Last updated: What is reverse logistics: Definition, benefits, examples

What is reverse logistics: Definition, benefits, examples

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In the age of free returns and “try it before you buy it,” reverse logistics has become a vital aspect of an e-commerce company’s supply chain management strategy.

The ease with which people can order products online has helped create a surge in returns. According to the National Retail Federation (NRF), total returns account for $816 billion in lost sales for U.S. retailers.

Brands have to get returns right or risk falling short of customer expectations. How well a brand manages returned goods impacts the customer experience and in turn, the bottom line.

Companies in their quest for a competitive advantage are prioritizing the optimization of reverse logistics processes, from product returns and repairs to recycling and refurbishing. The trend is a crucial step towards enabling a circular economy.

Man straightening tie, with abstract images behind him, representing a 2023 report on customer service by Harvard Business Review and SAP.

What is reverse logistics?

Reverse logistics is the process of returning goods from the end consumer or customer back to the retailer or manufacturer. The most common example is when a customer returns a product. Sending goods back for recycling or refurbishing is another example.

Reverse logistics, also known as aftermarket logistics or retrogistics, is an important component of supply chain management.

How does reverse logistics work?

The returns management process provides a look at the key steps involved in reverse logistics.

  1. Initiate and process the return: When a customer wants to return a product, they start the process by initiating a return request. That triggers a process that includes authorizing the return and determining the condition of the product being returned, scheduling shipments, approving refunds, and initiating product replacements.
  2. Handle returned products from customers: Returned items reach the retailer or manufacturer for processing and inspection to assign a return category if not done before arrival. Returned items get sorted according to whether they get resold as new, repaired, or returned, or if the item is to be recycled, destroyed, or refurbished.
  3. Keep returns moving: Product returns management sends fixable products to be repaired, reducing waste of products that would otherwise be scrapped and counted as lost revenue.
  4. Repair returned products: Fix or refurbish any suitable products and sell any parts of items that cannot be fixed.
  5. Recycle: Products that cannot be fixed and parts that cannot be sold can be directed to recycling.

Benefits of reverse logistics

As e-commerce continues to grow and evolve and customers expect the convenience of easy returns, reverse logistics plays an increasingly important role in customer satisfaction, cost reduction, and minimizing the environmental impact of waste generated by returns.

When managed effectively, aftermarket logistics helps companies and manufacturers reduce lost revenue on returned goods. A few other benefits include:

  • Improved customer experience. Customers today expect nothing less than fast, easy returns. Having an efficient process helps a brand deliver CX that drives customer satisfaction.
  • Better and faster customer service. Returns are a top reason for customers needing service. Effective reverse logistics streamlines service for happier customers.
  • Lower inventory risk. An effective reverse logistics process allows companies to better manage inventory risk by cycling returned products back into stock faster. It also reduces fraud risk through quick inspection of returns.
  • Create value. Returned products can generate additional revenue streams through refurbishment and resale of goods, through an efficient inspection and sorting process. Businesses can identify which returned items are suitable for resale as refurbished items or redirect to secondary markets.
  • Reduce compliance risk. Reverse logistics processes generate useful data that provides early insights into quality or safety issues with products. This allows companies to identify and mitigate any regulatory or recall risks sooner, thereby reducing legal liabilities and protecting brand reputation.
  • Boost brand sentiment. Reverse logistics done right can help a brand win customer loyalty and trust, increasing the chances they’ll return to buy more.
  • Contribute to the circular economy. Customers and investors alike are focused on sustainability. Taking steps to reduce returns, recycle and repair products helps to advance the circular economy.

Returns, repairs, unused: Types of aftermarket logistics

The type of reverse logistics a company runs depend on the kind of business they run and their goals. Here are some of the main forms:

Returns management. This is the most common type of reverse logistics as it involves standard customer returns. With many e-commerce companies offering customers the option to try products like clothing before buying and offering free returns, the returns management process must be intuitive and seamless for the customer as well as the company. Ease of effort for the customer leads to greater customer satisfaction and loyalty. An efficient returns management process also save companies labor, time, and money.

Return policy and procedure. This process guides both employees and customers in handling and initiating product returns. Keeping return policies easy for customers to find and understand provides a better experience and boosts efficiency to reduce costs.

Refurbishing and remanufacturing. Refurbishing and repairing products for resale helps reduce losses while offering products to customers at a lower price than they might have been willing to pay for a brand-new item.

Unsold products. This revlog process involves returning unsold products from retail customers or fulfillment centers to the manufacturer. Products handled in this facet of supply chain management often come from refused delivery, surplus stock of items with poor sales, or recalled items.

Delivery failure. Products that can’t be delivered for some reason get returned to fulfillment centers. From there, the products may be sent back to the manufacturer, depending on the reason for failed or refused delivery. In some cases, errors causing failed delivery can be fixed and the products shipped to the customer again with as little interruption as possible.

Packaging management. This process enables companies to reuse packaging for returned products. Packaging management processes save costs and reduce waste as part of a reverse logistics system.

End of service life. When products reach the end of their useful life and are no longer serviced and updated, they’re often sent back to the manufacturer for proper disposal in an environmentally responsible way. End of service life manages this return and disposal process.

Repair and maintenance. This type of reverse logistics process involves customers returning products for repairs and warranty work. Laptops, cell phones, and other electronics are common examples.

Rental products and equipment. Customers renting products and equipment eventually need to return the items they rented. This process manages the return, handling, and subsequent redeployment, disposal, or recycling of rental products.

Returned products and the role of warehouses

Receiving, storing, handling, and managing a constant flow of returned products requires storage and warehousing and efficient warehouse management.

Receiving and processing returns at a centralized warehouse facility helps streamline the overall reverse logistics process. Customers return products to the warehouse, which processes returns and sends them to the appropriate areas for further handling and processing.

After receiving and processing, warehouse management sends items on for repairing and refurbishing products, disposing of obsolete or damaged products, or recycling materials as part of waste management to reduce environmental impact of returns. Efficient warehouse management reduces costs and creates value.

However, if a company doesn’t have enough warehousing capacity or warehouse management resources, third-party logistics (3PL) companies are available for outsourcing returns. The tradeoff is that going with 3PL offers less control over the returns process.

No small feat: Reverse logistics management

As essential as it is, effective reverse logistics isn’t easy. Infrastructure in the form of software solutions must be sourced, purchased, set up, integrated, and adopted to be successful.

This requires intuitive user interfaces and seamless processes like managing returns, tracking inventory, and re-marketing returned products that have been refurbished, repaired, and repackaged.

Managers must constantly monitor and iterate on improving these processes to ensure efficiency and customer satisfaction.

Although every reverse logistics process will be unique to a company’s specific needs, some common strategies can help streamline and improve the overall process, including:

  • Review and update returns policies and procedures, making sure policies are clear and easy to find and understand.
  • Collaborate with suppliers such as shipping companies and manufacturers to create a smooth, integrated return experience for customers.
  • Optimize processes with data-driven decisions by collecting and analyzing data on all product returns using reverse logistics software. Understanding customer behavior can help you make changes and improvements along the way.
  • Use tracking and tracing to connect raw materials with finished products to inform and isolate any potential recalls.
  • Automate as many processes as possible to increase efficiency, reduce errors, and collect better data for decision making.

3 examples of companies doing it right

Looking at real-world examples of companies that have successfully implemented reverse logistics processes can help you determine what’s possible for your company, and what solutions and strategies may be most effective for your situation.

  1. UPS: The shipping giant reduced its environmental impact using reverse logistics processes. UPS allows customers to reuse and repurpose shipping materials like boxes. Additionally, the company provides recycling services by picking up and hauling items to dispose of in an environmentally responsible way.
  2. Dasani: To recycle plastic bottles, Dasani placed Dasani Bottle Bins around college campuses across the country.  Dasani then collected the bins and recycled the bottles using its reverse logistics process, effectively reducing its environmental impact.
  3. H&M: Setting an example in the circular economy, H&M uses its reverse logistics processes to collect gently used clothing from its own and other brands to create a clothing line that’s made entirely using recycle fabrics and materials. This initiative resonates with eco-conscious consumers by reducing the company’s environmental impact.

Mastering the art of returns

As e-commerce shows no signs of slowing, reverse logistics will continue to play a major role in driving business success, especially in how companies differentiate themselves in customer service and sustainable practices.

Companies embracing the circular economy are investing in technologies to automate processes involved in receiving and processing returned goods. Those without the resources to establish dedicated reverse logistics departments can tap a growing number of specialists for help.

The advantages of effective aftermarket logistics are no secret, and the more companies see the value in efficient returns processes, the greater the demand will be for companies to implement their own reverse logistics operations or work with third-party providers.

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Frequently asked questions (FAQs):

In the supply chain, reverse logistics is the process of moving goods from the end customer back to the retailer to manufacturer. The key point of differentiation regarding reverse logistics in the supply chain is that while traditional logistics concerns itself with the flow of products from manufacturers to consumers, reverse logistics manages the product journey in the opposite direction.

Forward logistics, also known as direct logistics, involves the flow of goods from manufacturers or producers to consumers. It encompasses activities like production, warehousing, distribution, and transportation to ensure products reach the end consumers. Reverse logistics, on the other hand, deals with the return flow of goods from consumers or the point of consumption back to the manufacturer or retailer for activities such as returns, repairs, recycling, or disposal.

Reverse logistics management is the business process of overseeing the return of goods from customers back to the manufacturer or supplier. It involves processing returns, handling recalls, refurbishing products, and managing waste. Reverse logistics management as a process helps businesses reduce costs, improve customer satisfaction, and minimize a company’s impact on the environment. Effective management of a reverse logistics process involves clearly defined processes, use of appropriate technology, and partnering with service providers who have expertise in managing and optimizing the reverse logistics process.

An effective reverse logistics process creates value for businesses across several business-critical aspects:

  • Customer satisfaction and loyalty: Efficient processes in reverse logistics, given the rise of e-commerce and direct-to-consumer business models, ensure a positive customer experience. Furthermore, a streamlined return process can enhance customer loyalty.
  • Operational efficiency: Centralized warehouse management for returns ensures cost-effective operations and proper handling of products, whether for repair, resale, or recycling.
  • Enhanced customer service: As returns are a primary touchpoint for customer service, an efficient system can lead to increased customer satisfaction.
  • Revenue recovery: Effective management of returned products can lead to their refurbishment and resale, opening additional revenue channels. Proper inspection can identify items fit for resale or redirection to other markets.
  • Cost efficiency: A well-organized reverse logistics system can minimize lost revenue from returns, manage inventory risks, and reduce fraud through prompt inspection.
  • Regulatory compliance: Data from reverse logistics can highlight potential product issues, allowing businesses to address regulatory or recall risks early, protecting the brand’s reputation.
  • Sustainability: By focusing on recycling and reducing waste from returns, businesses contribute to the circular economy, appealing to eco-conscious stakeholders.
  • Brand image: Effective reverse logistics boosts brand perception, encouraging repeat purchases.

Businesses can optimize their reverse logistics process by adopting the following practices:

  • Clarify return policies: Make return policies clear and easily accessible, enhancing customer experience and operational efficiency.
  • Partner with appropriate suppliers: Collaborate with shipping companies and manufacturers for a seamless return experience.
  • Leverage data: Use reverse logistics software to analyze return data, understanding customer behavior and refining processes.
  • Track and trace: Connect raw materials to finished products to quickly address recalls or product issues.
  • Centralize warehousing: Process returns at a central location for efficient product management, from repair to recycling.
  • Consider 3PL: If in-house warehousing isn’t feasible, consider third-party logistics providers, but be mindful of the loss of direct oversight.
  • Invest in an intelligent tech stack: Adopt intelligent software solutions for managing returns and tracking inventory.
  • Monitor and Adapt: Regularly review and refine processes for optimal efficiency and customer satisfaction.

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