Reverse logistics involves the retrieval and reuse of product materials and components and is also sometimes known as reverse flow logistics. Savvy business owners are increasingly looking at ways to boost profitability as well as fulfill ethical and social obligations such as recycling where possible.
By retrieving goods that have outlived their intended use, business owners can often reclaim a significant portion of the products value and either remanufacture, refurbish or recycle the remaining materials. It also includes the management, sale and redistribution of returned hardware such as equipment and machines.
While sales logistics typically moves goods from a third party warehouse to a consumer; reverse logistics sees goods being moved back from the consumer to a warehouse (or sometimes a step further) to the manufacturer for disassembly, reclamation or reconstitution.
Reverse logistics is also an effective process for dealing with defective products. When a customer returns an item, the good needs to be transported back through to the manufacturer where it can be tested, dismantled, repaired, or recycled. This method enables any residual product value to be reclaimed.
According to Statista, the global market for reverse logistics was valued at $415.2b in 2017 and is estimated to reach $603.9b by the year 2025 assuming a compound annual growth rate (CAGR) of 4.6% between 2018 to 2025.
What are the challenges faced in reverse logistics?
Dealing with complaints and returns can be challenging for any business. As many eCommerce entrepreneurs know, every interaction with a customer brings with it an opportunity to add value to your sales funnel.
However, setting up and maintaining a reverse logistics program brings with it its own challenges. Here are three key issues that can make or break your reverse logistics model:
Having an efficient tracking and returns system
Retailers often make the mistake of treating merchandise returns as individual and fragmented transactions. The challenge for vendors is to process returns at an efficient speed that allows for a smooth, cost-effective recovery for the business, and a seamless and pain-free process for the customer. Without an integrated tracking and returns system, you run the risk of missing orders or return requests which can easily damage your brand image as consumers are often quick to complain or post bad reviews if you are too slow to respond.
Invenco has inventory and warehouse management systems that easily track and give you real time visibility of returns through your reverse logistics supply chain.
Dealing with manufacturers
Once you have an efficient method for tracking and returns system, you will need to liaise with the relevant manufacturer and ensure they are capable of handling returns. Not all factories are equal in this regard so be sure to ask about reverse logistics at your existing suppliers or when you enquire with any new manufacturers.
Return of unsold goods
Another issue that can easily be overlooked is what to do with any unsold stock. This is a common issue faced by eCommerce businesses and especially those that are often adding and deleting new product lines. Is your supplier open to accepting unsold goods, or do they have a reverse logistics program where inventory can be returned for credit on future supply runs?
How to improve reverse logistics?
Here are 5 key tips for improving your reverse logistics:
1. Gather, analyse and understand your data
By collecting data on your customers purchasing decisions, you are better placed to reduce your 3pl costs and optimise your reverse logistics. For instance, how common is it for a customer to request a return? which items are being returned? How long does it take to receive a return? Are there multiple instances of complaints from the same customer? Once these types of questions have been asked and assessed, an appropriate strategy can be decided.
2. Work to minimise your returns
A simple method for extracting maximum value from reverse logistics is to minimise your returns. This requires you to review your data and typical customer journey. While it can be challenging to maintain service levels while minimising returns, the financial benefits can be significant.
3. Liaise with key stakeholders
When striving to improve your reverse logistics it is important to collaborate with key stakeholders such as the manufacturer and your logistics provider. If they support reverse logistics, you can liaise with them on how goods will move back through your supply chain in the most cost efficient and timely manner.
4. Outsource logistics to a 3pl reverse logistics provider
For companies that receive a significant number of product returns, investing in infrastructure and systems and personnel can be a costly exercise. This is why many fast-growing eCommerce businesses choose to outsource their logistics to a 3pl logistics company capable of reverse logistics. This ensures they can maintain optimal customer service levels when it comes to product returns.
In summary, reverse logistics is an effective method for boosting profitability and customer satisfaction, when well executed.