Are You Maximizing the Value of Your Reverse Logistics Processes?

November 10th, 2023 Ellie Gabel Leave a comment

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.

Author Bio

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.

3pls, Archives, Global Logistics, Global Trade Daily

An Introduction to the 5 R’s of Reverse Logistics

October 5th, 2022 Francois Moreau Leave a comment

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:

Returns
Recalls
Repairs/Refurbishment
Repackaging
Recycling

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.

Conclusion

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.

Archives, Global Logistics, Global Trade Daily

Reverse Your Reverse Logistics Strategy

August 19th, 2022 Alex Hayes Leave a comment

On average, retailers received back 16.6% approximately $761 billion of total merchandise purchased in 2021, up from 10.6% in 2020, according to The National Retail Federation[1]. There is no sign that the increasing volume of returns will level off. Moreover, returns double during the all-important holiday season. According to UPS, between 27% to 33% of adult Americans make a return before the end of January[2].

Most companies have unprofitable, costly reverse logistics networks that cycle returns slowly and fail to help alleviate any of the strain. Managing returns is so problematic that many companies have told their consumer base to simply keep products rather than return them. Moreover, the cost of managing returns is draining working capital and squeezing retailers’ already stressed margins, especially at a time when many retailers are offering deep discounts to consumers to move piled-up inventory[3]. Companies of every stripe need to reverse their thinking on this approach. It is not sustainable, and there is ample room for consumers to take advantage of the system by overbuying and returning excess products.

Reverse logistics can, and should, add value to a company’s supply chain. To fix their reverse logistics processes, manufacturers, consumer goods companies, and retailers need to:

Prioritize gathering data throughout the collection, inspection, reprocessing, and redistribution channels to map flows for both useable and end-of-life returns: Most retailers do have baseline visibility into the volume and quality of returns or even why a customer has initiated a return. However, without granular visibility into returns channels, retailers and sellers cannot pinpoint inefficiencies at various network stages and uncover where they must direct resources to streamline processes. Retailers who do prioritize data collection discover wasteful steps in their overall reverse network design. With that information, sellers reevaluate the appropriate channels for returns, remove waste, and even reshape the overall network design, redefining how they should construct facility layouts and adjust transportation modes for their specific products.

2. Integrate artificial intelligence into the returns network to digitalize processes and improve decision-making: Collecting data and improving network visibility allow retailers to focus on how artificial intelligence and machine learning can help remove costly errors in returns routing. Empirical evidence shows that most costly errors stem from resources guiding customer returns through inefficient and unprofitable channels. That is where AI can proactively address these challenges. For example, many CPG firms will use AI to determine what channel will produce the most value for an incoming return, whether recycling, refurbishing, reuse or even disposal. AI will synthesize data sets, including the demand for a product, the return’s condition, the amount of inventory on hand, and external market dynamics, to direct returns down the appropriate channel to generate maximum value.

3. Outsource the reverse logistics network to a third party if it continues to inflict strain on the retailer: Mapping processes and leveraging technology, data, and AI will transform and evolve a retailer’s reverse network, but only if the company has an appetite to manage reverse logistics processes in-house. Some companies wish to focus solely on core competencies and strategic endeavors. Outsourcing reverse logistics to a third-party provider will alleviate some financial and operational burdens, allowing those companies to direct capital and resources to their area of choosing. Moreover, these third-party organizations make investments in sustainability and ensure that components and scraps are repurposed and disposed of in the most environmentally friendly way.

Reverse logistics is increasingly essential. But, if not well managed, it is a significant drag on retailers’ razor-thin margins. It has also been mainly ignored, especially during the last few years, as companies focused on getting the product to market against worldwide shortages, high demand, and supply chain disruptions. However, we are now in an era that threatens stagflation, where no retailer and seller can ignore the cost of handling the growing volume of returns. It certainly cannot be so costly and inefficient that it warrants telling a customer to keep their product rather than return it. Retailers who effectively prioritize reverse logistics to generate value for the consumer and their own bottom line will have a competitive advantage in the future.

Archives, Global Logistics, Global Trade Daily

Reverse Logistics: Turning Costs into Opportunities

June 23rd, 2021 Rédigé par, Generix Group Leave a comment

In 2020, lockdown and social distancing will have pushed e-commerce to unprecedented heights. This massive 30% increase in deliveries, further amplified by the Christmas shopping season, is leading to a similar wave of returns – nearly a quarter of all e-orders are returned by customers. Here are a few essential keys to ensure that you are in good working order for returns.

In psychology, it is said that any “feedback”, even negative, is an opportunity. It is an opportunity to better understand the other person and to improve relationships. The same is true in reverse logistics: returns are an opportunity to transform a constraint into a positive customer relationship, as long as they are processed through all channels, the reasons for them are analyzed and the rate of returns is reduced.

Distancing will have strengthened online shopping

According to TNS Sofres, 89% of French people intended to use e-commerce for their holiday shopping in 2020. This period, as short as it is crucial, was expected to generate more than 22 billion euros in sales. In terms of deliveries, an operator like La Poste will have managed peaks of more than 4 million packages per day during this extraordinary period!

45 %

Is the proportion of consumers who have returned at least one product purchased online in France within the year. Only Germany and The Netherlands have a higher rate in Europe.¹

Reverse logistics, a commercial opportunity.

Before being a backward process, from receiver to sender, returns are an essential selling point. They represent the third decision factor of e-commerce customers, after price and delivery terms!

The consumer, therefore, expects clear information on the retraction periods used (increasing them to one or two months more increases the transformation rate), on the proposed methods (deposit in the mailbox, exchange or refund in the store, transport to the home), on the refund periods (beyond five days, they become an obstacle to the purchase).

Thinking downstream upstream

The return to sender is a channel for customer relations and satisfaction. For this, the keyword is unification. The retailer must be able to access homogeneous and centralized data on each order and its components (financial, logistical, marketing), whether the customer has ordered from a merchant site, in a store, via a market place or a call center.

Reverse logistics is also prepared from the moment of delivery, by simplifying the return procedure through the insertion of pre-addressed labels or by inviting the customer to visit the point of sale. If the products are returned to distribution platforms, the system will have to provide information on these temporary stocks and supervise the correct repackaging of the products, reducing the number of operations in order to optimize both time and costs.

WMS: the control tower

Such a capacity requires, in the background, the latest generation of Warehouse Management Software. This WMS process returns in real-time, regardless of volume and type. They provide an overview of their status, nature and reallocation: back to sales, forwarding to suppliers, destruction or recycling.

The latest generation of WMSs also list all physical and commercial characteristics: terms of sale, order history, via sequential package numbers and the various encodings used (GTIN 128, QR codes, RFID or Datamatrix).

To learn more, please visit our dedicated page.

Multiple benefits

Unified, the backward supply chain reduces the time it takes to put products back on sale, and thus reduces markdowns. Quickly and accurately classified through the WMS, returned products protect the brand’s margins and prices.

Reverse logistics also helps to: identify “serial returners”, know the context of each transaction, record special conditions (made accessible via any channel, at any time).

Another positive aspect is that return statistics influence commercial policy, by decoding consumer habits and customer expectations. The reasons for returns also constitute an alert on the quality of the products: informed in time, the after-sales service can deal with the situation with the suppliers concerned.

Finally, if the customer returns his order to a point of sale, it is an opportunity to offer him a discount coupon, a complementary product or a higher range, to introduce him to a new service. Before being a transaction, commerce is really about relationships.

End-to-end, omnichannel returns monitoring provides valuable insights into the impact of returns on replenishment, product availability and offering relevance. Unified reverse logistics processing creates two strategic advantages for retailers. Commercially, it is a loyalty and growth tool, a key element of a personalized relationship. Financially and logistically, it is an important lever for savings and simplification. It would therefore be a shame, and even harmful, to deprive ourselves of this partner

¹Statista, 2018.

This article originally appeared on GenerixGroup.com. Republished with permission.