Understanding the Importance of Reverse Logistics
January 15, 2024 - 11 minutes readWhy customers and retailers are shifting their focus to the return process.
The first retail return probably occurred not long after the first retail sale, but the term “reverse logistics” was not coined until 1992, when Logistics Professor James Stock found a new way to describe the process of returning products back to their original supplier (or exchanging them for something else). Traditional logistics workflows that convert raw materials into products and services get the bulk of the attention, but reverse logistics have gained new importance in the age of E-commerce.
As we review the basic principles of reverse logistics, we discover how inventory management software can streamline reverse logistics processes and improve customer satisfaction.
“Customer experience better be at the top of your list when it comes to priorities in your organization. Customer experience is the new marketing.” – Steve Cannon
What are reverse logistics?
Reverse logistics refers to supply chain processes used to return products from end users back through the supply chain to the retailer, distributor, or manufacturer. Processes including recycling, refurbishment, and repairs that occur after a customer receives a product are also classified as reverse logistics. The various types of reverse logistics workflows include:
- Simple returns: Unwanted items are returned by customers shortly after receipt in exchange for different products or refunded payments.
- Rental returns: Items that have been rented or leased by customers are returned to the vendor to be inspected or refurbished, then rented to another customer.
- End of life: Customers return products to manufacturers for proper disposal at the end of their useful life.
- Unsold products: A reverse logistics process can occur further upstream when retailers return unsold products (usually at a loss) to manufacturers or wholesalers.
The importance of reverse logistics
Enhanced customer service should not end when a product is sold and delivered. Reverse logistics processes place importance on the complete product and order fulfillment lifecycles, while considering the potential value and appropriate disposition of returned, recycled, and refurbished products as they re-enter the supply chain or ecosystem.
1. Online shopping
Customers have always valued hassle-free retail returns and exchanges. E-commerce has changed the dynamic by allowing customers to make buying decisions based on photographs or basic descriptions alone. Online purchases can also be subject to shipping damage and errors (wrong product shipped). As a result, 30% of all items purchased online are returned. When the return process is made easier through pre-printed shipping labels and easy-to-follow instructions, it builds goodwill and brand loyalty.
A high volume of returns can be costly for retailers, with increased operating expenses eating into profits. Videos, high quality photographs, and user reviews are among the supplementary information formats many shoppers agree can reduce the likelihood of online purchase returns.
2. Customer feedback
Reverse logistics present a unique opportunity to gather customer feedback on products and services. When a product is returned, valuable information is gathered on defects, shipping issues, and misleading images or descriptions that may have led to an erroneous purchase. This information can be captured through customer relationship management (CRM) software and analyzed to improve future product offerings and user experience (UX).
In addition to supporting continuous improvement, a thoughtful review of customer feedback during the return process helps online retailers address customer concerns on an individual basis to build stronger long-term relationships.
3. Cost control
With the cost of returns accounting for approximately 4% of the total cost of logistics, reverse logistics can have a significant financial impact. Sub-process areas that contribute to reverse logistics expenses include transportation, administration, technical support, sorting, and waste disposal. Many companies are developing innovative ways to improve their reverse logistics efficiency through:
- Reusable packaging
- Refurbishing products for resale
- Recovering spare parts from unusable products
- Recycling raw materials
Increased visibility into the reverse supply chain using inventory management software allows businesses to understand where their reverse logistics costs are incurred, and which recovery programs are delivering the highest ROI.
4. Regulatory compliance
In many cases, reverse logistics involve straightforward returns of unused products for credit, but the expanding scope of returns can encompass hazardous material handling, consumer protection laws, and data privacy concerns when products have been opened, altered, or damaged.
International returns can introduce additional regulatory issues due to customs requirements and international trade laws. Preparing the proper import/export documentation in advance can prevent excessive delays when items are returned across international borders.
5. B2B returns
For brick-and-mortar or online retailers carrying large amounts of inventory, reverse logistics play a role in the wholesale return processes that keep the supply chain balanced. When businesses overstock items unintentionally, one option is to drop prices dramatically to sell off excess inventory, and another is returning or selling the excess products to their original manufacturer, another retailer, or a liquidator.
For example, if a retailer ordered one thousand pairs of shoes that suddenly went out of style, they might negotiate a return price with the manufacturer, who would then restock the items and sell them to a different customer. In some cases, the retailer might decide to recycle or donate these unwanted items to maximize their value in another way.
6. Brand reputation
The rise of E-commerce has been accompanied by shifting return policy expectations. 62.5% of shoppers expect online retailers to allow returns within 30 days of purchase. This gives customers the luxury of evaluating products risk-free for an extended period while allowing retailers to differentiate their customer service practices during the return process.
When returns are processed swiftly and payments are refunded with minimal effort, customers assign a high value to these services and feel less apprehension over future transactions. The opposite is true when the return process is plagued by inefficiency and excessive hurdles.
7. Sustainability
Reverse logistics are deeply intertwined with sustainability practices, since optimized reverse logistics reduce waste, maximize recycling and reuse, and minimize shipments to and from customers. While other green initiatives can be viewed as cost-prohibitive, the reused products, packaging, and raw materials associated with reverse logistics reduce expenses and carbon footprint simultaneously by:
- Increasing product lifespans
- Improving waste management
- Reducing raw material consumption
- Developing a closed-loop supply chain
“Sustainability is no longer about doing less harm. It’s about doing more good.” – Jochen Zeitz
Inventory management software and reverse logistics
Inventory management software products have advanced traditional (forward) logistics, as inventory levels are monitored to ensure the right raw materials and finished goods are on hand to meet customer demand. The best inventory management software also supports reverse logistics processes effectively by utilizing:
- Order management: The features used to notify customers when orders are confirmed, shipped, and delivered can also be used to automate and streamline the return process. Customer return steps are communicated clearly to ensure products arrive as expected.
- Dispositioning: As rented, purchased, and end-of-life items are returned, inventory management software allows you to track upstream progress when each recycling, refurbishment, or disposal step is completed.
- Data analytics: Reverse logistics processes produce a treasure trove of information through customer feedback, defect trends, delivery metrics, and product lifecycle data. Inventory management software provides a centralized platform to access and analyze this data to inform future decisions.
The importance of reverse logistics: Final thoughts
Reverse logistics gained importance with the rise of E-commerce and heightened concerns over sustainability and the environment. Reverse logistics have also become a focus area for retailers of all sizes as they analyze their supply chains holistically, looking for new opportunities to trim expenses while remaining environmentally responsible.
With a suite of cloud-based software solutions including mobile point of sale (POS), warehouse management, inventory management, and full featured CRM, Agiliron provides the right set of tools to support the fulfillment lifecycle from first contact through the end of useful product life. Agiliron also integrates seamlessly with all leading E-commerce platforms so you can sell in more places while managing from one.
Reverse logistics may not be your first consideration when you evaluate an inventory management platform, but the flipside of the supply chain can be a source of untapped opportunities. We can help you discover how reverse logistics impacts your business by enhancing customer satisfaction and saving money. Contact us today and let our solution experts guide you through the process.
Tags: Business Management