What is reverse logistics?
Reverse logistics refers to the movement of product backwards, up the supply chain, from its end destination (usually a customer or retailer) to the distributor or manufacturer. Often people associate reverse logistics with damaged, defective, or recalled items, but it also applies to expired goods, buy-back programs, "keep what you like, return what you don't" subscription services, and more. Recently, the increase in free shipping and free returns has resulted in a significant increase in customer returns of e-commerce purchases, which are also included in reverse logistics. The complexity and variety of reverse logistic scenarios mean that supply chains often need to implement a unique system for managing these items.
Why prepare for reverse logistics?
Simply put, supply chains should prepare for reverse logistics because they are occurring more frequently than ever before, specifically within e-commerce. Returns and reverse logistics, when improperly managed, can make up a significant cost to the fulfilment of orders. However, when managed properly, reverse logistics can represent a minimal cost and provide your customers with better service.
What to consider
Often the goal of reverse logistics is to recapture some of the value of the returned items or to dispose of the items in a correct way. For example, when unworn clothing is returned with tags on, distributors may be able to place this item back into stock and sell it again with a future order. This allows the distributor to recapture 100% of the original value of the item. In other cases, such as an electronics buy-back program, the item has been used and therefore lost some of its original value. In this case, manufacturers or distributors may seek to refurbish the item and sell it at a discount, recapturing a percentage of the original value. In some cases, like when expired medicine is returned, the goal is to destroy the item safely to ensure that it is properly disposed of, and none of the value will be recaptured.
When returns are being conducted by the end-customer directly, speed is an essential factor of reverse logistics. Customers want their return processed quickly so that they can receive their refund as fast as possible. Speed is also a benefit to the manufacturer or distributor who will be receiving the product back, as the faster an item can be returned, the faster it can be resold. An efficient reverse logistics system also helps to increase trust in your company, ensuring that your customers have a pleasant, no-fuss experience with their return.
Many companies find their existing systems cannot adequately provide for high volumes of reverse logistic items, and instead choose to outsource their reverse logistics chain to a 3PL provider. This allows companies to provide excellent return experiences to their customers without major changes to their existing warehouse and distribution systems.