Unfortunately for e-retailers the number of returned items just keeps growing. According to the National Retail Federation, 16.6% of all retail sales in 2021 resulted in product returns accounting for over $761 billion in returned merchandise, representing a 6% increase from 2020.
Creating an effective reverse logistics process is an operational nightmare, with completely different considerations – and often different resources – than traditional forward logistics models.
How can reverse logistics handle the influx of returned goods without causing problems further up the supply chain, and get goods back on the market faster?
This article looks at the challenges around the reverse logistics process, where retailers are struggling the most, and how they can implement a reverse logistics plan for cost effective returns management.
What is reverse logistics?
Reverse logistics refers to any logistics process which reverses the common flow of raw materials or finished goods along the supply chain, from distribution centers to sorting locations to the end customer. This includes drivers returning to a warehouse with products from a failed delivery, or products being returned to a retail outlet or storage facility.
From an e-commerce perspective, reverse logistics refers primarily to product returns.
The reverse flow involves the end customer, shipping carriers, third party (3pl) logistics service providers, retailers, distributors and manufacturers, across multiple global locations. Reverse logistics are complex, but with product returns growing exponentially, innovative e-retailers must deploy flexible reverse logistics solutions to minimize losses due to product returns, asset recovery, disposal services and failed deliveries.
With the estimated growth of worldwide e-commerce reaching a hard-to-fathom $5.2 Trillion in 2021, the potential volume and cost of reverse logistics flow are staggering. This has made reverse logistic management more challenging, as well as more critical than ever.
In response to these developments, many key industry players have come together in global organizations such as the Reverse Logistics Association to help optimize reverse logistics processes now and in the future.
E-retailers must gain a deeper understanding of the reverse logistics process in order to increase efficiencies and reduce storage and distribution costs while maintaining customer satisfaction and loyalty.
Planned vs. on-demand reverse logistics
The reverse logistics process features both planned and on demand delivery and pickup services depending on business requirements.
Planned reverse logistics
Each business has its own supply chain requirements and existing delivery methods which impact how they can best achieve the most effective reverse logistics flow possible. A great example is bottled water companies that leverage forward logistics deliveries to facilitate their reverse logistics for pickup and recycling of used jugs.
Electrical appliance and furniture retailers, for example, may have a return policy that requires home collection of large items, but limits pick-up days to once a week. This might work for traditional logistics covering local geographies but is difficult to apply to the global world of online shopping.
For companies doing ecommerce fulfillment, reverse logistics systems must primarily deal with product returns where its difficult to predict where and when the next reverse supply chain activity will be required. Likewise, since the product was purchased online, there can’t be a requirement for the buyer to return the product to the store. For these reasons and more, planned reverse logistics activities are no longer relevant when it comes to today’s online shipping volumes.
On demand reverse logistics
Traditional brick-and-mortar retailers actually have a quasi-on-demand product return system, except in their case the responsibility is on the consumer for the reverse logistics of getting the product back to the point of purchase. Once the product is brought to the return counter, then it is essentially an on-demand service where a retail professional can then physically accept the returned product, provide a credit and hopefully build customer loyalty by personally providing a positive customer experience.
Online retailers, on the other hand, not only have to supply the on-demand return service but also have to guarantee home pickup of the returned product within a limited time frame. While physical stores serve limited local geographies, online retailers have worldwide markets. It’s a lot easier to optimize reverse logistics for a city and five surrounding communities, than it is for one global hub covering five continents.
The bitter pill for e-retailers to swallow is that on-demand reverse logistics are a significantly greater logistics management challenge, when compared to traditional planned reverse logistics processes. Fortunately using the latest technologies, even on-demand reverse logistics can be brought under control and optimized for maximum efficiency.
When is a reverse logistics process used?
While product returns are understandably a key concern for e-retailers, there are actually five main events that require reverse logistics solutions:
Top 5 reasons for a reverse logistics flow:
- Customer returns – especially from eCommerce purchases
- Failed deliveries
- Returning damaged parts
- Waste management and disposal and recycling
- Product lifecycle milestones
Online customers are usually given a limited time period to return a product, but this can vary wildly between companies. Leading e-retailer Amazon, for example, offers a 30 day return policy while leading online foot apparel retailer Zappos offers an impressive 365 day window. Amazon’s policy is easier from a reverse logistics management perspective, as resources must be made available every 30 days for possible customer returns. Zappos is a more serious challenge as resources must be made available for a full year, along with peak seasons where too many simultaneous orders in the returns process can potentially choke the system.
End of life returns
While most people think of returns for new, unwanted products, end of life returns are a common use case. Water companies have done this for decades, and with the strong consumer push for sustainability, upcycling, and eco-friendly consumerism, more retailers are looking for ways to reuse their old goods.
Facilitating end of life returns collection can provide added value to customers by solving the issue of how to dispose of their old goods – and can even create a new revenue stream.
This reverse logistics flow is initiated by the delivery driver due to various circumstances such as the customer not being home, the address not existing or the product not looking like what the customer ordered. In all these cases, the most efficient reverse logistics process with the lowest storage and distribution costs, is having the same delivery driver return the undelivered products back to the distribution center.
When it comes to outsourcing reverse logistics services, it is important to clarify whether this type of closed loop supply chain activity warrants additional charges since the delivery driver is heading back to the distribution center in any case, whether they take the goods from a failed delivery or not.
Returning damaged parts
If some or all items in an order are found damaged on arrival at the customer’s premises, the driver must mark which products were accepted, and which were damaged and returned to the retailer for processing.
Waste management disposal and recycling
As part of today’s brand efforts to secure green logistics credentials, many retailers, including US retail giant Best Buy, are offering on-demand reverse logistic services to dispose of old electric appliances and other household products, and recycling them where possible. Reverse logistics efficiencies and more sustainable delivery operations can be gained here by coordinating pick-up of old products for recycling while delivering new orders in the same area – or even better to the same customer.
Product lifecycle milestones
Service lifecycle management is all about maintaining the operational health of a product from the time it is sold to the end of its lifecycle. This can include spare parts, upgrades and eventual product disposal.
Why reverse logistics is more important than ever
Reverse logistics has always been an issue in regard to supply chain management – even before the eCommerce era. But the monumental increase in the volume of online retail sales and subsequent changes in consumer purchasing habits have contributed to corresponding increases in the volume of product returns, making it very difficult to take control over the process.
What exacerbates reverse logistics flow issues even more, is both the sheer quantity of product returns coupled with the ever expanding window consumers are demanding to return unwanted goods. Suddenly, reverse logistics – both from the retail and customer perspectives – have become much more difficult to manage without even getting into optimization and who is going to pay for it.
At the end of the day, customer experience is really the primary pain point in reverse logistics. A bad product return, like a bad delivery experience, threatens hard-won customer loyalty and may jeopardize revenue from future purchases.
The challenges of reverse logistics
With increases in volume, complexity and global destinations, the challenges of today’s reverse logistics operations can only be met by using an advanced Delivery Management Software (DMS) solution. By leveraging the latest technologies, companies can improve their reverse logistics operations, increase operational inefficiency and lower costs.
The process of returning products to a distribution center is inefficient by definition, as it incurs high costs. Even after arrival at a warehouse, the returned product can stay in storage for weeks if not months before it is identified, evaluated and sent to its next destination. Every day a returned product sits on the shelf, is another day of increased costs and lost value.
The costs of reverse logistics
Reverse logistics is expensive for everyone. According to the IMARC Group, the global reverse logistics market was valued at US$ 563.2 Billion in 2021. The costs for retailers are high as well, especially if they haven’t prepared themselves to provide on-demand pickup of returned goods. In such cases, they have to find a last-minute solution for getting the returned product to the nearest warehouse and usually pay a hefty premium to cover the cost of inefficient reverse logistics operations.
Therefore, it should come as no surprise that in the past many retailers were discouraged and did not deal with the challenges of reverse logistics, due to the hassle, cost and technology required to manage it. That attitude has changed as retailers now understand that they have no choice but to take control over their reverse logistics operations if they want to remain relevant and succeed in the world of eCommerce.
Minimizing the demands of reverse logistics
The objective of optimizing reverse logistics operations is to minimize expenses and ideally, recover maximum value from returned products. This is particularly important for categories with high return rates such as fashion, which have a 46.5% return rate – nearly double the returns for electronics, the next highest product category.
In these particular cases, shoppers are still hesitant to purchase new products without seeing or touching them first. In fact, 60% of consumers said they “bracket” their apparel purchases — purposely buying products in multiple sizes and colors, with the intent of returning most of the order after selecting the product they want.
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 rather than initiate and manage the reverse logistics process. This is mostly due to retailers’ unwillingness to deal with processing returns, finding temporary storage, repairing broken products, arranging proper disposal, and related tasks.
The bottom line is that brands must improve the online purchasing experience to the point where consumers select and are shipped the products they really want, thereby minimizing product returns. Likewise, consumers need to be educated on the importance of closed loop supply chains and the negative effects of product returns on the environment.
While omnichannel distribution has been embraced as a way of increasing sales, for better or worse, returns are also part of the omnichannel experience. Retailers need to find solutions for reverse logistics that leverage existing omnichannel last mile delivery flows, including delivery and return assignments integrated into driver routes and schedules.
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
How to manage reverse logistics in your supply chain
To optimize reverse logistics and reduce reverse supply chain costs, e-retailers need to implement solutions that include specific modules for product returns and reverse logistics management. Here are some key features for managing reverse logistics which should be part of any complete delivery management solution:
Integration into delivery management platforms
Today’s return volumes mean that e-retailers must have reverse logistics tools integrated into their delivery management solutions. Besides optimizing delivery routes and driver schedules, the system should also enable consumers to initiate return requests, create labels with barcodes and schedule convenient times for pickup of product returns.
Reverse logistics software
Reverse logistics features help shippers and LSPs coordinate the complicated process of reverse logistics. The software should help automate the return process, coordinating tasks among the various in-house and outsourced logistics resources.
The logistics software should also be able to increase drop density by adding on-demand returns to new product deliveries during automated route creation. It should also factor- in pickup of old products for proper disposal or recycling at the end of their lifecycle. It should also enable dispatchers to request adding stops for ad-hoc returns by communicating directly with drivers along the route.
Deployment of driver apps is a key component of route optimization and scheduling – and it’s also important for managing failed delivery attempts, damaged goods and proof of compliance. If a delivery attempt fails, the driver should be able to upload the information using their app, making it easier to process and preparing the distribution center to accept the returned goods.
Syncing order numbers
It is important that the delivery platform enables scanning of a single order number and automatically identifies all the corresponding tasks that must be completed to return the order. This helps strengthen the reverse supply chain, making it easier to identify the product and decide what to do with it once it is sent back to the distribution center.
Processing returns and data analytics
When a returned product enters the warehouse, it should be scanned and automatically linked with the initial customer order, showing where it came from, when it was shipped and by whom it was delivered.
By collecting historical data on each shipment and analyzing the results, the system should be able to identify the best way to ship goods in any given situation including which supply chain resources (e.g. regional warehouses, dark stores, outsourced logistics services) should be used for deliveries and returns.
In order to provide this expert advice, the system must have end-to-end visibility throughout the supply chain pertaining to both forward and reverse logistics.
Proper order inventory tracking, management and data reporting on every node in the supply chain also helps reduce losses and gets returned products ready for resale as fast as possible. Ideally, the entire supply chain – both inbound and outbound logistics – should be synced to avoid data silos and enable real-time sharing of critical product information.
Your logistics management software and TMS (transportation management systems) should be integrated with supporting systems – including inventory management (IMS), POS, and WMS – in order to understand where your inventory is stored, and where it needs to be delivered.
If your reverse inventory is visible across the supply chain from the moment it is returned to a distribution center, it will be faster and easier to identify, and hopefully shipped to its next destination without incurring significant interim storage charges.
Transparency in return operations builds up customer retention
To engender consumer trust in return operations, it is best to start by providing full transparency across the reverse logistics system. Send a notification confirming that the driver has picked up the product, followed by a second notification once the goods have been returned and a final message with the customer’s financial reimbursement are great ways to turn a product return into a positive customer experience.
If there was a missed delivery, the system should automatically send a message with a link to reschedule the delivery. At the end of the process, it is important to send a product return evaluation questionnaire, indicating to the customer how much the product return experience matters to your brand.
Making reverse logistics a business priority
Making reverse logistics efficient and effective is a critical part of supply chain optimization. To make this happen, retail companies and their logistics partners must integrate into their delivery management solutions in order to stay competitive.
By leveraging the latest advances in delivery management platforms, supply chain leaders can optimize their reverse logistics services, minimize financial loss, improve shipping efficiency and increase customer retention. All this while encouraging environmentally friendly closed loop supply chain practices.
People Also Asked:
There are several reasons that a reverse logistics process may begin. These include customer returns (particularly common in eCommerce purchases), delivery failures or issues, B2B returns, and more. These reasons are divided into planned reverse logistics (returns) or on-demand (failed delivery attempts).
Shippers today must understand that reverse logistics is a critical part of supply chain management. If an order comes back for any reason, shippers must be able to manage the process easily (for the customer as well), accept the inventory, and make sure that the customer’s needs are met efficiently (replacing a product, exchanging, redelivering, etc.).
Reverse logistics activities are when materials or goods are sent in the opposite direction than usual, for example a return order or a driver returning goods after a failed delivery attempt. Reverse logistics can include multiple parties, such as end customers, LSPs, shippers, as well as various different locations.
1. Returns from eCommerce purchases – With the rise in eCommerce popularity, returns are becoming more common than ever before. Companies must be prepared to deal with high volumes of returns.
2. Failed deliveries – If a driver can’t deliver an order as planned or coordinated, the order may enter a reverse logistics process.