Reverse logistics isn’t a new practice or term in the supply chain. It’s been here for long since the days of waste paper and water bottle recycling. However, the interest businesses have developed in it as a research field is still new.
Since the 21st century dawned, companies have increased their attention to reverse logistics as a business practice and research field. They are seeking innovative ways of dealing with this practice because it can be hectic and costly.
Ecommerce businesses have much to grapple with when handling this logistical activity. Online stores have to contend with returned goods to please and appease their customers. It’s no wonder some industries have a 50% return level.
This post examines this supply chain practice in depth. We will define it, learn how it works, examine its benefits, and more. Remain on this page to learn and benefit more.
What is Reverse Logistics in Supply Chain?
Let’s define reverse logistics before examining its other components and impact on a business. Reverse logistics is a form of supply chain management that ships goods from customers back to manufacturers or vendors. Final customers initiate the reverse journey through the supply chain distributors or from distributors to manufacturers.
Consumers initiate reverse logistics to regain product value or dispose of them. Reverse logistics also seeks to retain repeat buyers. Savvy and customer-centric companies use this logistical activity to build customer trust and reduce losses returns cause.
Yearly, customers return goods worth trillions of dollars. The trend has increased following e-commerce growth. Some examples of reverse logistics are:
- Returns management: it’s a process that deals with or prevents returns.
- Unsold goods: it handles returns from a retailer and a distributor back to the manufacturer.
- End-of-life: this process handles returns for products that can no longer sell.
- Rentals and leasing: this process refurbishes, repairs, and redeploys rented equipment.
- Delivery failure: it involves product returns to manufacturers through postal sorting centers because of failed delivery.
- Packaging management: this process reuses packaging materials to prevent waste.
How Reverse Logistics Work
Reverse logistics works by moving goods from the end buyer back by one or several steps. The process can involve several control measures and plans. It also focuses on managing returned goods and purchasing surplus materials and goods.
In other cases, it deals with refurbishments and leases. Below are the five steps to excellent reverse logistics.
- Keeping Returns Moving
A company can minimize its daily waste by sending repairable components to the repairs department.
The repairs section reviews the returned items and determines if they are repairable before moving them to the repair yard. If repair is impossible, it’s better to sell any sellable components.
- Processing the Returns
The customer initiates this process by including return authorization and identifying the product’s state. This process plans returns shipment, funds approval, and replaces defective goods.
- Handling Returns
After a buyer returns a product to a manufacturer’s depot or centralized processing bay, the company inspects and determines its return category. The company can categorize the goods for fixing, reselling as new, reselling as returns, recycling, refurbishing, or scrapping.
Recycling comes in handy for those goods or product components a firm can’t resell, reuse, or repair.
Monitoring Reverse Logistics Flow in Your Supply Chain
Understanding supply chain analytics is critical. It helps you understand the flow of goods customers return to your supply chain. Below are the four crucial components to help you track this flow.
You need to examine the volumes of goods returning to your supply chain. If they return in large quantities, you might have a bigger hidden problem. You may need to overhaul your entire production process or recall those goods to solve this challenge.
- Financial Value
Tracking and managing your reverse logistics helps you know the amount of money you could be losing. So, track product returns to know these potential losses and prevent them.
- The Returned Products’ Condition
Understanding the returned products’ condition is another essential component in tracking returned goods. Determine any failure trends in your products and if the failures follow particular operations. This way, you will be better positioned to determine what went amiss and fix it in the future.
- Sales Percentage
You have to establish how much sales you lose because of product returns or recalls. It’s also essential to determine how you can incorporate these goods into your supply chain using reverse logistics. No wonder an Aberdeen Group study discovered that an average manufacturer spends between 9% and 15% of its revenues on return processes.
Benefits of Reverse Logistics
Reverse logistics might sound like a loss-producing activity. Fortunately, companies can harness it to their advantage. Here are its leading benefits.
- Better Customer Retention and Satisfaction
The customer lies at every supply chain’s center. Therefore, doing your best to please and appease them sustains your business. Handling this process carefully helps a business satisfy and retain its customers.
It’s no wonder a UPS report reveals that 95% of customers will ditch a company that mishandles their returns processes. It also revealed that firms with excellent reverse logistics have a 12% better customer satisfaction rate than those without.
- Strict Stock Control
Excellent reverse logistics enhances better stock control. Initially, the process requires more resource allocation to control stock. Fortunately, strict stock control and planning requirements eventually reduce stocks and margins of error.
- Increasing the Goods Value
Reverse logistics requires the repurposing or recycling of products in one way or another. A company can recycle these goods by using their materials to create new products. Alternatively, a manufacturer may repair these goods and resell them at a discounted price. Eventually, the firm increases its goods’ overall value.
- Reduced Expenses
Reduced expenses are another reverse logistics benefit. A manufacturer can plan for these returns and make the return orders correctly to reduce overall shipping, administrative, and technical support costs.
Sustainability is fast becoming a consumer point of concern. A firm can gain enhanced sustainability and promote its reputation by repurposing returned goods. Reverse logistics allows manufacturers to repurpose goods instead of disposing of them; hence, decreasing waste.
No wonder a Research Gate paper discovered that reverse logistics directly and positively affects ecological sustainability by reducing waste. Another Deloitte consumer survey revealed that about one-third of customers ditched brands that sustained sustainability or ethical issues. The same survey also showed that 34% of consumers chose brands with eco-friendly values and practices.
- Better Business Insights
Organizing your reverse logistics processes well gives you valuable information on product returns for streamlining your operations. This data helps you understand returns rates for various goods and address their underlying causes.
For instance, you can understand your different products’ prevalent defects and lifespans. You can utilize these insights in planning for a more streamlined process and preventing losses from returned products.
Strategies for Effective Reverse Logistics
Your business needs cost-effective, swift, and efficient strategies to optimize reverse logistics. Factor in other elements like capacity, data, your company policies, and logistics when acting. Below are the top strategies to assist you in implementing successful reverse logistics.
You need to automate your systems using cloud-based logistics programs to streamline your operations. These apps can monitor asset recovery, supply business intelligence analytics, and manage refurbishment.
- Policy and Agreements Evaluation
Evaluate your policies and agreements that deal with your firm’s returns and repair issues. They should also be clear enough to address the root causes behind returns and repairs.
- Data-optimized Processes
You may also understand why customers return your goods by gathering data on returned products. Use these insights to make necessary sales adjustments, design products, and streamline logistics processes.
- Monitor Products
Also, link raw materials to finished goods and buyer orders to monitor their contents should you recall them. This way, you don’t need to recall whole manufacturing lines. Instead, you only have to detect the issues and make selective recalls.
- Use Centralized Recall Centers
You may also use centralized recall centers to sort returned goods and determine the best steps for all of them. This center shows you how best to reclaim product value. You might dedicate a section of your warehouse or manufacturing plant if you don’t have a dedicated recall center.
- Review Logistics and Transportation
Lastly, review your processes for transport and logistics. You also have to establish if you can feasibly integrate any of these processes in transit. For instance, some of your delivery trucks may collect empty containers while dropping full ones to save cash and time.
Closing Remarks on Reverse Logistics
There you go with all you needed to learn about reverse logistics in the supply chain. But do you have a reliable logistics partner to help you in these matters? We’re here to help you handle and streamline all your logistical operations.
As a premier shipping solution provider, our doors are always open to let you in. Go ahead and contact us today for a free consultation to give you the logistical best deals.