With ecommerce on the rise, returns are piling up as companies find new means of optimizing their logistics. The cost of retail returns in the U.S. alone reached an all-time high of $817 billion in 2022 — a quarter of which came from online retailing.
Look closer, and see that of the $1.3 trillion in ecommerce sales recorded the same year, 16.5% of purchases ended up returned. That’s a heavy burden for companies to deliver a positive customer experience.
It’s clear that returns and reverse logistics are growing in importance. But what is reverse logistics in supply chain management, and what can be gained by optimizing it?
What is reverse logistics?
Reverse logistics is what happens when products need to be returned to the manufacturer or seller after reaching their final destination. This could involve a consumer returning a product for any number of reasons or a store returning unsold merchandise. Think of it as the opposite to outbound logistics strategy.
The whole process is an intricate and important part of the circular supply chain, as it allows companies to extend product lifecycles and prevent waste through recycling or refurbishment. Disposal is still common practice, though it is used as a last resort. Importantly, losses can be minimized.
Some reverse logistics examples include:
- Returns management — Accepting customer returns to build loyalty and repeat business.
- Delivery failure — Returning products that were unable to be delivered to the manufacturer or resending to the customer.
- Repair and maintenance — Sending products to the manufacturer, like consumer electronics under warranty, for inspection and repair.
What are the benefits of optimized reverse logistics strategies?
When reverse logistics is done correctly, it can be a boon to your operational performance and brand reputation by offering the following benefits:
Increased asset utilization — Implementing a reverse logistics strategy ensures the value of inventory, labor, and infrastructure are being maximized.
Better customer service — Reverse logistics strategies are advantageous to your company in delivering the best possible service experience. Deliver on expectations and those happy customers become repeat purchasers. Their customer lifetime value increases and they often refer new business.
More transparency — Greater visibility across your supply chain means you know the whereabouts of a product, even after it has left a facility or the customer’s hands. If it’s stuck on shelves or being returned a lot, see what needs to change.
Stronger brand reputation — Customers expect an easy return process, so it’s vital to ensure it is fully optimized, or they may decide to take their business elsewhere. Conversely, a great policy can attract more customers to purchase from you. Consider Amazon and Zappos, the success of which are attributed partly to their no-questions-asked returns policies.
Increased ROI and reduced losses — Products that were the wrong size, color, or model can be resold if you can get them back from the customer. Hassle-free returns allow for fixes and placement back for sale, even if they are discounted. This is better than losing out if you hadn’t considered providing the option of easy returns.
Improved sustainability — Optimized reverse logistics grants customers and companies the opportunity to give goods a second life through repairs or refurbishment, which prevents landfill waste. It also allows the proper disposal of items when necessary.
Reduced risk — Having a reverse logistics plan in action helps companies efficiently respond to returns requiring urgent action, such as product recalls or safety issues.
What strategies can you put in place to improve your reverse logistics?
The benefits of an optimized reverse logistics process are clear, so how can you achieve it? Here are 6 strategies to try:
1. Provide a clear returns policy
Vague or difficult-to-locate returns policies make customers think twice about doing business with online retailers. It appears as though the company is withholding information, even if that wasn’t intended.
However, a hassle-free returns policy can increase the competitiveness of your business. Being transparent helps build trust, particularly with first-time buyers, and increases their confidence to purchase. Clearly state the terms of sale, as well as methods and steps to rectify post-purchase issues.
2. Collaborate with your suppliers
Work closely with your suppliers to identify opportunities for improvement and optimize the operations of both parties. Without collaboration, it will be difficult to provide an integrated service experience, and the more disjointed the experience is, the harder returns will be for companies and their customers.
3. Centralized return centers
Some companies struggle to efficiently process forward and reverse logistics from a single distribution center. Under this model, the forward motion of products gets prioritized while idle returns accumulate in warehouses as they await processing. But in a centralized return center, products are quickly sorted and progressed onto the next destination.
4. Warehouse management software
A robust warehouse management system (WMS) is there to help companies manage inbound and outbound logistics. Your WMS should be able to support the reverse movement of goods due to returns, repairs, recalls, and any other situation that could foreseeably arise. Combined with RFIDs or barcodes, WMS provides enhanced inventory management.
5. End-to-end data and analytics
When you monitor the right data on returns, you have visibility into why returns are being made and make adjustments accordingly. The metrics measured will depend on your concerns and can include (but is not limited to):
- Frequency of errors
- Percent of costs
- Volume returned
- Condition of returned goods.
But more broadly, analytics allow you to monitor operational efficiency at any point of reverse logistics.
6. Automate when possible
One of the greatest challenges of reverse logistics strategy is having the appropriate infrastructure to execute it. The initial set up presents the biggest hurdle, but once you have automation in place, your processes will be streamlined. Automating aspects of your operations can also support the implementation of other supply chain strategies, such as asset tracking.
Start improving your reverse logistics
Customer expectations have changed, and companies that offer easier returns and exchanges are set to come out on top. Start optimizing, and you will increase supply chain efficiency while ensuring customers keep coming back.
Looking for a reliable 3PL partner? GlobeCon has 35 years of experience in trucking, warehousing, and more at the Ports of Long Beach and Los Angeles.