Reverse logistics is a type of supply chain management that moves products from customers back to the manufacturers. This can include any processes involving the return of unwanted products, including (but not limited to) repair work, recycle opportunities and disposal.
The main objective of reverse logistics is usually to build customer loyalty and minimise costs related to product returns.
In this article, we’ll touch on the different types of reverse logistics, its benefits and challenges, as well as how it differs from forward logistics. Businesses can also pick up some strategies to optimise their processes. Read on to learn more!
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Types of reverse logistics
There are various forms of reverse logistics depending on the nature of the business. These are some common types.
1. Returns management
Returns management is the process of physically sorting any returned products from the end consumer. This involves the element of gatekeeping where the company has to decide the type of returns they should accept.
Once a return is accepted, the warehouse manager is held responsible for storing the items before further processing is done for the returned items.
2. Remanufacturing or refurbishment
Remanufacturing or refurbishing mainly involves the process of repairing and rebuilding the products for resale. This means that companies may recover reusable parts and reassemble the products.
3. Packaging management
This form of reverse logistics mainly focuses on the reuse of packing materials to cut down on waste and disposal.
4. Unsold goods
Reverse logistics for unsold goods handles returns from retailers. Such returns are often due to poor sales, inventory obsolescence or a delivery refusal.
5. End-of-life (EOL)
When a product is labeled as EOL, it’s deemed as no longer useful. It may no longer meet a customer’s needs and hence, be replaced by an upgraded version of the product.
EOL products are typically recycled or otherwise, disposed of.
6. Delivery failure
When delivery to a customer fails, the driver would return the products to the respective distribution centres. From there, the products are then returned to their point of origin.
7. Rentals and leasing
When a piece of equipment comes to the end of its lease or rental contract, the company that owns the product can remarket, reuse or recycle it.
8. Repairs and maintenance
In the event of experiencing any issues, customers may return the products for maintenance and repair.
Forward logistics vs reverse logistics
| Forward logistics | Reverse logistics | |
|---|---|---|
| Stakeholders involved | Both processes would typically involve the manufacturers, distributors, retailers as well as consumers | |
| Flow of goods | From manufacturer to consumer | From customer to manufacturer, mainly deals with recapturing value from old or damaged products |
| Activities involved | Manufacturing, packing and shipping of customer’s orders | Returns, recalls, repairs, repackaging for resale, recycling or waste disposal |
| Forecasting | Straightforward as information is readily available on the product and seasonality trends. | Uncertain as returns are highly dependent on the consumer. Different products may also have different return rates, complicating forecasting in logistics systems. |
| Inventory management | Consistent inventory management due to straightforward forecasting and hence, easier management of inventory flow | Arrival of products tends to be less organised and predictable, making inventory management more difficult |
| Costs | Forward distribution costs can be closely monitored by accounting systems | Harder to monitor due to the nature of transportation management, state of packaging as well as a variety of return products |
| Product life cycle | Life cycle of a product is measured till in the hands of the end consumer | Life cycle is extended to recapture the value of returned products |
Benefits of reverse logistics
By streamlining the way products move back through the supply chain, your business may reap the following benefits.
Increased customer satisfaction
The way your business handles returns could directly affect how customers feel about your brand. When customers aren’t satisfied with their orders and request a return, it’s important to meet their expectations of a quick and easy return process.
Some key factors to take note of will be the
- transportation costs,
- administrative costs and
- the time taken at each stage of the return process.
By understanding and devoting the right resources, customer satisfaction will increase as you serve your customers quickly due to the minimised cycle time.
Better profit margins
You’ll also experience better profit margins when you improve your company’s reverse logistics efficiency. By having the proper mechanism to handle all returned products, the overall cost will be greatly reduced.
Furthermore, you’ll also be able to tackle the root cause of the problem when you understand the reasons behind product returns. This will lead to a significant long-term cost savings by reducing the percentage of returns.
Reduce waste
Reverse logistics can help identify ways to reuse, resell or recycle materials. This will also improve your brand’s reputation for social and environmental responsibility.
By remanufacturing or refurbishing your products, you can extend their lifecycle and provide new value to your customers.
Reverse logistics process
The reverse logistics process varies across industries and Amazon is one of the famous companies that has implemented this process successfully.
They started a free return and replacement policy for certain products and only allowed returns when customers are able to cite a genuine reason. To ensure greater efficiency of returns, their reverse logistics processes are handled by third-party vendors.
This is how a typical reverse logistics process works.
Challenges of reverse logistics
Tedious process
The greatest challenge of reverse logistics is setting up the right infrastructure to ensure optimal efficiency. That often requires the installation of software that can automate and track every step of the reverse logistics process.
Additionally, it’s also important for continuous monitoring and evaluation to improve your company’s processes in the long run.
Cost concerns
Due to the unpredictable nature of product returns, it also complicates warehousing by making standard handling processes difficult to implement. This leads to rising per-item processing costs.
Lack of visibility and control
The most common reason customers cite when returning their products is defectivity’. However, this reason is often too generic and prevents the company from implementing the right reverse logistics strategies.
This also adds an additional burden as they fail to measure the full financial impact returns have on the business.
Methods to optimise reverse logistics
Evaluate return policies and vendor agreements
It’s crucial to review your return policies and vendor agreements regularly to help streamline your reverse logistics process. This will also allow your business to meet customers’ changing needs and hence, maintain a competitive edge over others.
- Return policies
According to Shorr, 95% of customers stated that they’re more likely to make repeat purchases from a company if the returns process is easy.
However, it’s also important to integrate safeguards in your return policies to prevent customers from abusing the return process and incurring unnecessary costs as a result.
- Vendor agreements
It’ll also be good to review and update your vendor agreements periodically. This can reduce instances of overstocking, the return of overstock and hence, minimise any associated costs.
Establish centralised return centres
Centralised return centres (CRCs) are warehouses and centres that only process returns. They deal exclusively in the flow of goods back up the supply chain and aren’t concerned with forward-moving distribution.
Due to the unpredictable volume of returned items, it’ll be more efficient if you set up a centralised return centre to store these items. This serves as a dedicated area to sort returns by category and organise stocks for further processing.
Adopt technology
Adopting technology is another way of improving the efficiency of your warehouse processes.
The use of handheld scanners, for instance, will allow warehouse workers to save time and energy over manually checking each returned item. This would also reduce the probability of human error.
Outsource
For some companies, the most efficient way to optimise their reverse logistics process is to outsource the function completely.
Engaging a dedicated reverse logistics company can save you money as they take on any processes associated with transportation and storage, which allows you to focus on recapturing the value of returned products.
Your customer service will also be improved with a dedicated team working on your reverse logistics management.
Case studies
As companies become more aware of the importance of reverse logistics, they’ve come up with various strategies to improve and differentiate their logistics system from others.
Here are some successful case studies of companies that have implemented best practices for their reverse logistics process.
Case study 1: Dasani
Dasani is a subsidiary owned by the Coca-cola company, focused on producing bottled water for consumers. They aim to boost their sustainability efforts in hopes to attain Coca-Cola’s goal of significantly reducing packaging waste worldwide by 2030.
With consumers increasingly looking out for environmentally friendly practices, it was crucial for them to capture more recycling opportunities in their reverse logistics process.
Solution: Creating central collection points
To achieve this goal, they’ve made the recycling process easy by implementing a central collection point for customers to drop off their used water bottles. One of their collection initiatives was the Dasani Bottle Bins initiative, where collection bins are placed in school campuses across America.
On top of providing convenience for customers, having all returns dropped off at central locations also enables Dasani to cut down on transportation costs. This enables them to be more environmentally friendly while saving on production costs.
Case study 2: United Parcel Service (UPS)
UPS is an American shipping and logistics organisation. During the peak holiday shopping season, they’ve noticed that shipment volumes rise as people begin their gift shopping.
As a result, UPS found themselves handling significantly more returns; the numbers went up to 5.8 million packages a week in January 2017!
Solution: Outsource
To better manage both the transportation and disposition of returns, UPS invested in a startup named Optoro. The startup applies an innovative software where data analytics is used to quickly determine the conditions of returned products.
Thus, this increased the efficiency of UPS’s reverse logistics process as less time is taken to sort the returns. They can then focus on finding the best opportunities to recoup value from these products.
Improving your reverse logistics management
Hiring a reverse logistics partner is an excellent way to create a proper flow for both goods and information. Positive experiences with a product return can solidify the retailer-customer relationship and hence, increase customer loyalty.
At M&P International Freights, we have an extensive network of partners and agencies worldwide and will hence be able to negotiate the best prices to handle your return shipments. We’re reliable and committed to providing the right solutions tailored to your needs.
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