What is the process of Reverse Logistics and why is it important?

Displays reverse logistics

Reverse logistics is the process of moving products backward through the supply chain. In other words, reverse logistics involves taking products back from customers and reworking those products (or parts of them) to create a new product that can be sold.

What is Reverse logistics? - Reverse logistics is a value-added process that addresses how a company receives items back from customers. The most common scenario in which reverse logistics come into play is when a customer wants to return an item. The process for how a company handles that product is an example of reverse logistics.

How does reverse logistics work? - Reverse logistics can play out in a lot of different ways depending on the specifics of the business. However, in almost all cases, the process can largely be broken down into two parts: returns management and either remanufacturing or refurbishing.

When is Reverse logistics used? - Organisations use reverse logistics when goods move from their destination back through the supply chain to the seller and potentially back to the suppliers. The goal is to regain value from the product or dispose of it. Worldwide, returns are worth almost a trillion dollars annually and have become increasingly common with the growth of ecommerce.

The objectives of reverse logistics are to recoup value and ensure repeat customers. Less than 10% of in-store purchases are returned, compared to at least 30% of items order online. Savvy companies use reverse logistics to build customer loyalty and repeat business and to minimize losses related to returns.

Types of Reverse Logistics

Returns management- Returns management deals with the process of physically managing the products that are returned to the company. This includes an element of gatekeeping- determining which returns a company will accept. Once a return is accepted, returns management ensures that it ends up in the correct hands, like a warehouse manager who knows the best way to store it.

Remanufacturing or Refurbishing- Remanufacturing or refurbishing is the aspect of reverse logistics that gets the returned or recycled product ready to hit the shelves again. This aspect of reverse logistics can be simple. When a customer returns a t-shirt before they wear it, it could be as easy as adding a new price tag to the shirt and putting it back out on the floor. It gets more complicated when recycling a product or receiving a returned product that has been heavily used. For more complicated returns, the quality department can determine whether the item is suitable for a customer refund. By inspecting the item, the quality inspector can identify whether the item is covered by the returns policy. However, if the quality department finds that the item can be repaired and resold, then this can create revenue for the company. Items should not be scrapped just because they are returned. Many items are returned because the packaging is damaged, and these items can simply be repackaged and placed back into stock.

Return policy and procedure (RPP)- The policies about returns that a company shares with customers is its RPP. These policies should be visible and consistent. Employees should also adhere to them.

Packaging management- This type of reverse logistics focuses on reuse of packaging materials to reduce waste and disposal.

Unsold good- Reverse logistics for unsold goods handles returns from retailers to manufacturers or distributors. These types of returns can be due to poor sales, inventory obsolescence or delivery refusal.

End-of-life (EOL)- When a product is EOL, it is no longer useful or does not work. The product may no longer meet a customer’s needs or be replaced by a newer, better version. Manufacturers often recycle or dispose of products that are end-of-life. These goods can create environmental challenges for manufacturers and countries.

Delivery failure- With failed deliveries, drivers return products to sorting centres. From there, the sorting centres return the products to their point of origin. While rare, some sorting centres may have the staff available to identify why a delivery failed, correct the problem, and resend.

Rentals and leasing- When a piece of equipment comes to the end of its lease or rental contract, the company that owns the product can remarket, recycle, or deploy it.

Repairs and maintenance- In some product agreements, customers and companies maintain equipment or repair it if issues arise. In some cases, company sells damaged returned products to another consumer after repair.

Benefits of reverse logistics

  1. Cost reduction
  2. Better customer retention
  3. Faster and better service
  4. Loss reduction
  5. Improved brand sentiment
  6. Waste reduction and greater sustainability
  7. Customer satisfaction

How does Reverse Logistics create value?

Reverse logistics creates value by turning waste into sales and builds customer trust. Businesses resell, reuse, and recycle returned products. In addition, effective reverse logistics keeps down any storage and distribution costs. Gartner Research find that less than half of returned goods are resold at their full price. There is value finding the best disposition option for returned items. For example, retail businesses like B-Stock resell returned goods. B-Stock sold 70 million returned or excess goods in 2019. The company buys the returns for a percentage of their original cost and then resells them at a discount to the consumer. Using reverse logistics to boost the efficiency of the traditional supply chain benefits everyone. Some businesses separate their forward and reverse logistics, and others combine them. The relative success of combining them depends on the company’s experience, the value of its products and return volume. Either way, they use practices to maximize their profitability ratios with their supply chain activities. Read these expert tips on how to maximize profits in business.

Strategies to optimise Reverse Logistics

Companies need cohesive strategies that account for speed, efficiency, and cost. When taking action consider policies, partners, data, capacity, logistics and transportation.

Seven strategic ways to optimise reverse logistics:

  • Evaluate relevant policies and agreements- Review and revise the procedures related to your company’s returns and repairs. These policies should be clear and consider the root causes of returns and repairs. The way a company deals with returns and repairs can be competitive differentiators.
  • Collaborate with suppliers- Close collaboration with suppliers can help ensure a smooth, integrated experience for customers, not a disjointed one they will struggle to navigate.
  • Use data to optimise processes- By collecting data on product returns, you can understand why customers may be returning products. Then, you can adjust in sales, product design and forward logistics processes accordingly.
  • Track products forward and backwards- Linking raw materials to the finished good and the customer order allows you to trace ingredients in the event that you need to process recalls-instead of issuing them for entire lines, you can find the issue and selectively issue recalls.
  • Centralize Return Centres- With a centralized return centre, you can better sort products and identify the best next step for each of them. With a centre, businesses can more efficiently determine how best to reclaim product value. If your company lacks the resources to have a separate returns centre, consider dedicating a portion of your warehouse or factory to returns.
  • Examine Logistics and Transportation- Regularly review the process for the forward and reverse logistics and transportation. Determine if it is feasible to integrate some of these processes and transit. For example, if your delivery drivers can pick up empty pallets as they drop off full pallets, you save trips, time, and money.
  • Automate- Use cloud-based logistics software to help streamline operations. For example, a software system can track asset recovery, manage refurbishment, and provide business intelligence.
    Describes the step by step of reverse logistics
    A flow diagram of Reverse Logistics

OnLogistics experiences with Reverse Logistics

Integrated Logistics provider OnLogistics recently began working with CormanNet a company that repurposes car engines. The process involves inspecting used car engines and testing to see if they are suitable to be resold. Usually, the inside of the engine needs to be taken out and replaced however the engine casing is, most of the time, reusable and is reused.  This type of reverse logistics is known as packaging management as previously listed during this article. The benefits to the environment and costs out-weigh the process of discarding them and manufacturing more. This also ties with the new movement of companies becoming net-zero as it reduces the energy needs for manufacturing more. CoremanNet has chosen us as their UK sorting station for core management, to read more click here