How to Optimize Reverse Logistics for Efficiency and Scale

What is the reverse logistics process?

Reverse logistics refers to any logistics process which reverses the common flow of raw materials or finished goods along the supply chain, from warehouse to sorting location to the end customer (whether consumer or business). This includes delivery drivers returning to a sorting center with products from a failed delivery attempt; or a customer returning a product in store, which is then sent back to a warehouse.

The reverse supply chain can involve the end customer, shipper, logistics provider, and the manufacturer, along with multiple locations. Because reverse logistics are complicated and each use-case is unique, creating a reverse logistics strategy is essential for any business that wants to gain value from returns services and asset recovery, disposal services, or faster turnaround with failed deliveries. 

The combined growth of eCommerce sales and closure of many retail locations led to a recent massive increase in volume of returns. If managing these activities was difficult before, now they have become a critical operational issue that retailers, logistics providers, distributors and supply chain executives cannot ignore.

Let’s take a look at some of the most pressing questions around reverse logistics, and how to implement an effective reverse logistics solution that increases value recovery and reduces logistics costs.

Are there different types of reverse logistics?

Reverse logistics systems can be divided into two types: planned and on demand.

Planned reverse logistics

Some businesses, like bottled water companies, have created business models based on a reverse logistics strategy; others, like fashion and furniture manufacturers may include return policies from the beginning in order to incentivize customers to buy without taking on too great a risk.  

The surge in eCommerce adoption across all age groups has given rise to more verticals adopting these business models and the reverse logistics process it entails. For these businesses, having a planned reverse logistics operation is central to their bottom line.

On demand reverse logistics processes

Most retailers and logistics companies are able to keep up with the demand of planned reverse logistics. The struggle begins when having to deal with on-demand reverse logistics. On-demand issues challenge the reverse logistics supply chain by not allowing for advanced organization of returns and failed delivery attempts. These on demand movements of products go ‘against’ the standard logistics model of the relevant business, yet they are the more traditional form of reverse logistics.

When is a reverse logistics process used? 

There can be various reasons that reverse logistics processes occur. 

5 common reverse logistics use cases:
  1. Customer returns – especially from eCommerce purchases
  2. Failed deliveries
  3. Driver returning damaged parts or products 
  4. Waste management and disposal, as well as recycling
  5. B2B returns

  1. Returns – A customer decides they don’t like a product and tries to return it. Different retailers tackle the returns process in different ways, resulting in various reverse logistics processes.
  2. Failed delivery attempt – A driver-initiated flow where for whatever reason (customer is not at home, the address is wrong, etc.) a product could not be delivered and must be returned to a sorting center (or, in the case of deliver-from-store, a retail location).
  3. Driver returning damaged parts or products – If some or all items in an order are found damaged on arrival at the customer, the driver marks some of the products as accepted, and returns the product marked as damaged.
  4. Waste management or recycling – many service providers will dispose of old electric appliances and other products, or take them for recycling. This can be performed as part of a hybrid delivery flow that includes both pickups and drop offs on the same run.
  5. B2B returns – The logistics of returning unsold products to distribution centers or the distributor, from which point the manufacturer or retailer can distribute them for resale.

Why is reverse logistics important? 

Reverse logistics has always been an issue in regards to supply chain management– even unrelated to eCommerce. But the monumental, unexpected changes in the retail market and subsequent consumer habits have also affected the volume of return.

What exacerbates the reverse logistics flow is both the sheer quantity of product returns coming in from digital window shoppers. Suddenly, reverse logistics – both the operations and the customer experience – become much more difficult to manage successfully. 

Customer experience is a primary pain point in reverse logistics. A bad product return, like a bad delivery experience, will worsen customer retention by deterring customers from purchasing from the same shipper again.

The challenges of reverse logistics

Too many companies are not up to par when it comes to managing reverse logistics. Operational inefficiency keeps returned products on shelves and away from reselling. The challenges for reverse logistics are two-fold: a lack of preparedness and optimization in the supply chain, and the financial implications of that unpreparedness.

Inefficiency

The process of transporting products back to a sorting center, store or warehouse is usually inefficient. And every second an order spends in transit or in the sorting center until it can be resold, costs the retailer money.. In the traditional logistics process, a returned item can reach a sorting center directly from a customer, or delivery driver, but also from a store. This item then sits on a shelf, waiting to be reprocessed. Often, there is no way to know the order number, or connect the logistics provider’s order number to the retail order number, further complicating product identification. Manufacturers and retailers lose millions of dollars each year on products that sit, waiting to be sent to a location from which retailers can resell them from another point in the supply chain.

The costs for reverse logistics

Reverse logistics is expensive for everyone. According to Statista, 2020 return delivery costs reached $550 million, a 64% increase from 2017. These costs are referring to those incurred by the purchaser, and do not include the processing, restocking, and reselling costs incurred by the seller. 

The costs for the retailers are high as well, especially when they aren’t prepared. According to the NRF recent survey, for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns. In addition, for every $100 in returned merchandise accepted, retailers lose $5.90 in fraud.

It’s no surprise that retailers are often discouraged by the thought of reverse logistics, due to the costs involved. However, today, more than ever, retailers understand that in order to remain relevant in the eCommerce world, the return process and service lifecycle management are critical to success.

Why are returns so important in the eCommerce era?

The objective of reverse logistics is to minimize expenses and, ideally, recover value from products. This is particularly important for categories with both high rates of online shopping and of product returns, such as fashion – which, according to Coresight Research, was the most returned category for respondents over the past year with 46.5% returns, nearly double the next highest product category of returns, electronics, which came in at 25.9%.  In these cases, shoppers are still hesitant to purchase new products without seeing or touching them first. Fully 60% of consumers said they “bracket” their purchases — purposefully buying a product in multiple sizes, colors, etc., with the intent to return all but one. It increased by 50% in the last 3 years.

Recent research from FedEx has shown that returns are a critical measure when it comes to pressing the “purchase” button. 52% of those surveyed said that they have abandoned a shopping cart due to a seller’s return policy. 

At the same time, retailers are trying to discourage returns. According to BarclayCard Research33% of online retailers offer free returns but offset the cost of this by charging for delivery. This means that returns are a potentially expensive option for consumers, which can deter them from purchasing in the first place. 

Due to the high levels of inefficiency in most reverse logistics operations, it is simpler and cheaper for many retailers to have customers keep items than to run the reverse logistics process  – including processing returns, dealing with disposal management, repair processes, proper disposal, and more. 

The bottom line: For brands with strong online sales, the only long term solution is to educate the consumer about the environmental ramifications of these habits and of returns in general, and provide better guidance on choosing products. This is a long term evolution in consumer mentality. For now and for the foreseeable future, the best solution for managing the overload of returned goods while improving customer retention is to invest in more advanced reverse logistics capabilities.

However, recent data suggests that logistics providers are not providing the returns logistics support and capabilities that retailers are looking for.  According to a recent survey of logistics providers, “Only 5% of respondents are focused on adding or expanding returns.”

Returns are part of the omnichannel experience….logistics providers will need to provide solutions for [returning goods] through technologies that support omnichannel last mile delivery flows, including delivery and returns on the same run.

Bringg, State of Last Mile Logistics, 2021 Survey Report

How to manage reverse logistics

To make reverse logistics successful and an integral part of any company’s supply chain, businesses need to implement advanced capabilities specific to returns and reverse logistics. Here are some best practices for managing reverse logistics through technology: 

Digitize your reverse logistics and returns management process

Supply chains are going digital for a reason. Traditional logistics flows can’t handle the massive quantity of goods that need to go through returns. Moreover, customers should be able to request returns, receive printable barcodes, and schedule a return from a retailer’s website or app, or access the returns flow from a link in a delivery message. The first steps in an efficient reverse logistics plan is to digitize and automate the process. . 

Increase drop density by adding on demand returns to a planned delivery run

Include the disposal or recycling of old goods or parts as the last step of regular logistics services. Good dispatching software will enable dispatchers to add goods for return ad-hoc to a planned delivery run. This way, the order can be taken to a sorting center at little to no extra cost to the provider or retailer.

Use a driver app to manage failed delivery attempts, damaged goods and compliance

If a delivery attempt fails, the driver should be able to easily upload the information into their logistics system. This will make it easier to process the order in the sorting center and fulfillment centers further down the flow.

Alternatively, some driver apps can plug the order back into the driver’s current run, which is then rerouted to accommodate a second delivery attempt on the same run.

The driver app should allow drivers to scan specific products from a single order as ‘for return’. If digitized, this ‘proof of disposal’, like proof of delivery, will make the reverse process for these products faster and safer.

Sync different order numbers 

Use tools that enable you to scan an order once, and correlate order numbers from different internal systems with that order. This will strengthen the chain of custody across the supply chain, making it easier to sort the product once it enters the sorting center or goes back to a store.

Returns processing and data analytics

When a returned product or reverse logistics goods enter the warehouse, they should be scanned by a system that automatically links each product with its previous delivery order, showing which warehouse or store it came from, etc.

The next step is understanding where along the supply chain it will be profitable to ship the specific goods in question. Should it be shipped to a regional warehouse? How much will it cost to ship it to an end consumer directly from the sorting center? To answer these questions, you’ll need complete visibility over your delivery operations as well as your reverse logistics operations: fleet costs and availability, shelf life, and store inventory, to name a few data points. 

Proper order inventory management and data reporting on every node in the supply chain will lead to reduced losses and faster time to resale for returns.

Connect your reverse logistics, forward logistics and inventory management systems

Ideally, your entire supply chain – both inbound and outbound logistics – should be synced to avoid data siloes. Your logistics management and transportation management systems should be integrated with supporting systems – including inventory management (IMS), POS, and WMS – in order to understand where your inventory is, and where it is needed. If your reverse inventory is visible across the supply chain the moment it is scanned in the sorting center, it will be easier to identify where it should be transferred for a new sale and faster time to value.

Treat the return experience as you would any other

To get end customers to trust your returns operations, start by providing full transparency across the reverse supply chain . Send a notification confirming that the driver has picked up the product; send one when the returned goods have reached a service center; and when the customer has been reimbursed. If you missed a delivery, send customers a message with a link to reschedule the delivery. Lastly, make sure to include customer ratings. This shows end customers that their experience matters to you.

Making reverse logistics a business priority

Reverse logistics is a critical part of the supply chain that logistics and retail companies must integrate to remain competitive in the eCommerce delivery industry. 

When digitized and automated, a reverse logistics service will reduce losses, improve shipper and end customer satisfaction, and play a significant role in a green logistics strategy. 

Bringg’s SaaS technology helps leading global enterprises orchestrate cost-effective delivery and and logistics operations across the supply chain, from reverse logistics, to first and last mile delivery, to curbside pickup and ship-from-store. You can visit www.bringg.com/platform to learn more.

About Author

Ronit

About Author

With 15 years of product marketing experience at software companies, Ronit is an avid content creator who loves to share insights and analysis on the latest enterprise technology trends.

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