When you think of supply chains or logistics, like most people, you may tend to think of a “forward logistics” or “traditional logistics” system. This system pertains to the flow of goods ranging from raw materials to finished products delivered to the consumer. The interim stops along this chain are manufacturer, retailer, and finally, the end-user.
However, returns are a major component of order fulfillment. Reverse logistics alone cost US retailers USD 246 billion! Indeed, some larger retailers like Target outsource this process and let returns move into a new supply chain of their own because managing reverse logistics can be daunting and expensive.
What is reverse logistics?
Reverse logistics, as the name implies, is the flow of said goods in the opposite direction. The goods travel from the end-user back to the retailer or the manufacturer. A typical example of this is the very common return feature seen in eCommerce. Or in case of components for refurbishing or remodeling. An item may be sent back because it is not a good fit for the consumer’s needs, or, say, it has served its purpose.
The products may be diverted into different markets in an attempt at resale, or be permanently disposed of.
In a nutshell, reverse logistics is defined as “the return/exchange, repair, refurbishment, remarketing and disposition of products.”
Why is reverse logistics needed?
In the supply chain, planning should not be restricted to the inbound flow of goods and material, but also storage and anything else that is crucial to recover the value of the item or product or its appropriate manner of disposal. In this sense, each SKU is an “asset” with some potential value.
Thus the main purpose of reverse logistics is to recover value from such items to add to the cash flow or stem expenses. A built-in reverse logistics strategy can add to the efficiency of a standard supply chain by having an infrastructure in place for such operations whenever the occasion presents itself.
What are the types of reverse logistics?
The term reverse logistics can apply to any of these events that follow the first-time purchase:
Item is returned, item has to be sent to be remanufactured or refurbished, there are packaging issues, the item is not deliverable for some reason, etc.
In addition, it can apply to unsold goods or goods that have reached the end of their useful life but have some salvage potential or need to be disposed of in a specific way.
A reverse logistics setup should include both planning and means to avail of end-of-life product disposal equipment, recalls, equipment breakdown, and so on.
Flow in traditional vs. reverse logistics
Traditional or forward logistics:
Standard or traditional forward logistics is about getting a product to market. It often uses inventory management software or automated information systems for logistics and tracking shipped items. It covers product development, manufacturing, product distribution, warehouse storage, pick-and-pack, shipping, and order fulfillment. The endpoint is the customer.
A reverse logistics process can begin with, say, a return policy that defines how a purchased item may be returned to the manufacturer or seller. When properly defined or customized to the business enterprise, a reverse logistics policy and plan can help shrink storage, distribution, and transport costs.
It can keep customers happy and establish brand value. For a company, it can even be a part of trust-building with the customer. Depending on the volume expected, it is better to establish a reverse logistics policy and infrastructure in advance. Trying to jam reverse logistics into an established forward logistics framework can result in snafus.
In other words, your supply chain will be at its most efficient if optimized towards both forward and reverse logistics from the outset.
Types of reverse logistics needs
Some typical situations that require reverse logistics include:
- Item return
- Warranty recovery
- Salvaging value
- End-of-life recycling, upcycling, or disposal.
- Any combination thereof.
Benefits of reverse logistics
By now, the benefits of reverse logistics must be evident:
- Decreased administrative costs
- Decreased transportation costs
- Faster response times
- Better customer support
- Increased customer delight
- A bigger chunk of market share
- Improved customer and vendor retention levels
- Reduced fines for improper disposal of items
- Reduced risk of litigation or regulatory action
- Adherence to government rules and regulations
- Good for the brand value and company’s image
- Padding income by recovering value from assets.
Disadvantages and challenges in reverse logistics
All said and done, a reverse logistics operation has to be able to be profitable or at least pay for itself. If the value of the product being returned is less than the cost of shipping the product to the customer in the first place, it is not very economical to have it recalled. The recall value of each SKU needs to be established at the outset: the company or seller may have to hash this out with the distributor or dealer as part of the agreement. Plus, the burden of setting up the infrastructure to track and execute warranty-inclusive repairs in a cost-effective manner would sit with the seller. Having to balance the whole cost vs. benefit equation is the biggest pain point in any reverse logistics operation.
Reverse logistics at scale and volume
Where high return volumes are expected, it is best to establish a discrete reverse logistics setup to manage them. It might be a good strategy to partner with someone experienced in the reverse logistics chain who has specialized know-how and can focus on this aspect of your business, leaving you free to devote time and energy to your forward logistics processes.
Reverse logistics in retail
In brick-and-mortar retail, the beginning of the reverse logistics events is when a customer returns a purchased item and the retailer has to move it back along the chain. Depending on the item it could either go back on the shelf, or go to a distribution point for reassignment, get recycled, or disposed of. In most cases, the customer expects a no-questions-asked refund. This is the norm in most set-ups, particularly eCommerce.
Moreover, store personnel or designated personnel have to be trained with regards to the returns policy and procedures. This will result in the item…and the customer… being managed in the proper manner.
Strategies to improve reverse logistics
First and foremost it is crucial to fine-tune processes and create products that will have the lowest possible return rate. Then leverage existing infrastructure wherever possible: The tech used to optimize forward supply and shipping processes is also largely applicable to reverse logistics. Use automation as much as possible to ensure each returned item is directed to the correct destination, and trackable till it reaches there. Data on costs incurred in reverse logistics, shipping and handling, and transport is invaluable towards the decision-making process as well.
Another layer of efficiency may be added by sorting the items to be reverse shipped as per size, type, geography, and so on. There could be a central inspection center where items are examined and redistributed as per their best use or fate. Some products may be reshelved, some may need to be liquidated, and so on.
How important automation is in reverse logistics
If set up and administered well, reverse logistics can add to a company’s revenues. Many companies, however, still employ outdated processes rife with inefficient supply chains, mismanaged inventory, and the costs pile up.
Automating offers companies to enhance the visibility of returned items across the entire supply chain, which, in turn, provides valuable data on product movement. This helps the company hone their strategies and processes. A pitfall of outsourcing the process of reverse logistics to a partner is that the company can miss out on valuable data, and lose a strategic and competitive advantage.
Automation that can detect product identity, quality, and identify any flaws or design issues, saves a lot of time and human error. As can automation that sorts products by the criteria programmed into it- whether it is size, shape, structural integrity, or any other property. Processes can also be automated such that products get sorted into appropriate segments–whether they are to be put back on shelves, returned to the manufacturer, recycled, disposed of, or donated. Computer-based “reading” of non-uniform labels, barcode-less tags, or structural analysis of the product to assess its condition is also a valuable form of automation.