How much attention does your company pay to the handling and management of returns from your customers?
I ask because, honestly, in my 30 years working in supply chains, reverse logistics is consistently the area that gets the least love. It’s treated as an afterthought. A problem to be managed rather than a process to be optimised.
For many supply chain companies, reverse logistics performance is placed way down the list of priorities. Many are the warehouses with piles of returned products occupying seldom-visited corners or racking sections.
I’ve walked through distribution centres where the returns area looks like a graveyard. Pallets stacked haphazardly, products sitting in limbo because nobody’s quite sure what to do with them, and staff who view the returns section as a punishment posting. It’s not a great situation.
The Real Cost of Ignoring Reverse Logistics
Given that returned goods expenses can make up as much as 15% of an organisation’s top line costs, efforts to improve reverse logistics performance can have a significant impact on cost reduction, as well as improving the customer experience. In some cases, reverse logistics can actually be turned into a way to generate revenue.
That 15% figure tends to surprise people. But think about it. You’ve got the cost of processing the return, inspecting the item, restocking it or disposing of it, the customer service time involved, and often the cost of shipping a replacement. It adds up fast.
The thing is, most companies have a pretty good handle on their outbound logistics. They know their cost per order, their delivery performance, their warehouse productivity metrics. Ask them about their reverse logistics performance and you’ll often get blank stares. Or worse, rough estimates that turn out to be wildly optimistic.
What Actually Constitutes Reverse Logistics?
Before we go further, it’s worth being clear about what we’re talking about. Reverse logistics covers any process or activity involved in moving goods backwards through the supply chain. That includes:
- Customer returns (the obvious one)
- Warranty repairs and replacements
- Product recalls
- Recycling and disposal of end-of-life products
- Return of packaging materials
- Unsold inventory from retailers
Each of these has its own characteristics and challenges. A guy managing returns for an online fashion retailer faces very different problems than someone handling warranty repairs for industrial equipment. But the underlying principles of good reverse logistics management apply across the board.
If your company puts some of the following tips into practice, you should be able to make a positive impact on reverse logistics and realise an overall improvement in supply chain performance as a result.
Implement a Track and Trace System
Returns from customers are less likely to wind up gathering dust in a warehouse if your company’s supply chain managers can see exactly what products and packaging materials are in the reverse logistics pipeline. Visibility is a critical factor in improving reverse logistics performance.
There are a few ways in which you can improve returns visibility. Perhaps the least expensive solution is to provide customers with return labels incorporating barcodes, as long as you have the means to scan the labels at appropriate stages in the reverse logistics flow.
I worked with a mid-sized electronics distributor a few years back who had no idea what was in their returns pile at any given moment. Products would come back, get put on a shelf, and essentially disappear from their system. When we implemented basic barcode scanning at the point of receipt, they discovered they had over $200,000 worth of perfectly resalable stock just sitting there. Some of it had been there for months.
Process Returns Immediately
Once you have adequate visibility into your returns activity, you should map out and implement specific processes to evaluate the status of returned items and move them on up the supply chain, or out of it. Ensure that those processes are designed in a way that doesn’t allow returned stock to languish in a warehouse.
If a returned item can still be sold as new, get it back into sales stock. If it’s damaged, repair it or dispose of it. If it’s in good condition but obviously used, see if you can sell it through a secondary channel at a discounted price.
Reverse logistics performance will not improve if you allow returns to sit in storage for indefinite periods. In some cases, returned goods which might otherwise have been resalable can end up obsolete, robbing your company of the chance to realise some revenue.
This is particularly acute in industries with short product lifecycles. Consumer electronics is an obvious example. A returned smartphone that sits in your warehouse for six months doesn’t just lose some value. It can become essentially worthless.
Consider Outsourcing Reverse Logistics
If your company operates in an industry where returns are a frequent occurrence (omni-channel fashion retail is a good example of such an industry), you might want to think about outsourcing your reverse logistics operation to a 3PL provider. Specialist reverse logistics providers are growing in numbers as market demand increases.
By partnering with one of these providers, your company can improve reverse logistics performance by getting returns out of your own warehouses and leveraging the economies of scale a 3PL operator can provide.
There’s also an argument that specialist providers simply do it better. They’ve invested in the systems, processes, and trained staff specifically for handling returns. Unless your core business involves high volumes of returns, it’s unlikely you’ll match their efficiency.
Finally: Don’t Forget Prevention
Of course, if at all possible, the best way to tackle returns is to eliminate as many as possible. This can only be done by carefully investigating the reasons for finished goods or raw material returns and taking measures to address the problems at the source.
Whether your company decides to outsource reverse logistics or keep it in-house, the one thing not to do is treat it as a nuisance child that must simply be endured. By getting smarter about reverse logistics performance, you can reduce overall operating expenses and improve customer service at the same time.
Look, I know reverse logistics isn’t glamorous. Nobody gets excited about processing returns the way they might about implementing a new warehouse management system or opening a distribution centre. But the companies that treat their reverse supply chain with the same rigour as their forward supply chain tend to see real benefits. Lower costs, happier customers, and less of that valuable warehouse space consumed by products that should have been dealt with weeks ago.