“Reverse logistics is the supply chain of supply chain.”
Nick Stachel, one of izba’s domestic freight experts, describes reverse logistics this way, highlighting the complex nature of managing returns and reverse logistics.
Supply chain consultants are privy to the challenges businesses face when they finally get around to dealing with returns.
It’s no secret that all eCommerce brands have to deal with a large number of returns and replacements. The average business encounters 20-30% of its annual orders to result in returns and exchanges.
Supply chains are known for their unpredictable nature and in any instance, a failed or compromised order results in a grave situation where businesses have to contain the damage and reassure frustrated customers.
This is why it’s important that businesses take the time to assess and address the modern need for returns management.
Returns management is one of the most important elements of modern eCommerce business infrastructures and the longer you wait to create a reliable returns management system, the more problems you’ll have with improving customer experience.
The biggest and most obvious problem that a business faces when thinking of processing returns is reverse logistics.
What is Reverse Logistics?
Traditional supply chains start from the producer and supplier to the end-consumer with stores along with a logistics team in between to ensure delivery of the order.
When you’re processing returns, this cycle is reversed and now you have to worry about getting the product from the consumer to the business’ storage, making up reverse logistics and, it’s not always easy and simple.
Reverse logistics entails setting up the right strategies, infrastructure and policies to make sure your customers can safely return the product they’ve bought without causing complications.
Whether the product is damaged, the wrong kind, size or color, etc., customers are bound to want exchanges and/or returns and not being able to provide one is going to hurt your business.
Studies show that people are unlikely to trust businesses that don’t have substantial return policies in place and are likely to recommend businesses with return and exchange policies to their peers.
Although there are several different ways people can manage reverse logistics, there are components of reverse logistics that can help understand and devise strategies to reduce and manage returns for your business.
How Does Reverse Logistics Work?
Although the term may appear to be specifically for setting up an infrastructure for transporting returned products back to a business, ‘reverse logistics’ actually encapsulates returns management, including repairs and recycling processes.
To put it simply, the steps involved in setting up a reverse logistics framework include:
- Initiating Returns
- Processing Returns
- Sorting Returned Products
- Repairing/Refurbishment
- Recycling/Disposal
The reverse logistics process begins when a customer requests a return. A business must have an adequate system to give its customers the option to return an item. With optimized systems, this is where smart businesses also verify the product’s condition to ensure return validity.
Once a request has been made and verified, the product is then asked to be returned to the business either via parcel shipping or with systems like BORIS (Buy Online, Return in Store). With the rise in eCommerce, several carriers and local 3PLs now provide reverse logistics.
When a returned product makes it back to the warehouse (ideally, while it’s being returned), it should be clear where the product is going to go. Depending upon the condition and nature of the product, it can either be repairable, disposable, recyclable or refurbished and resold again.
Brands operating in their respective industries are likely to have their own ways of processing returns depending upon their products. Examples of products like beverages clearly show how reverse logistics can be an integral part of your whole business.
One can imagine the costs of buying empty containers, cleaning old ones and the overall costs of logistics for the whole operation. Similarly, perishable food items also require additional storage for returned stock, meaning the infrastructural costs and setup for reverse logistics in every industry is different.
The economic realities of opting for reverse logistics is that you have to purchase surplus goods and hire 3PL services to process returns. Of course, there are several ways brands can cut costs and optimize their returns management processes.
Components of Reverse Logistics
· Returns Management
Returns management doesn’t just refer to managing returns, meaning you have to also work on reducing the number of returns altogether. This is where it gets tricky but could be extremely effective.
Modern eCommerce businesses have online stores that optimize returns management with a process that accommodates customer grievances on the spot, giving them exchange offers and/or compensation to improve customer experience and reduce the burden of processing a complete return or refund altogether.
However, this is possible only if you have a robust and thought-out return policy and procedure in place.
· Return Policy and Procedure
Referred to as RPP, return policies are made primarily to address customer concerns but are made so in accordance with business needs and capabilities. Instances of re-returns can highlight the importance of having a clear return policy as well as an adequate verification procedure in place.
Businesses that don’t focus on clarifying scenarios that qualify for returns, re-returns or compensation will eventually face situations where they either lose revenue by processing multiple requests or risk losing a customer with negative feedback.
This is also the step where brands have to specify which department carries out the verification as well as the department that takes the product to the next stage of its lifecycle.
· Remanufacturing or Refurbishment
Reverse logistics and returns management require businesses to figure out how products can be recycled or refurbished. In the case of clothing items, you can either recycle the materials completely if not fix or repurpose existing products.
Different businesses have a variety of mechanisms in place to deal with each scenario they find themselves in with the product. Figuring out if and how a product can be reused, repurposed or recycled for materials is key here.
Sometimes brand identities and values can take priority over common priorities like revenue, as is the case with Armani, Gucci and other brands that don’t offer items on sale, meaning all their inventory is destroyed if it doesn’t sell out.
Depending on your business niche, nature and product, the ideal infrastructural setup for recycling and refurbishment may look different from business to business..
· Packaging Management
Companies have to take care to not waste packaging material. That means making sure all products are packaged conveniently enough to avoid wear and tear with the ability to be rewrapped easily as well.
· Unsold Goods
Unsold goods are handled differently in every industry as well as with business size and brand identities.
Most companies may find it logical to prioritize revenue generation by repurposing and reselling products; however, sometimes brand values can take priority over other aspects such as the case of Armani, Gucci and other brands that don’t work with refurbished or recycled items.
· End of Life (EOL)
Almost all products have an EOL. For some, it’s denoted by an expiration date. This is the time when a product is declared unusable. In some countries, it’s mandatory for brands to have adequate disposal or recycling measures in place for products that reach their EOL (or become EOL) to show responsibility.
This is an especially important concern for electronics and gadget manufacturers who have to ensure substantial carbon footprint reduction. Optimizing reverse logistics with centralized warehouses that collect and recycle/dispose of non-functioning devices is necessary.
· Failed Deliveries
Identifying delivery failures can also mean employing additional resources available at sorting centers that figure out the cause and possible solutions to reduce total costs spent on managing returns.
Customer service centers for companies like Samsung also try to repair products before declaring them unusable while other businesses with products like mattresses offer to buy up used products and offer discounts on new ones.
How to Set Up Returns Management and Reverse Logistics?
Creating a win-win situation for everyone is the primary concern and governing principle of returns management. By setting up a robust reverse logistics infrastructure, businesses can guarantee customer satisfaction and retention.
Izba can help you set up the closed-loop supply chain and get that circular economy going by equipping your business with the right returns management tools and the ideal supply chain infrastructure to go with it. Let’s get in touch.
