In this article, we are going to take a closer look at another element of supply chain management: reverse logistics. Reverse logistics is exactly what it sounds like: it involves moving a product at least one step back in the supply chain. It is talked about much less, but in the last few years, with the increase in eCommerce, it has become an essential sector within supply chain management and an important aspect to consider if you are planning to sell your products online.
The aim of efficiency in reverse logistics is three-fold: the first is to recoup the value of the product, the second is to ensure repeat customers via a satisfactory returns experience, and the third, in the light of ever-increasing concerns about the environment, is to reduce waste.
Reverse logistics includes operations related to the reuse of products and materials, such as recycling, recovery of raw materials, reconditioning and resale of items that have been restocked. This is not a new phenomenon: wastepaper recycling, deposit systems for soft drink bottles, and metal scrap brokers are all examples of reusing products and materials, and these have been around for a long time. However, because of an increased demand as a result of the eCommerce boom, shippers are turning their focus to reverse logistics.
Any process or management after the sale of a product involves reverse logistics. If a product is defective, the customer will return it. The manufacturing company then has to organise the shipment of the defective product, as well as product testing in some cases. It may also involve dismantling, repair, or disposal of a product.
When we think of logistics, we tend to think of the movements a product makes towards the customer, but there is a whole sector dedicated to movements in the opposite direction, and that is what we call reverse logistics. Products go from the end user back to the seller or manufacturer. Reverse logistics can include returns from eCommerce and retail, as well as components for refurbishment and remanufacturing. And, like in most aspects of logistics and supply chain management, there is room for optimisation.
Components of reverse logistics
The main components of reverse logistics are as follows:
- Returns management: how your company handles product returns with its customers, or avoids them in the first place.
- Return policy and procedure (RPP): The returns policies that your company shares with customers.
- Re-manufacturing or refurbishment: This type involves recovering interchangeable, reusable parts or materials from products, or reconditioning, which involves dismantling, cleaning and reassembling them again.
- Packaging management: This relates to the reuse of packaging materials in order to reduce waste, and managing the disposal.
- Unsold goods: These types of returns cover returns from retailers to manufacturers or distributors, due to poor sales, inventory obsolescence or a delivery refusal.
- End-of-life (EOL): When a product is EOL, it is no longer useful or does not work, or has been replaced by a newer, better version. These are often recycled or disposed of.
- Delivery failure: In some cases, the transportation company is able to identify why a delivery has failed and resend.
- Rentals and leasing: In the case of equipment that has come to the end of its lease or rental contract, the company that owns the product can often re-market, recycle or redeploy the product.
- Repairs and maintenance: For some products, companies provide a service for maintaining or repairing equipment if issues arise.
Processing returns is costly for businesses, and the eCommerce boom has led to a sharp rise in the backward flow of goods. In fact, some studies have shown that purchases from eCommerce have three or four times the number of returns compared to physical stores. Processing returns effectively has a number of benefits, including increased customer satisfaction, an increased rate of repeat customers, a better public image, and lower storage and distribution costs.
Consumers have grown accustomed to hassle-free return policies, so it is vital for companies to plan and put in place strategies to manage products beyond manufacturing and point-of-sale. These strategies may include repair, warranty recovery, redistribution, value recovery, end-of-life recycling or any combination of these. Alternatively, depending on volume, a separate reverse supply chain can be set up, which many argue is the most effective way to manage reverse logistics.
Improving reverse logistics provides an opportunity to create and manage customer relationships and build customer loyalty. With effective planning, management and implementation, reverse logistics can be made more efficient and profitable. Given the current level of pressure on companies, especially in the eCommerce sector, to generate positive customer experiences, returns will always be prevalent and widespread. For this reason, more and more companies are turning to third-party providers, including managed transport services, to handle both their traditional and reverse logistics processes, resulting in less stress, less hassle and lower costs.