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.
Reverse logistics, also known as aftermarket logistics or retrogistics, is an important component of supply chain management.
The returns management process provides a look at the key steps involved in reverse logistics.
When managed effectively, aftermarket logistics helps companies and manufacturers reduce lost revenue on returned goods. A few other benefits include:
Marketing metrics often overlook the high rate of e-commerce product returns, which is extremely costly to retailers. As global e-commerce continues to grow, the amount of returns is expected to cost retailers more than a trillion dollars a year.
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.
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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.
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:
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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.
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.
