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.
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.