Supply Chain Trends

The benefits of rethinking reverse logistics

Written by
Jonathan Porter
Jan 3, 2023
3:42 pm
minute read

Peak holiday season ends in December. But heaps of returns pile up in January. Nearly 81% of returns come in during the first month of the year, putting supply chain teams’ reverse logistics functionality to the test at the beginning of the year.

Reverse logistics is the supply chain process activated when end users return products to a retailer or manufacturer. The process includes deciding whether a returned item should be recycled, disposed of, refurbished or resold. Kind in mind that returns management is not the same thing as reverse logistics, but it is the main component of reverse logistics. 

Optimizing the reverse supply chain can be a secret weapon, especially for ecommerce brands. After all, online retailers’ return rates hover at more than 20%, compared to their brick-and-mortar counterparts’ return rates of 9%.  To help you brainstorm ways to optimize your current returns process, we’re breaking down what goes into successful reverse logistics and ecommerce returns management operations.

What is reverse logistics?

A large number of supply chain processes work behind the scenes to make reverse logistics work, but it starts when an end consumer wants to return a product they have purchased. It’s called “reverse” logistics because the flow of goods is opposite to the direction of “normal” shipping or “forward” logistics.

The benefits of reverse logistics

Demand for seamless flexibility

As teams wade through piles of returns, it can be easy to lose sight of the end goal: keep customers happy and meet their demands. Increasingly, customers are demanding more flexibility, including in the customer returns process.

Customers want near-real-time results when sending back an unwanted product. Because of this, many companies are emulating Amazon’s returns process to make online returns a part of their competitive advantage. Amazon paved the way for immediately issuing a refund when the returns carrier picked up the product.

While customers are calling for seamless returns management process, they’re also ordering more items and a variety of items via ecommerce. Ecommerce is no longer available solely for goods that can be shipped in small packages. Now, there are retailers specializing in furniture and larger items. With more people buying bulky items online, more people are returning those larger items as well. After all, it’s good to know that couches are hard to ship and are likely just as difficult to return. 

With the goal of meeting customer demand and providing stellar customer service, having a successful reverse logistics operation can be expensive. Keep in mind that customer experience is a critical component to spur your reimagined reverse logistics processes. After all, if a consumer has a negative experience with your brand, they will not buy from you again. 

Reverse supply chain and sustainability 

Not only are customers focused on experience, but more people are also demanding sustainable processes in the reverse supply chain. And reverse logistics and sustainability can go hand-in-hand. As a result, we’ve seen an increase in secondhand ecommerce stores, such as ThredUp, and brands, like Rent the Runway, have made names for themselves with excellent returns processes. 

You can offer a returns management experience that sets you apart. For example, Harper Wilde, an ecommerce store specializing in underwear and lounge clothes, offers a recycling program to its customers. When someone buys an item from the ecommerce store, the customer can elect to receive a recycle bag they can fill with underwear they want to recycle. The customer then fills out an online form with the number of items they’re recycling before sending the parcel back to Harper Wilde.

This experience speaks to customer calls for increased sustainability practices and creates an exceptional customer experience that entices people to become repeat customers.

What makes reverse logistics so challenging? 

The balance is finding ways to eliminate waste, make money on returned items and be better stewards of the environment. Easy right? Not so fast. 

If you look at reverse logistics from a 10-thousand-foot view, you might be inclined to say that your warehouse team already handles the process of pulling and receiving inventory. Unfortunately, this is often the mindset taken by leaders that don’t have supply chain experience. Because when you look at the processes to handle returns, you’ll see that they are opposite from the processes involved in fulfilling outbound orders.

Let’s take receiving as an example. In forward logistics, you’re inbound receiving goods from suppliers – probably in pallet quantities – regularly with a consistent schedule. On the other hand, reverse logistics can be irregular and unpredictable. With reverse logistics receiving, you’re bringing in individual goods shipped from customers that must be unpacked, inspected and directed to the proper follow-up procedure that can include a review of the returned item and specific questions, such as: 

  • Is it stained and needs to be washed? 
  • Is it ripped and needs to be repaired? 
  • Does it just need to be donated? 
  • Can it be donated?

This review can be time-consuming and requires a certain level of detail and time that can take a warehouse team away from their main activities and tasks. 

Another challenge is that most major WMSs were initially built about 10-20 years ago – before ecommerce and returns were prevalent. Because of this, supply chain teams have had limited options and had to hack together returns processes based on forward-logistics processes. Unfortunately, these frequently do not translate well. Now, there are specialized reverse logistics systems available, but unless you’re a 3PL specifically handling returns, it can be challenging to justify the ROI for yet another system (and another integration/middleware, maintenance/upkeep, etc.)

How to avoid a common returns management mistake 

Largely, the theme of reverse logistics software and processes missteps is assuming these processes function similarly enough to your forward logistics processes. This assumption often manifests in teams not putting dedicated plans in place to handle returns.

How can you avoid this? You can dedicate two hours of every shift to returns receiving, so everyone spends the first six hours on standard receiving and then switch over. Or, you could reserve a particular team member to handle returns so that their receiving station is what processes all returns that day. In either case, having clearly defined processes about how returns are handled and having that be separate from your forward logistics processes is critical.

How can brands and retailers optimize their returns management and reverse logistics?

The best place to start is drawing out a process map of your ideal returns process and workflow. Begin with the high-level picture and then drill down into what happens once you’ve received and analyzed the state of an item. These actions can include several decision points, such as:

  • If the item is ripped, then is it recycled or mended? 
  • If the item is dirty, then it is washed.

Brainstorm specific requirements you need your reverse logistics process to handle, and then see if and what other systems you might need. After all, some of your existing systems might be able to handle an additional workflow. 

Regardless of how big of an operation you are currently, you can get started optimizing your reverse logistics now. Any system or process you can put around returns can help – just don’t dump these tasks onto your fulfillment team. You can use a Google form or spreadsheet to help you formalize your processes, and you can even upload these sheets manually into your ERP and tracking systems. 

It doesn’t have to be fancy. It just has to work. 

Some supply chain teams have spent years optimizing their warehouse processes for outbound shipping, and now they might have to put in the same effort for returns. But there are choices; you can:

  • Work with another vendor or 3PL who specializes in reverse logistics
  • Open a separate facility dedicated to returns 
  • Find a partner that handles returns and reverse logistics effectively 

To choose the best avenue for your organization, you need to look at the total cost of your efforts, including reverse logistics management and returns management systems. Then, consider a complete all-in cost analysis that includes resale, costs and carbon emissions. 

Regardless of whom you choose, make sure any software you implement is flexible, and some solutions can even handle outbound shipping and returns in one system. 

Keep your eyes peeled for opportunities, and if you can reimagine your reverse logistics, you can set yourself apart from the competition.

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