Reverse logistics are a major hurdle to efficiency and profitability in modern supply chains. However, they are not something an organization can simply avoid. Failure to offer a fair, free returns process will cost customers. Period. As a result, supply chain executives need to find a way to handle the reverse logistics problem. And making the decision to outsource reverse logistics is one proven strategy that can increase returns efficiency and streamline operations.
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Challenges Associated With Managing In-House Reverse Logistics
In-house reverse logistics result in significant issues. Think about it. The reverse flow of goods requires resources, and with the biggest priority on forward logistics, detracting those resources compounds the problem. Unfortunately, the demand for faster, free forward logistics among customers continues to create unrealistic expectations in other parts of the supply chain, particularly reverse logistics. According to Multichannel Merchant:
“This leaves reverse logistics deprioritized. Reverse logistics is how companies manage the flow of returned and excess merchandise moving through the supply chain. Despite a demand for fair returns policies, the reverse logistics process isn’t necessarily a consumer concern. But for retailers, it’s a $1.75 trillion headache.
The reason is simple. Every year, 15% of goods sold are returned or deemed excess, and many retailers do not have adequate systems in place to manage this flood of items. The traditional reverse supply chain is long and complicated, with goods traveling from consumer to retailer to vendor to liquidator to wholesaler to reseller and finally, to a secondary buyer. Many of these items lose their value along the way, and 30 % of them don’t even make it into the hands of another consumer, ending up in landfills.” Additionally, managing reverse logistics internally means all the needs of moving goods must be amplified. As reported by DC Velocity, a recent study by CBRE found that making the decision to not outsource reverse logistics results in a 20% increase in needed space. As a result, supply chains further limit their ability to fill orders and maintain profitability by handling in-house reverse logistics.
Working to Outsource Reverse Logistics Increases Efficiency and Revenue
The decision to outsource reverse logistics may seem counterproductive. How much do reverse logistics cost really? Consider this. If 15% of all goods are returned, and assuming 30% end up in landfills, then 4.5% of all goods sold are doomed from the start. Imagine how that process might change if retailers were able to recapture the costs of a return by speeding the returns’ repackaging, relabeling, and liquidation?
That amounts to a significant share of revenue that could be recaptured. Of course, it all assumes a company has the resources to manage reverse logistics as quickly and efficiently as an entire outbound operation. So, turning to outsource reverse logistics makes the most sense. It streamlines the process and allows shippers to focus more on filling orders. Plus, if a company does outsource reverse logistics, they simply pay a percentage of the reclaimed goods’ cost to the service provider. It’s a simple model that effectively means no-upfront hassle in managing reverse logistics.
What to Look for in a Reverse Logistics Provider
Since more companies have made this decision, finding a quality provider of reverse logistics management can be troublesome. Does it include software? Does it incur additional fees beyond percentages of reclaimed goods? Instead of trying to ask a billion questions, supply chain executives should look for providers with these characteristics:
- Global reach. Since e-commerce is global, your reverse logistics provider should be as well.
- Price and rate transparency. A clear pricing structure is key to not overspending on reverse logistics outsourcing.
- Willingness to go the extra mile to recapture revenue. Service providers should also provide consultancy services to help identify possible issues contributing to higher rates of returns.
- Diverse carrier network. A diverse carrier network is another must-have, and any provider must also have scalable solutions that can handle surging returns during peak season.
- Clear accounting practices and compliance records with all applicable regulations. Maintaining transparency in accounting and compliance is key to avoiding unexpected surprises.
- Integrated modules that plug into your transportation management system (TMS). Lastly, the service provider should offer a TMS that helps manage the reverse flow of goods, including a customer-facing portal for initiating a return. In some cases, this may include routing returned shipments to repair centers, recycling plants, or distribution centers for undamaged merchandise.
Improve Reverse Logistics Management With the Right TMS
Regardless of whether your company believes in the value of outsourcing, the decision to outsource reverse logistics must not be taken lightly. Failure to thoroughly consider the benefits and costs associated with outsourced reverse logistics will add to freight spend and cause more harm than good. Fortunately, a SaaS-based TMS, such as the Cerasis Rater, is built to withstand the needs of reverse logistics, and as part of the GlobalTranz family, Cerasis further offers this capacity to outsource reverse logistics to all new and existing GlobalTranz clients too.