What is Reverse Logistics?
September 04, 2020
What is Reverse Logistics?“Reverse logistics” refers to the process and management of products flowing from their point of consumption (ex. a consumer) to their point of origin (ex. a manufacturer or seller). Reverse logistics is commonly referred to as “returns” and can be thought of as counter to forward logistics, in which products flow from a point of origin to a point of consumption.
Why is it important? The purpose of a reverse logistics process is to capture value from returned inventory by repairing or refurbishing it in preparation for resale. Reverse logistics is a key function of supply chains, but can be complex and difficult to navigate because processes must evolve as supply chains change or increase in complexity. It’s important to note that a subset of different service offerings that vary by supply chain (ex. remanufacturing and refurbishing) also fall under the umbrella of reverse logistics.
Examples of Reverse LogisticsThe circular supply chain is a concept in which the supply chain regenerates itself in a closed loop. Products are manufactured, purchased, used, returned, repaired, and recovered for secondary use and/or broken down for use as input to create more products. The reverse logistics element of this process comes in during the return phase (mentioned in the prior sentence) and continues through the breaking down of components.
For a deeper understanding of reverse logistics within a circular supply chain, let’s look at the mobile device industry. Most mobile phones are used by a consumer, traded in, refurbished, resold and used again by another consumer. Sometimes a phone may go through 3 or 4 owners before it’s finally decommissioned, making the reverse logistics process important in enabling value throughout the device lifecycle.
Reverse logistics is also increasingly important in e-commerce transactions, and this makes perfect sense. When shopping online, consumers make purchases without physically examining a product, increasing the likelihood that it will not satisfy their expectations and need to be returned (whereas in-store shoppers typically have confidence in their purchases and opt to keep them). FedEx estimates that 15% of e-commerce orders are returned, “with about 5% going to a store and 10% being shipped back.” DHL reports an even higher number, asserting that return rates for e-commerce shoppers are as high as 25%.
According to Statista, in 2020, the cost of returns for e-commerce businesses will hit $550 million in the U.S. alone. This means that brands and retailers must have a strategy for their reverse logistics that considers transportation, warehousing, repairs, and tools and services for reselling, if they want to remain competitive.
Why Offer Next-Day Shipping?Providing your customers with shipping options and being transparent about how long delivery can take should be a key part of your ecommerce fulfillment strategy. For customer ease and convenience, it’s ideal to offer 2-3 shipping options. Generally, these include standard shipping, 2-day shipping, and overnight or next-day expedited shipping. Offering an array of choices will help you capture customers and offering next-day shipping opens up new opportunities for the ‘need it now’ demographic. You may also gain marketing material by listing your products as ‘arriving on time’ or ‘in time for the holidays’. One helpful tip: With overnight shipping, it’s imperative to clearly state cut-off times and how your weekend fulfillment plays into the delivery date calculation. Transparency and predictability is the key to customer satisfaction — no one wants to pay for expediting shipping, only to find out that it’s not quite as fast as they thought it would be!
Optimizing the Reverse Logistics ProcessAs mentioned, reverse logistics can be complex and quickly impact bottom lines. These cost challenges may be due to::
- Wide geographic dispersion of returns
- Inefficiencies due to lack of scale
- Labor management issues
- Space requirements
- Surges in return volumes
Fortunately, there are ways to mitigate these challenges. Optimizing reverse logistics within your fulfillment warehouse can minimize the cost and time associated with processing returned goods, reduce the inventory levels of returned products, and decrease the time needed to dispose of products. In other words, efficient reverse logistics management can maximize revenues, reduce costs, increase customer satisfaction and help you stay ahead of the competition.
Four Reverse Logistics Cost Contributors1. Product Returns
Product returns are an expensive element of reverse logistics, especially for retail companies. Developing legally binding warranties, return policies, and service contracts all factor into the cost of returned products. As returns increase, customer service expenses increase because more labor is required to handle return requests, check the status of returns, and process claims. Receiving and warehousing costs are also incurred when returned products are logged into facilities and stored.
Reverse logistics considers the cost of bringing back unsold merchandise from retail stores or recycling packaging components. In some industries, reverse transportation costs can be just as high as forward transportation. Packaging, pallets, crates, and displays are all sizable packaging elements that need to be accounted for when transporting products.
3. Product Repairs and Refurbishment
Refurbishing products is a reverse logistics approach that many companies use to extract residual value from existing inventory that otherwise would have reached the end of its lifecycle. Remanufacturing can give otherwise obsolete products a new life, enabling them to be resold.
Returned products can also be resold if they are in good condition or if they’ve been refurbished. However, inspecting products, repairing damage, replacing defective parts and repackaging them takes time and materials. If the product is resold, there may be additional costs for transportation, reseller fees, etc.
About UsIngram Micro Commerce & Lifecycle Services is the global leader in logistics, commerce enablement & device lifecycle services. We provide supply chain solutions to connect supply and demand and proudly serve customers across a broad spectrum of industries, from fast-growing brands to Global 2000 enterprises. Our global warehousing network, world-class technology, strategic partnerships and decades of experience provide a trusted foundation for growth. Learn about our Reverse Logistics services here.
Julie JutteJulie Jutte is a Product Marketing Manager at IMCLS focusing on Mobility. She helps generate and nurture business with new and existing customers through targeted marketing campaigns, external communications and thought leadership that highlights our business and leadership's depth of experience and knowledge. Julie has spent years in the communications and marketing fields, working to understand customer needs, develop thoughtful product and service storytelling and become an industry expert. She is passionate about multi-channel campaign development and understanding the voice of the customer, as well as, being a self-proclaimed foodie who never stays still too long.
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Julie Jutte 2020-09-04