compliance. Businesses have to handle sensitive customer information, dispose products while adhering to environmental regulations, and ensure safety throughout the logistics process. Failure to comply might have drastic consequences on the business legally and publicly.
11. How to Improve Reverse Logistics?
A streamlined reverse logistics process helps in reducing costs, enhancing customer experience and facilitating environmental protection. Hence, improving the reverse logistics process has multiple benefits for any business. But now the question is, how?
Data Collection & Analysis: To create a successful returns experience, businesses need to collect data regularly from all available sources and then analyze it to find patterns. Understanding why products are being returned, how long the returns process takes, how the products are being returned, etc will help in the development of strategies to not only facilitate smoother returns but also reduce the number of returns.
Stakeholder Collaboration: The reverse logistics process, as mentioned earlier, involves multiple parties. Key stakeholders such as carrier partners play an important role in maintaining efficiency and efficacy. Moreover, the performance of key stakeholders directly affects the returns operation of the business. Hence, businesses need to develop a deep collaboration with stakeholders to help each other reduce costs, increase profits and improve each other’s position.
Returns Center Centralization: A centralized return center can help in better segregation and disposition of the returned products thus enabling in maximizing recovery in the most effective manner. If there are not enough resources to build a dedicated returns center, businesses can allocate a specific area in their warehouse to solely manage returns.
Technology Integration & Automation: Technology such as dynamic dispositioning software have taken out the guess work from the reverse logistics process. Using technology, the entire returns management process can be completed in a shorter time. Moreover, automating repetitive tasks such as picking and packing not only saves time but also improves accuracy.
Outsourcing: Businesses need infrastructure, labor, expertise and financial resources to manage returns in the best feasible way. This might deter them from focusing on core business functions. Outsourcing your business’ reverse logistics to a returns management expert is one of the best ways to manage the challenges of returns and cut down costs without compromising on customer experience and service quality.
It has never been more important to measure the success of your reverse logistics system to ensure you are on the right track to success. To do so, you need to measure the right reverse logistics metrics. Some critical metrics to measure performance are customer retention rates, volume/value of resold products, net recovery, and percentage of recycled materials.
Customer Retention Rate: As mentioned earlier, customers are more likely to purchase from you again if the returns are easy. Hence, ensuring your customers receive a smooth returns experience is extremely important to keep customer retention rates high.
Maximized ROI: According to a National Retail Federation report, for every $1 billion in sales, the average retailer incurs $106 million in returns. Moreover, the Reverse Logistics Association (RLA) states that reverse logistics accounts between 3 to 35% of a company’s bottom line. The numbers don’t lie – you can maximize your business’s return on investment (ROI) by means of efficient reverse logistics.
Disposition Cycle Time: It refers to the amount of time taken to dispose of the returned products in an appropriate manner – whether it’s for repairs, refurbishment, recycling or disposal. Shorter disposition cycle times indicate that the returned products are not sitting on shelves for too long (reduced inventory management costs).
Net Recovery: Through efficient reverse logistics, businesses can reclaim the value of the returned goods in multiple ways while maintaining profitability. Hence, to check whether your reverse logistics system is successful or not, find the difference between the cost of handling the returned versus the value captured from its dispositioning.
13. Why Should You Outsource Your Reverse Logistics?
Although reverse logistics might not be your core business function, it has a major impact on customer experience. In instances where you do not have the resources, time, or expertise to handle your business’s reverse logistics, it is better to bring in the pros. Here’s why you should consider outsourcing your reverse logistics operations.
Ability to Focus Better on Core Functions: Managing reverse logistics calls for all of your business’s indispensable resources – time, labor, capital, space and equipment. Hence, you might end up allocating scarce resources to the secondary function of reverse logistics rather than focusing on your core operations. However, by outsourcing reverse logistics, you can focus more on the key business functions of product design and development, manufacturing, marketing, sales and distribution.
Improved Inventory Management: Looking after your own reverse logistics entails keeping an eye on every minute inventory detail. You have to track SKUs, monitor product returns, consider storage space, arrange for transportation, ensure real-time visibility of returns and much more. Sounds quite tedious, doesn’t it?
When you outsource reverse logistics, all these concerns will be handled by the provider; freeing you from the hassle of complicated returns and even more complicated inventory management!
Exponential Growth: As your business grows, you’ll be overwhelmed by a growing number of orders. Chances are, you won’t have enough time on your hands to deal with returns efficiently. The consequence? Customer experience will be compromised! And what’s more, your opportunity to grow your business will be hampered.
If you want to effectively handle the growing pains of your business without compromising on customer experience and growth, outsourcing reverse logistics is a viable solution.
Benefit from Expertise: Reverse logistics providers have the resources and technology to offer you and your customers a top-notch returns management experience. Moreover, providers have agreements with carriers in place for transportation at reduced rates. This will translate into further cost savings for your business. With the expertise of the reverse logistics provider, you will be able to not only navigate the complexities of reverse logistics easily but also manage unforeseen circumstances.
Still worried about your business’ returns management? Contact G2 Reverse Logistics today so that our team of returns management experts can help you out with devising the best reverse logistics strategy for your business. Maximize the net recovery on your returns now!