Are You Maximizing the Value of Your Reverse Logistics Processes?
Businesses should optimize their reverse logistics processes to increase the value of their goods. Returns often lead to significant financial losses, but they don’t have to. Understanding the challenges and solutions enables companies to build efficient strategies that lead to happier customers and save money.
Common Challenges in Reverse Logistics
A few common challenges can inhibit profitability in reverse logistics processes. The National Retail Federation estimates that the average retailer spends $165 million on returns each year. What is causing these high costs?
One challenge many retailers, suppliers and 3PLs face is inefficiency. Returns get more expensive the longer they take to go through the reverse logistics process. Plus, the longer a returned item is on the road, the more likely it is to get damaged and become ineligible for resale.
Unfortunately, fraud is another reason retailers lose money in reverse logistics. Companies that lack secure, specific or robust return policies are more likely to fall victim to fraud. This includes situations like a customer lying about the quality of their returned item or sending a return package with nothing inside.
Warehousing can also inflate reverse logistics costs. Returns require a large amount of warehouse space, which is at a premium today. If return locations are spread out, retailers can also experience high transportation costs. Excessive travel time also slows processing, leading to higher expenses and a poor customer experience.
Strategies to Maximize the Value of Reverse Logistics
Reverse logistics might include significant challenges, but businesses can implement plenty of solutions to resolve those issues. These strategies focus on building smarter, more efficient processes that improve the customer experience, reduce waste and save money.
Include Return Labels in All Orders
Including return labels by default is one of the easiest ways to increase the value of reverse logistics. Retailers and suppliers can use pay-on-use shipping labels to drastically reduce the time returns take.
Customers who want to return an item don’t need to contact customer service or ask for a label to be mailed to them. They can reuse the original packaging, stick the return label on the box and send the item back.
This process reduces customer service costs and return times. Return locations are vital for ensuring this strategy is successful. Use a widely available shipping partner to make it easy for people to find a place to drop off their package, such as the post office.
Expand Monitoring and Visibility
Poor visibility in the reverse logistics process increases the likelihood of expensive inefficiencies going unnoticed. It’s crucial to track and utilize logistics data as much as possible, such as shipping times, return frequency and customer experience data.
All this information is invaluable for improving reverse logistics. For example, shipping data can indicate areas where a retailer might need more return locations or warehouses. Continuously monitoring all available data is also vital for tracking the progress of any changes to ensure successful optimization and a good ROI.
Evaluate Common Reasons for Returns
Return surveys are a game changer in reverse logistics. The motivations behind returns can tell retailers and suppliers a lot about their customers’ buying habits, preferences and experiences.
For instance, customers returning a specific item significantly more than most other merchandise could indicate a root issue the retailer can resolve. Research shows that 75% of returns are clothing, shoes or accessories, all of which suffer from a common challenge: sizing. People are more likely to return items with consistently inaccurate size measurements. Tracking the reasons for returns helps retailers identify and resolve issues like this.
Of course, returns are often due to buyer behaviors rather than an issue with the products themselves. Many shoppers purchase multiple sizes of the same item, intending to return all but one. Allowing customers to do this improves the customer experience, but it can get expensive for retailers. Therefore, it’s essential to streamline the return process as much as possible to ensure good items don’t go to waste.
Create a Returned Goods Analysis System
Returned goods often end up in landfills, even if they are in new condition. This results in significant financial losses for retailers and suppliers. An efficient evaluation system can prevent items from going to waste and allow retailers to maximize the value of their products.
For example, when a customer sends in a return, include a paper or digital survey asking them about the condition of their item. Anything marked as “good,” “new” or “unused” can get sorted out for efficient resale screening. Retailers can coordinate with logistics partners to organize physical evaluations at return centers or warehouses.
Collaborate With Suppliers and 3PLs
Maximizing the value of reverse logistics requires excellent communication with supply chain partners. Coordinating with suppliers and 3PLs enables retailers to ensure they leverage every opportunity for optimization.
For instance, a shipping partner might have easy access to valuable returns data. Good communication allows retailers to use this information and save both parties money. Collaborating with supply chain partners also simplifies implementing monitoring and optimization strategies.
There are often situations where working with suppliers can resolve issues at the root of frequent returns. For example, customers might return a jacket because the sizing is inaccurate. The retailer can work with their supplier to design a more suitable sizing system that would improve satisfaction, reduce return rates, increase profitability and decrease reverse logistics traffic.
Maximizing Value in Every Stage of Logistics
The reverse logistics process is often overlooked in favor of the retailer-to-customer journey. However, it’s full of opportunities for optimization and cost savings. Retailers, suppliers and 3PLs can use monitoring, data analytics and supply chain collaboration to build efficient processes for returns. As a result, they can improve the customer experience, reduce waste and increase profits.
Ellie is a freelance writer passionate about keeping up with the latest innovations and advancements in tech and science and covering how they’re impacting the world we live and work in. She’s also the associate editor of Revolutionized.com.