Businesses focus on ensuring that their goods get to where they need to go, and when they need to get there. From zone skipping to LTL vs parcel shipping, there are a few options that business consider when reducing operating costs. Doing so supports the customer service mission and brings in revenue dollars. Once the items arrive at their destination, though, they’re not always in one piece. Or they aren’t exactly what the customer needed. Or the customer changed their mind. There can be any number of reasons why a customer wants to return the goods they ordered. This usually isn’t their problem, it’s yours. This is where reverse logistics management comes in. What is reverse logistics? It’s what you do with the process of getting items back from customers, kind of like a return process. And in a lot of ways, it’s even harder than traditional logistics.
With traditional logistics, companies focus on getting the product to the customer. That process might start at the manufacturer, the distribution center, a storefront, or other location. It moves from there to the carrier, and eventually, the finished goods move to the customer’s site. Reverse logistics means the goods go at least one step back. They may go from the customer directly back to the seller’s address or to its representative. Amazon allows some goods to be returned to Whole Foods or Kohl’s, so that could be the first step, though the items are then brought to a warehouse for sorting and disposal. Reverse logistics can help a company recapture the value of that return, with value defined in any number of ways.
What is the meaning of reverse logistics?
With reverse logistics, the seller still has to think through and organize that return process — even if they don’t pay for or organize the shipping. They need to understand the process for the customer returning it, tracking the return, crediting the return, and then handling the goods when returned.
While it’s a lesser known term, the concept of reverse logistics goes back to 1992, when James R. Stock published a white paper with the title “Reverse Logistics,” with the Council of Logistics Management. The idea is that reverse logistics involves any process or product management that takes place after the product is delivered to the customer. It can go one step back or all the way back. To be considered reverse logistics, the goods can return to any point on the supply chain Globally, the cost of return logistics in 2015 was $642 billion rising to over $1 trillion in 2019, and in North America, the return delivery costs in 2019 was $363 billion, according to Statista.
When you think about the meaning of reverse logistics operation, though, it’s not just the transportation process. It’s the actions needed to handle the items when returned. They’re considered the “after-market” supply chain issues. Managing returns well can be a competitive advantage, impacting corporate branding, marketing, and profit margins. It affects customer satisfaction, service, and retention. Given how many areas of a company reverse logistics management touches, it is an area that companies should give serious planning and execution thought to. Reverse logistics might uncover manufacturing, design or quality issues. It impacts trends and forecasting. And how the items are processed on return can affect that value captured.
What is reverse logistics, with examples?
It’s easiest to understand what reverse logistics is, by looking at some examples.
A customer might order a selection of office supplies from a large retailer. The supplies arrive, and the customer realizes they didn’t want yellow pads, they just want white pads. They didn’t want blue pens, they wanted black pens. They initiate a return for the unwanted items, and the carrier picks up the boxes a few days later. The supplies arrive back at the distribution center, where they are inspected and reshelved, as they are in sellable condition.
A customer purchases some clothing from an e-commerce site. She keeps most of the items, but initiates a return for a dress and shoes she wore. The company offers free returns, and she prints out a UPS label and drops the items off at the UPS Store. The e-commerce return label directs the items to a warehouse where a third party packages the goods up for liquidation or waste.
A bookstore orders books to sell in its brick-and-mortar store, but they don’t sell them all. They contact the publisher, who in this case is obligated to take the unsold books back and refund the money. The carrier picks up the books, and the publisher sells them to a discount book store at a loss.
What are reverse logistics activities?
As you can see from the examples, reverse logistics involves multiple steps. The seller must process the return after the customer alerts them. That may involve authorizing the return and categorizing the item’s condition based on the buyer’s response. It may mean determining where the returned goods will go, based on that condition. Is it resellable as is? Is it going to be recycled for parts? Will it be fixed and resold as a refurbished item? That can affect where the item is shipped. The customer must be given instructions on how to return the item, with the seller scheduling the carrier or leaving that up to the customer.
Once the seller receives the item, the returned product must be inspected, to determine if it’s still in the category it was intended for. Or perhaps all items are sent back to one central warehouse, and the decision is made at that point. The products are sorted. Sellers can recover some value by fixing items, if possible, and selling at a discount, or by recovering valuable parts, including electronics parts. This can save on waste costs, but also burnish the company’s sustainability image and meet sustainability goals. It can also improve the bottom line, in some cases. Instead of trashing unsellable items, it may be possible to donate them.
What are the reasons for reverse logistics?
In an ideal world, all customers would keep the goods they ordered. But that’s not the case.
The important thing for the seller is to handle the returns in the way that best meets their goals. Here are ways that reverse logistics can be used to the seller’s benefit.
You can build trust with customers by accepting their returns, though it helps to have an understandable policy on the website and on any marketing materials. Customers who know how returns will be handled, and then sees they are handled appropriately, are happier with the relationship than if the company handles it badly. Customer experience is not only about forward logistics and the shopping process. Customer satisfaction can sometimes occur when returns are processed efficiently and with no trouble.
Reuse, resell, recycle:
Tell customers what will happen to returned items. If it’s possible to resell them, that is great! If they will be recycled, that is also good to know. Not all clothing can be resold, but some companies might donate it or shred it to use as insulation or to recapture the fibers for other uses.
It might make more sense for returned goods to be turned over to a liquidator so the seller can still get some value from them, without having to process the items and decide what to do with them.
Make returns easy:
Yes, it’s possible for customers to take advantage of returns. But by making returns easy, you engender trust. Returning ecommerce items to a store may lead to in-person sales. Sometimes it’s not worth it cost-wise to return an item. It may be cheaper to just send a replacement and write off the purchase. In that case, customers can keep the item or donate it locally, and your company doesn’t have to deal with returns.
Flushing medications into the wastewater is no longer seen as a great idea. And throwing them into the trash, to end up in landfill, can be dangerous to animals or humans who digest them, and to the land itself. That’s why some in the pharmaceutical industry have reverse logistics efforts to dispose of medications safely. This is an example of how branding can be used to your advantage.
Benefits and challenges of reverse logistics optimization
What is reverse logistics? It should be obvious by now! When done well, optimizing your reverse logistics process is the way to go. Your company can financially benefit from it while meeting other corporate goals. That means devising a good plan for effective reverse logistics.
Consider using software to automate the reverse logistics process, tracking the steps, and providing analytics opportunities. Understanding what’s happening from the reverse logistics angle is key to improving the process and staying fluid with other goals. This is also a significant aspect if you’re wondering how to reduce operating costs.
Carrier service is a key part of the reverse logistics process. Partnering with a carrier to get the best rates for your company’s needs should be part of the negotiation process. And analyzing the invoices for errors is another important piece. We recommend that companies optimize their carrier contracts with the help of experts who were formerly on the carrier side. Shipware has these experts, and they can not only audit a company’s shipping specifics, but recommend areas to home in on when negotiating with carriers.
Invoice Audit Recovery
Another important, and easy way, to save on shipping besides having an efficient reverse logistics strategy is using an invoice audit recovery program. Through an artificial intelligence program, Shipware quickly, efficiently, and effectively analyzes invoices to find errors that humans would have difficulty spotting, especially with the large number of invoices most shippers receive. The audit program not only identifies incorrect surcharges or other mistakes, but helps recover the credit, directly into their account, that otherwise would go to the carrier. This Shipware service saves customers 1 to 5% of their shipping costs with no upfront payment. Shipware is compensated with a percentage of the credit given to the shipper for the carrier’s mistakes.
To learn more about how reverse logistics can be optimized at your company through shipping contracts and software solutions, please contact us. You can also learn more about and find the best eCommerce shipping solutions for your business.