A quick Guide to Reverse Logistics: Strategies and How It Works
As supply chains ebb and flow, it’s important to have a complete understanding of how existing forward and reverse logistics operations impact your business, especially as ecommerce and retail sales have begun to decline due to rising inflation, costs, and uncertainty.
It’s important to have scalable and flexible solutions on hand to keep your operations afloat for periods of peak demand or uncertainty. We’ve put together this short guide about reverse logistics operations along with strategies you can use to optimize your supply chain, the roles automation can play, and current trends.
What Is Reverse Logistics?
You might already be more familiar with reverse logistics than you realize. Whether you’re just starting out as a company or you’re overseeing a full-fledged operation, you’ve likely had to manage product returns or disposal in some way.
Reverse logistics is the process of goods moving from the end-user back to the seller or manufacturer. For a process to be considered reverse logistics, goods must move at least one step backward in the standard supply chain flow.
So why do we need to optimize reverse logistics? There are many reasons you should focus on your reverse logistics, rather than treating it as a necessary evil. Optimizing your reverse logistics operations improves the customer experience, lowers expenses, and increases profitability. Who wouldn’t want that?
Reverse logistics consists of these major components: returns, repairs, repackaging, recycling, recalls, end-of-life, and reselling. Depending on your industry, you’ll likely need to sort your returns into one or more of these categories.
How is Reverse Logistics Different From Standard Logistics?
In the standard or traditional supply chain, goods typically move from the manufacturer as raw materials or finished products to the end-user or consumer with a series of steps in between. This is also referred to as forward logistics. As previously mentioned, reverse logistics is the process of goods moving backward in the supply chain.
Reverse logistics encompasses everything related to returns and what happens to the product in, and after, the returns process, whether it’s disposal, repair, or resale. The goal of reverse logistics is usually to recapture some value from the product or ensure its safe disposal.
What is Integrated Logistics?
A combination of forward and reverse logistics, integrated logistics is the complete process of goods moving throughout the supply chain to the end-user and final disposal. Rather than treating forward and reverse logistics as separate processes, it might be a good idea to integrate your logistics as there is typically overlap between the two processes, allowing the supply chain to run more efficiently and properly utilize limited resources.
Integrated logistics can also include the full life cycle of a product, including service needs and support.
Reverse Logistics By Industry
Depending on the industry you’re in, reverse logistics operations might be different, meaning a “one size fits all” approach probably won’t work here. When we hear reverse logistics, we commonly think of ecommerce or retail store returns from customers, where the items will need to be resold, repaired, or disposed of. But that’s not always the case.
In some industries, like pharmaceuticals, products or waste may need to be returned to the distributor for proper disposal, requiring a process that differs from the typical ecommerce company.
Here are some examples of how reverse logistics works in each industry:
Pharmaceutical Industry: In the pharmaceuticals, healthcare, and biotechnology industries, reverse logistics is typically used to keep biohazardous materials and medicines out of water supplies, landfills, and the environment. This is usually done through distributors or third-party companies that handle returned supplies and medical waste.
Service Industry: In the service industry, reverse logistics is tailored more to repairs, refunds, warranties, and credits. This type of reverse logistics is focused on an organization’s return, warranty, and customer service policies.
Manufacturing: In manufacturing, reverse logistics might require product or part recalls. In the manufacturing process, sometimes parts designated for certain items may be redirected away from a product for use on higher priority products.
Apparel: The apparel industry experiences what we traditionally associate with reverse logistics: customers returning an item they no longer want or aren’t happy with. In ecommerce and brick-and-mortar retail stores, especially in the fashion and apparel industry, customers commonly order or purchase multiple colors and sizes, then return what they don’t like. In a 2022 survey from Statista, 26% of respondents returned clothing ordered online.
THREE STRATEGIES TO BUILD BETTER REVERSE LOGISTICS
Optimizing your reverse logistics provides numerous benefits, such as increased profitability, lowered expenses, improved customer experience, reduced losses, and streamlined delivery.
The most effective way to lower your reverse logistics costs is to reduce the overall number of returns you receive. One way this can be accomplished is by optimizing how a product and its information are displayed to give customers a better expectation of what they’re buying or to clarify your return policy. Surprisingly, in 2021 the average return rate for ecommerce sales was 20.8%, compared to a return rate of 18.1% the prior year.
Here are a few strategies you can use to optimize your returns handling operations:
1. Monitor Supply Chain Metrics
Are you making data-driven decisions about your supply chain? Understanding key metrics throughout your reverse logistics and supply chain operations is important, which will help with asset recovery and reducing expenses. Knowing and monitoring your metrics provides insight into costs and areas for improvement.
Here are some key supply chain metrics to keep in mind:
Volume: How many of your products have been returned vs. sold? How many have been resold, recycled, or disposed of?
Percent of Costs: What’s the cost of your reverse logistics compared to your overall supply chain?
Financial Value: What’s the financial value of each aspect of your supply chain?
Errors: What’s the potential for errors in your operations? Are errors occurring? If so, how can you improve them?
Product Condition: What’s the condition of the products being returned? Can they be easily resold or repaired?
2. Implement Scalable Warehouse Automation
How are returns and goods moving throughout your warehouse or distribution center? Are items not moving fast enough? Do you struggle with finding and retaining labor? Is sorting returns too manual and labor-intensive?
An effective way to handle returns and determine how to handle items is to implement a scalable warehouse automation solution that can keep up with demand, especially during peak seasons where returns are at their highest point. There are many different types of automation systems that you can implement to increase the effectiveness of the returns process using less labor.
An effective automation solution for reverse logistics is an automated sorting system. An automated sorting system allows for a more streamlined returns process by enabling returned items to be placed into the system, scanned, and sorted into a bin where items can be taken to the next stage of the reverse logistics process.
3. Create a Centralized Returns Center
Establishing a centralized returns center can help lower the cost of returns by helping to keep returns under control in one location. This also minimizes the risk of items being lost or damaged throughout a distribution center.
A central returns center, whether inside a current distribution center or as its own facility, can help keep disruptions to the rest of the fulfillment process to a minimum, enabling items to be scanned in on arrival and kept moving through the supply chain. This can be done for a variety of different types of reverse logistics, whether for ecommerce or product disposal.
This is where an automated sorting system can come into play, streamlining the returns process while only relying on a minimal amount of labor, especially in a time where labor challenges pose many problems for businesses globally.
POPULAR TRENDS FOR REVERSE LOGISTICS
As supply chains and reverse logistics operations continue to adapt and change to the global climate, it’s critical to stay updated on the many different trends we can expect in the next several years.
- According to Research and Markets, the global reverse logistics market is expected to reach USD $812.6 Billion by December of 2027 at a compound annual growth rate (CAGR) of 5.8% during 2022-2027. As of 2021, the global reverse logistics market was valued at USD $563.3 Billion.
- Truck drivers, a critical component in the supply chain, have been in short supply. To stay ahead, companies will need to focus on driver retention initiatives and incentives to encourage recruitment and retention.
- As ecommerce remains popular, online returns will also continue to increase. This will make future supply chain and reverse logistics management a priority for companies to continue providing excellent service to customers while reducing costs associated with large volumes of returns.
- According to Report Linker, the global warehouse automation market is expected to grow to USD $31.03 Billion by 2026 at a compound annual growth rate of 15.45%. To keep pace with consumer demand and supply chain disruptions, many organizations are turning to automating different parts of the supply chain and fulfillment processes.
- Many companies offer free shipping for returns to retain customer loyalty and improve the overall shopping experience, as many consumers factor this in when shopping online. To offer free returns, it’s important to make sure your reverse logistics can handle large volumes of returns without allowing costs to be too high. Roughly 79% of consumers want free return shipping when shopping online.
- In 2021, online sales accounted for USD $1.05 Trillion of total US retail sales with USD $218 Billion in online returns, making returns consist of roughly 21% of total ecommerce sales. With over a fifth of all ecommerce sales resulting in returns, it’s critical for ecommerce companies to optimize how they are handling return policies and practices.Roughly 79% of consumers want free return shipping when shopping online.
THE FUTURE OF YOUR REVERSE LOGISTICS OPERATIONS
As global supply chains continue to face challenges posed by labor shortages, inflation, and global events, the future of supply chain management and reverse logistics will be to keep disruptions to a minimum and increase resilience to shortages, overflow, or fluctuating demand, especially in preparation for peak seasons where high return volumes are expected.