An Introduction to the 5 R’s of Reverse Logistics
One of the most valuable and yet overlooked components of any company’s supply chain is the process of managing returns. This process is also referred to as reverse logistics.
Most companies overlook their reverse logistics strategy because they are primarily focused on forward logistics or the operation of selling and distributing new products to customers. The process of reverse logistics, or of receiving returned products and then distributing those products back out into the marketplace, is often costly and drains capital for businesses.
There’s no shame in admitting your business’s reverse logistics strategy is inflicting a strain on your margins. After all, you’re reading this article. Fortunately, there are strategies you can use to reverse your reverse logistics strategy, and that’s what we’re going to cover in this guide today.
But first, there’s another fundamental question that we need to answer:
What is Reverse Logistics, and Why Does It Matter?
Reverse logistics refers to each step and link involved in managing product returns from customers. As mentioned above, most companies are focused on the process of forward logistics, or ensuring the flow of their products from the factory to distributors and finally to customers.
Applicable to both retail and eCommerce, reverse logistics is just as crucial to optimize as forward logistics. Too many companies view reverse logistics as a gaping hole where it’s inevitable that they’ll lose money. But in reality, reverse logistics can still be an opportunity to create value for your business.
The process of reverse logistics encompasses five primary components, or ‘R’s,’ each of which we’ll outline and discuss in greater depth later on:
Each of the above steps is important because it involves regaining value by taking returned products and then either getting those products back out into the marketplace to be resold or adequately discarding them. This is crucial for regaining customer trust (especially if you need to repair a product and get it sent back to the original customer) and ensuring your business doesn’t lose money.
Businesses in today’s world especially are facing a much higher strain on their finances than they were before. On average, it already costs about $40,000 to open a small business and operate it for one year. And the cost of goods and inflation, in particular, have further pressured a higher burden on most small businesses to open and function as well.
That’s also not to mention the basic cost of living that has risen as well, further putting a strain on individual business owners to stay afloat. In Canada, for example, the average cost of living across all provinces is now over $4,000 a month. In the United States, meanwhile, the average cost of living across the country is approaching $5,000 monthly.
If the returns process is currently one of the most expensive fronts of running your business, as it is for many companies, it’s long overdue for you to take action and optimize it, so it becomes less costly.
The idea with reverse logistics is simple: returned products are not wasted and instead resold, reused, or recycled so they can continue to generate value for your business and make customers happy.
It’s for these reasons that it will pay for your business to evolve your reverse logistics strategy if it’s currently costing you money. And that starts with understanding what each step of the reverse logistics process even is.
The 5 Rs for Reverse Logistics
Here are the 5 Rs of reverse logistics:
1 – Returns
Returns are always the first action taken in the process of reverse logistics. This is when customers return a purchased product to your business for any number of reasons. Reasons for returns usually include:
- The product arrived to the customer defective
- The product came to the customer damaged
- The product failed to meet the expectations of the customer or did not work as described
There are several strategies you can use to optimize and reduce the cost of the returns process. The most crucial step is to have a return material authorization (RMA) verification to allow a customer to return a product. The RMA number should be assigned by your customer service department to ensure the return can be processed. It should also describe your return policy and instructions on how to ship the product back to you.
Additionally, make sure that you have a concrete policy for returns. For example, will you only allow defective products to be returned, or will you allow products that did not meet customer expectations to be returned as well?
Finally, make sure you have a process in place for testing the returned product as well to confirm whether or not it’s suitable to be returned back to the marketplace.
2 – Recalls
Recalls are another and more complicated way to return products to businesses. The reason recalls are usually more complex is that they are subjected to governmental regulations and involve basic construction issues that could be hazards to the health and well-being of customers. For example, devices are often recalled if they have construction issues or faulty components that could endanger other people.
The best way to handle recalls is to have a process in place to receive and replace the recalled product. The number one goal when handling recalls should be to focus on your customer and to fix or replace their product with an alternative unit.
3 – Repairs/Refurbishment
Repairs are when a damaged product is fixed (after the problem has been identified by the business) and then returned to the original customer at no cost to them. Refurbishment is when the product is returned to like-new condition, so it is ready to be sold again on the general marketplace.
Make sure that you have a streamlined process in place to repair or refurbish returned products. Have an efficient tracking system and a part of your inventory management team dedicated to the repairing and refurbishing of products.
If the faults or hazards with your product are not too severe, hopefully, you can get the product repaired and returned to the customer or refurbished and then sent back into the marketplace to be sold.
4 – Repackaging
What happens when products are returned because customers were dissatisfied with the product but not because there was anything wrong with the product? In this case, the product needs to be repackaged so it can be resold on the marketplace.
Your company’s return policy should indicate quite clearly whether you allow products to be returned because of customer dissatisfaction or if you only allow returns in the case of defects or recalls. If your company offers a product guarantee (meaning you promise to refund the customer and take the product back if they aren’t happy with it), then you’ll need to allow returns due to customer dissatisfaction.
In this scenario, it’s absolutely crucial to repackage these returned products and get them returned to your inventory as quickly as possible. First, thoroughly and efficiently check the product to see if there are any flaws sustained. If there are, you’ll need to get the product reconditioned, so it’s suitable to be sold again as a repackaged product.
5 – Recycling
Last but not least, put some thought into how you can make your products more sustainable so they can be properly recycled or environmentally disposed of when they reach the end of their service lives.
For most businesses, this means working with recycling firms to ensure that any waste is correctly collected and disposed of. In the case of technological devices, for example, recycling firms can likely salvage rare earth metals that can then be returned to your business so they can be used again in future products. This will save your business money in the long run.
Reverse logistics is all about keeping costs and disruptions to the returns process to a minimum. Keep the above points in mind, and continue to research and think about how you can turn costs into opportunities for returning, recalling, repairing, repackaging, or recycling your products.