What Is Reverse Logistics and How It Can Save Your Business Money

The way businesses handle product returns has a direct impact on their bottom line. An effective reverse logistics process is essential to enhancing  profits. The rise in online shopping saw customer returns climb by 70% in 2020, pushing up costs for retailers.

If a business does not have a specialized process for returns, it can lose time, money and other resources. These internal resources would be best used in generating new sales and growing the business.

Without a defined path for returns to go back into sales inventory, businesses can be stuck with cash tied up in products awaiting processing.

Over time, those items could ultimately end up in landfills. And a lack of insight into lost revenues hurts profit margins. There are long-term benefits to businesses taking control of their returns management.

Let’s look at how reverse logistics solutions can save money and even generate value from returns. But first, let’s consider what reverse logistics involves.

What Is Reverse Logistics?

Reverse logistics is the return of products from the customer to the seller—the reverse of the forward logistics process. It applies to goods returned to a retailer as well as further up the chain to a distributor or manufacturer.

Returns serve different functions along the chain depending on the condition of the products:

• Retail – customers return unwanted items, which can be resold, reused, or donated.
• Distribution – sellers return unsold inventory to the supplier/wholesaler.
• Manufacturing – factories take faulty or used goods for repair or recycling.

Businesses tend to focus their resources on sales growth. But they are also responsible for the logistics of managing returns and refunds. It is a complex process and they need to identify the most appropriate destination for a return. That can be a warehouse, factory, recycling plant, or waste site.

Once they have decided on the destination, they need to arrange the best way to transport the item. And the return should be processed back into inventory if it will be resold. An inflexible, manual returns process presents several challenges. They include higher costs to restock items, difficulty in tracking returns, and higher cost from poor processes and productivity loss.

In the past reverse logistics has been an afterthought. But businesses are realizing it can be a channel for improving their bottom line, brand credibility and sustainability efforts.

How Can Businesses Create Value From Returns?

Managing returns need not be a burden. Reverse logistics ROI can come from lower costs, higher revenues, and enhanced reputation. Streamlined inventory management and visibility into customer preferences also create benefits.

1. Cost Reduction

Businesses can reduce their inventory or production costs by generating dollars from returns. Rather than abandoning returned items, they can still resell or refurbish them, depending on the condition. Retailers can resell merchandise returned in good condition. Manufacturers can refurbish items for resale, reuse parts, or recycle the raw materials.

Recycling products can also save on the cost of raw materials manufacturers need to buy. Recycling is vital, given requirements for businesses to reduce pollution from electronic waste and carbon emissions.

2. Increased Sales Revenue

It may seem counterintuitive that paying for reverse logistics solutions increases revenue. But when consumers have to return something they are more likely to buy from a retailer that offers a convenient returns policy. A difficult experience can drive them away for good. This is more important with the growth of online retail, as consumers cannot try out items before they buy them.

For example, consumers are more likely to buy clothing from an online retailer that makes it easy to arrange returns. In that way, they can send back clothes that are not the right fit.

3. Corporate Sustainability

Businesses can reduce their carbon footprint by recycling damaged, used, or unwanted goods. They can generate both tangible and intangible value from returns. How? Reusing products saves money, while recycling earns goodwill from consumers and helps the environment.

Consumers increasingly value corporate sustainability policies that focus on the environmental impact of doing business. A recent study by IBM revealed that 54% of consumers would pay a premium for environmentally friendly or sustainable brands. Some retailers are getting in on the trend by inviting customers to return empty packaging. Recycling boosts their green credentials, preventing the packaging from ending up as waste in a landfill. And by offering free gifts in exchange for returns, they can drive customer loyalty.

4. Streamlined Inventory Management

Retailers and manufacturers can outsource their reverse logistics needs to a specialist provider. The best providers offer quality customer service and get the most value out of every return.

By using a third-party service, businesses can choose to either outsource returns management completely; or use specialized software to enhance their own returns management process. They can free up storage to make space for more sales stock. And providers can automatically route products to the best channel. Businesses can then boost their ROI by turning their attention to customer service.

5. Product analysis

Cutting-edge, reverse logistics software solutions use data modeling to maximize sales. How? Analyzing data points on the reasons that customers return their products can help businesses to identify common problems.

Artificial intelligence (AI) and machine learning can help businesses make forecasts to plan ahead. That increases efficiency by projecting the volumes available for reuse and recycling. The data may also reveal product faults or inaccurate descriptions they can fix. Why is this important? Increasing customer satisfaction creates opportunities to maximize returns management ROI.

Automate Your Returns to Maximize ROI

An automated reverse logistics process can improve the bottom line for your business. The best software is one that is flexible and scalable to manage business rules and provides item level visibility, allows for planning and most importantly maximizes the value that can be earned from each return based on cutting edge technology. 

G2RL uses data analytics and automation to provide valuable insights into returns management. Our easy-to-use online portal offers visibility into the entire product returns lifecycle.

Contact us today to learn how our approach can help you increase your returns management ROI.