What Is Reverse Logistics?
A clear reverse logistics process for returned products is essential whether you run an ecommerce website or own a physical store.
Reverse logistics includes all activities required to move returned goods back to the factory to capture value or proper disposal.
Reverse logistics has an important role in the product lifecycle. It presents recovering opportunities for gaining customer satisfaction and reducing hidden costs.
In this post, we’ll explain what reverse logistics is and why it is important for profitability and customer retention.
15 Things You Need to Know about Reverse Logistics
Read on to learn about the basics, challenges, and opportunities related to reverse logistics.
- When is reverse logistics used?
- What is the reverse logistics process?
- What are the different types of reverse logistics?
- What is the difference between reverse supply chain and reverse logistics?
- Does reverse logistics affect supply chain management?
- What are the important components of reverse logistics?
- What are the benefits of reverse logistics?
- What are common challenges in reverse logistics?
- What is returns management?
- How does reverse logistics relate to returns management?
- How can you simplify reverse logistics for businesses?
- How should eCommerce businesses manage reverse logistics?
- What is the difference between forward logistics and reverse logistics?
- Are there different strategies for reverse logistics?
- What are the best tools for reverse logistics?
1. When Is Reverse Logistics Used?
Organizations use reverse logistics to collect returned products and transport them back to their points of origin for sorting, inspection, and disposition. It also allows companies to recover value from returned goods (by refurbishing products or retrieving parts) or properly dispose of them.
Reverse logistics is an essential part of the supply chain for many manufacturing industries, including eCommerce, computers, automotive, carpets, and consumer electronics. The global reverse logistics market is projected to grow from $635.6 billion in 2020 to $958.3 billion in 2028.
2. What Is the Reverse Logistics Process?
Reverse logistics is the process of moving returned products from the customer to their distributor or manufacturer to either dispose of them or recover value from them. Effective reverse logistics requires proper planning, implementation, and control of products as they move from the customer back to their point of origin, such as the distribution center.
There are several activities involved in reverse logistics: returns processing, reusing, refurbishing, remanufacturing, disposal, and recycling.
3. What Are the Different Types of Reverse Logistics?
Reverse logistics is a broad term used for various actions to get returned products back from customers to regain leftover market value or dispose of them safely. Here are some activities included in reverse logistics:
- Returns management
- Resale of returns
- Remanufacturing or refurbishing returns
- Reusing package material
- Repairing returns
- Delivery failure
- End-of-use returns (e.g leasing cars, mobile phones in a secondary market)
- End-of-life returns
- Unsold goods (from retailers back to distributors or manufacturers)
- Return recycling
4. What Is the Difference Between the Reverse Supply Chain and Reverse Logistics?
The reverse supply chain retrieves returned products from customers and sends them back to the vendor. For example, when a customer returns a product in warranty, or the company recalls goods due to safety or quality concerns, this is an example of the reverse supply chain.
Reverse logistics involves all the activities required to move goods from the consumer and back to the manufacturer to regain market value or properly dispose of them. For example, Apple’s reverse logistics processes involve letting customers return their old Apple phones in exchange for an upgrade. This helps Apple gain customer satisfaction and implement sustainability in manufacturing.
5. Does Reverse Logistics Affect Supply Chain Management?
Reverse logistics enables companies to monitor the lifecycle of their products and provide opportunities for optimization in supply chain management. This allows businesses to develop strategies to improve profitability and control supply chain expenditures.
6. What Are the Important Components of Reverse Logistics?
There are three components of reverse logistics management, namely:
- Return Policy and Procedure (RPP): RPP is the planning and executing of the inbound flow of returned items and information from customers in a cost-effective and efficient way. Its purpose is to recapture the value from returned products or water disposal.
- Remanufacturing or Refurbishment (ROR): In ROR, returned products are inspected to find market value and sent back to the manufacturer for reuse or recycling.
- Waste disposal (WAD): WAD is a sorting process that involves finding non-valued components that can’t be recycled or reused and sent for proper disposal.
7. What Are the Benefits of Reverse Logistics?
A reverse logistics strategy provides a path for optimizing reverse logistics processes (returns management, reselling returns, refurbishing returns, recycling, etc.). A robust reverse logistics plan can help you improve customer experience and increase customer retention.
Easy (and free) returns are an essential part of reverse logistics as they encourage repeat business. According to the 2016 Walker Sands Future of Retail Study, 88% of customers consider free return shipping an important factor in their buying decision, and 81% say they’re less likely to make repeat purchases if they have to pay for return shipping.
Reverse logistics reduces the materials needed to manufacture products by reusing components that can be economically recovered, thus benefiting the bottom line and the environment.
It also helps companies protect their customers and brand reputation by recalling unsafe products.
8. What Are Common Challenges in Reverse Logistics?
As customers expect fast (and free) delivery when they order a product, they also want to be able to return them without any extra costs. Similarly, the time it takes to retrieve and resell or recycle the returned product also results in additional costs.
Managing reverse logistics becomes increasingly complex and expensive when you’re shipping overseas.
To protect profitability, businesses are forced to optimize their reverse logistics processes by aligning transportation, return management, and warehousing.
Other reverse logistics challenges include poor visibility into returned products and inadequate resources to properly handle returns.
9. What Is Returns Management?
Returns management is the management of returned products within your company and across all ends of your supply chain. It involves many activities including gatekeeping, returns avoidance, sorting, organizing, and reselling returned products.
Returns management is essential for cost management as it helps you control which products should be allowed to enter the backward supply flow. An effective gatekeeping system can help you save money by cutting down return rates. For example, if it is not economically feasible to collect and transport the returned item back, you can simply refund the product (and tell the customer to keep it).
An efficient returns management system is crucial to the profitability of a business because 68% of shoppers view return policies before making a purchase.
10. How Does Reverse Logistics Relate to Returns Management?
Forward logistics (traditional logistics) is the process of moving products from raw materials to the manufacturer and distributor and finally to the consumer. This includes a series of activities from product development, raw material sourcing, manufacturing, storage, packaging, transportation, and delivery to the end-user.
Reverse logistics manages the backward flow of goods from the end-user back to their point of origin. Returned goods are either reprocessed to regain value or under proper disposal to prevent environmental damage.
11. How Can You Simplify Reverse Logistics for Businesses?
Here’s a few things that can enable you to improve your approach to reverse logistics:
- An AI reverse logistics solution can help you make economic returns decisions and predict demand to keep inventory at optimal levels.
- Reduce spending by smartly utilizing returned products through repairing, salvaging parts, and refurbishing.
- Offer complete visibility into the returned products to your customers.
12. How Should Ecommerce Businesses Manage Reverse Logistics?
Here are some of the ways you can improve the efficiency of your reverse logistics:
- Prepare for returns beforehand: Returns can be tricky and messy, causing frustration and delays. To streamline tasks, ensure you receive returns separately from other incoming shipments. Use customized labeling so your staff doesn’t have to sort items.
- Outsource reverse logistics: Hiring a third-party reverse logistics provider to handle your reverse logistics can help you avoid the hassle and focus on filling orders. Plus, it also saves storage space. A CBRE study found that handling returns need up to 20% of additional space in distribution facilities.
- Invest in technology: Most returns and inventory management systems are equipped to manage the returns process with efficiency and accuracy. Similarly, logistics intelligence and AI robots are helping businesses automate the returns management processes.
13. What Is the Difference Between Forward Logistics and Reverse Logistics?
Forward logistics (traditional logistics) is the process of moving products from raw materials to the manufacturer and distributor and finally to the consumer. This includes a series of activities from product development, raw material sourcing, manufacturing, storage, packaging, transportation, and delivery to the end-user.
Reverse logistics manages the backward flow of goods from the end-user back to their point of origin. Returned goods are either reprocessed to regain value or under proper disposal to prevent environmental damage.
14. Are There Different Strategies for Reverse Logistics?
Let’s go over some of the strategies for handling reverse logistics with efficiency.
- Find out why the returns are happening: Knowing the root cause of returns can help you make informed decisions about how to reduce them. For example, if a particular product has a high return rate, you can reach out to the customers and ask the reasons behind the return. Their feedback can help you improve your offering or modify your returns policy altogether.
- Gain visibility into your reverse supply chain: Most businesses actively monitor their products throughout the sales cycle and are less aware of the status of any returned items. Regularly tracking reverse logistics can help you identify products that can be sold after repairs and refurbishments. Even information about non-value products will be useful in disposing of them and gaining additional storage space.
- Offer realistic return policies: Customers love fast and free shipping and expect the same in the returns process. A clear and easy-to-follow returns policy helps keeps your customers informed about what to expect and takes the pressure off from your customer service staff.
- Put return labels on bags containing returned products: This will help your staff quickly distinguish returned items without the need for sorting. Plus, it prevents their mixup with outbound products in the warehouse.
15. What Are the Best Tools for Reverse Logistics?
Reverse logistics systems help identify the path for returned goods that offer the highest cost recovery. They use AI and machine learning algorithms to analyze products and return policies, and forecast demand to maximize the savings from returns management.
Let Sifted Help You to Lower Your Reverse Logistics Costs
Running a business brings with it a lot of challenges including many hidden reverse logistics costs that you should be aware of. These include transportation, inability to accurately forecast, and lack of visibility of returns in transit.
Automation can help you improve the quality of your reverse logistics processes and keep their costs low.
Sifted uses artificial intelligence and machine learning algorithms to make informed decisions using data. It can help you identify better routes, decide when to offer free shipping and streamline warehousing operations.
Ready to make your returns lifecycle efficient and productive? Get a Free Demo of Sifted!
