Shippers - It’s Time to Rethink Reverse Logistics
Current forces in the consumer economy are driving significant change and development in reverse logistics. Reverse logistics, as part of an integrated logistics support system, is now considered a vitally essential component of any successful supply chain. A sound reverse logistics strategy can minimize waste and maximize its positive impact.
Does reverse logistics feel like a cost center? How often has it been the last component to be considered? Perhaps it’s a complicated burden? Current forces in the consumer economy are driving significant change and development in reverse logistics. Shippers - it may be time to rethink your reverse logistics strategy.
Reverse logistics includes all of the operations related to the reuse of products and materials. Essentially, reverse logistics is the process of moving goods from their final destination back to their origin or to another location to capture value or assure proper disposal. There are “Five R’s” of reverse logistics – recalls, repairs, returns, recycling, and repackaging.
Reverse logistics is not necessarily the return of the product all the way back through the supply chain to the original shipper. Although reverse logistics refers to the opposite of traditional forward logistics movement through the supply chain to the end user, it also includes the overall processes of planning, implementing, and controlling the inbound flow and storage of goods and related information. A well-devised reverse logistics strategy also considers handling end-of-life equipment, recalls, remanufacturing, and equipment failures.
Lean principles goals are designed to remove waste from operations, whether those operations are dedicated to industrial, manufacturing, distribution, or other service industries. Of course, the most effective lean solution would be to design and manufacture products that result in no need for a return. Since that solution is often impossible to achieve, lean principles are more accurately applied toward achieving the most efficient flow of materials and information from the point of return back to their origin for proper disposal, refurbishing, or recapture of residual value.
Reverse Logistics in Retail
Reverse logistics is relatively easy to picture in retail. A consumer shops online. Their purchase is delivered to their doorstep in two to three days. They decide that one or more items in their purchase is not what they were looking for, and they initiate a return – typically at no cost to the consumer. Reverse logistics, however, is not just the domain of retail. Reverse logistics applies to a wide range of industries from healthcare, machine tool manufacturing, and pharma to hospitality and restaurants, industrial electronics, and automotive. The list goes on.
Retail shippers have focused on reverse logistics for decades. For over twenty years, e-commerce has accelerated the need for an easy and cost-effective consumer return process. According to Shopify, an average of 8 -10% of purchases from a traditional brick-and-mortar retail store are returned, versus 20% of e-commerce transactions. In the United States, it is estimated that the cost of e-commerce returns deliveries in 2020 was around $550 billion, and over the last decade that cost has risen 33% due to the boom of e-commerce.
The History of Reverse Logistics
Looking back into the late 19th century, retailers like Montgomery Ward and Sears, Roebuck and Company began delivering goods to their customers via railroad. Due to the long distances between the store and its customers, it became necessary for the shipper to facilitate the customers’ returns. The processes for reverse logistics have continued to evolve over the last 120 years. Consumers now expect easy and free returns policies. E-commerce has certainly contributed to the recent explosion and evolution of reverse logistics from consumer back to retailer.
Benefits of a Strategic Reverse Logistics Process
Reverse logistics, as part of a well-planned and integrated logistics support system, is now considered a vitally essential component of any successful supply chain. Integrated logistics support systems benefit from products that are designed for longer life spans and optimized minimal support. Good systems focus on availability, reliability, maintainability, testability, and safety. Reverse logistics processes that produce maximal perceived value for the consumer, as well as ensure maximal captured value for the original shipper are key.
Devising a strategic reverse logistics process improves the overall efficiency of the supply chain – including the forward logistics components as well as the reverse logistics ones. A strategic reverse logistics process should minimize bottlenecks, alleviate waste, and increase customer satisfaction. The goals of a strategic reverse logistics process include maximal recovery of asset value and increasing revenue, all while reducing expenses and waste. Whether the goal is a true closed-loop supply chain, where all goods and materials are entirely reused or recycled - generating zero waste; or a more common return of goods from the end user, which includes returning and potentially wasting unwanted items and overstocks while recycling some materials, reverse logistics completes the product lifecycle.
Outstanding reverse logistics solutions increase customer satisfaction and brand loyalty. Customers like being able to easily make returns or receive a replacement product with easy processes that save time. Consequently, many companies consider their returns policies to be a competitive differentiator in their markets. Increased customer satisfaction scores, enhanced brand loyalty, and better margins frequently result from successful reverse logistics solutions.
Service Lifecycle Management
Due to the fast-paced nature of modern consumption, companies are finding they must satisfy customers with both products and services to stay relevant and competitive in the marketplace. Service lifecycle management (or SLM) is a method for managing the full lifecycle of a product or service while building a relationship with the consumer. Reverse logistics is just one component of a full service lifecycle management strategy. Service lifecycle management (or SLM) is an ongoing process instead of a singular event. SLM can add value to customer relationships by:
- Supporting reverse logistics needs such as product recycling, returns, or disposal
- Optimizing performance of smart products
- Boosting service response times, and more.
Efficient management of a reverse logistics system consists of three components:
- A Returns Policy and Procedure, which is the method for handling returns that is shared with a company’s customers. The Returns Policy and Procedure covers subjects such as how long after purchase a return will be accepted, who owns the responsibility for shipping costs, and possible restocking fees, among others.
- The Remanufacturing or Refurbishment Plan stipulates what happens to the return goods after acceptance. This plan covers whether the product is remanufactured and sold again, refurbished, or put back into stock.
- A Waste Disposal Plan designates the method products that are not suitable for resale are discarded. A good Waste Disposal Plan helps reduce emissions and energy use and is aligned with environmental sustainability.
Advantages of Sustainable Reverse Logistics
Efficiently designed and well-managed reverse logistics strategies provide multiple benefits to the supply chain. Besides the advantages of recovering asset value and minimizing waste, a sustainable reverse logistics strategy helps alleviate government fines for improper waste disposal, improve public perception of the shipping company, and reduce the risks of litigation, customer dissatisfaction, and potential regulatory action. Moreover, as more and more consumers become engaged in making socially and environmentally-conscious decisions about their purchases, information about the impact of their purchase on the environment and society is becoming more relevant. Smart retailers with a sustainable reverse logistics strategy are improving their supply chain transparency in response to this trend. Supply chain transparency allows consumers to make more educated purchases that are socially-conscious and environmentally-friendly.
Preparing Your Reverse Logistics Strategy
According to e-commerce researcher, Digital Commerce 360, online consumer spending increased 44% year-over-year in 2020 versus 2019. This jump represented the largest growth in e-commerce in over 20 years. For comparison purposes, this is almost triple 2019’s e-commerce growth rate of 15.1%. With that explosive growth comes the need to get a reverse logistics strategy in order. A key consideration is whether a company will handle reverse logistics in-house or outsource to a 3PL partner. Common solutions include using different 3PLs for reverse logistics versus outbound; or one function in-house and the other outsourced. Organizing reverse logistics processes can be achieved by segmenting returns by geographic zones or regions, size or type of products, or the ultimate disposition of returns. The goal is to process returns as efficiently as possible and extract maximal value from the assets.
Creating a streamlined and focused reverse logistics function can be achieved through a 3PL partner. CNBC estimates that costs of an average return represent up to 30% of the retail price. Despite statements that great customer service coupled with a consumer-friendly returns process is “the new marketing,” it still behooves companies to carefully plan and manage their reverse logistics as a vital component to the magic recipe. Outsourcing reverse logistics to a 3PL can create a streamlined process focused exclusively on reverse logistics. It's not an afterthought to the outbound logistics flow, but rather it is its own process requiring a careful strategy and management oversight.
For shippers of all types, retail or otherwise, a robust reverse logistics system is is a key component. Whether your reverse logistics is managed in-house or through a 3PL partner, a sound reverse logistics strategy can minimize waste and maximize its positive impact on the environment, society and the way your brand connects with your customers.