What is reverse Logistics? Before we dive in the nuances of reverse logistics, otherwise known as return logistics, integration, let's briefly recap what reverse logistics is. Reverse logistics refers to all operations related to the reuse of products and materials. According to the Council of Logistics Management, it is “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics.”
For example, the reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.
When a manufacturer’s product normally moves through the supply chain network, it is to reach the distributor or customer. Any process or management after the sale of the product involves reverse logistics. If the product is defective, the customer would return the product. The manufacturing firm would then have to organize shipping of the defective product, testing the product, dismantling, repairing, recycling or disposing the product. The product would travel in reverse through the supply chain network in order to retain any use from the defective product.
The supply chain of reverse logistics poses some serious challenges, especially with the recent explosion of ecommerce. Customers expect to return products in the same way they purchased them, so it is not always as simple as just returning to a store. With ecommerce sales expanding into more non-traditional, oversized items (like refrigerators and other appliances), shippers need to be prepared for the incoming boom of returns. Shippers are faced with a variety of challenges: finding the right carriers for the specialized reverse logistics movements, managing costs and inventory, and delivering the desired customer experience.
How to Optimize Your Return Logistics Through Integration
Managing return logistic can be challenging. Like traditional outbound logistics, return logistics requires the careful planning of pick-ups and deliveries of products, however, the involvement of end-consumers in the process creates additional complexities. Meanwhile, the rate of returns and hence the demand for reverse logistics is increasing.
As reported by Supply Chain Dive, the Reverse Logistics Association estimated “more than $550 billion worth of returns move through the economy per year, with half being sent back to suppliers and manufacturers. Many companies are making it easier for the customer to return and use it as a competitive advantage. The e-commerce side is increasing returns dramatically.” A recent article in Logistics Viewpoints noted that UPS estimated that post-holiday returns were up 23% in 2020. It is far too early to predict returns’ actual rates in 2021, but historical averages suggest this could be a historic year for returns.
In this new landscape, shippers need more effective return logistics management to understand how integrated processes are crucial to success: They need to be able to track customer returns and identify the root causes for those returns. Shippers need to seamlessly integrate with other parties, including carrier partners, to share real time data and make agile business decisions, for example, redesigning the product, changing how the product is marketed, and/or changing how the product is packaged and shipped.
In order to provide for a seamless and hassle-free customer experience, the TMS should have a web-based returns authorization process that is easy for the consumer to use and that captures all the info that the shipper needs in order to manage the return and track root cause data for future mitigation. Once the returns process has been initiated, the TMS must include an integrated solution that automatically pairs the specialized carriers that will pick up the item from the customer and the linehaul carrier that will return the product to the warehouse.
Moreover, shippers need to be able to determine the state of the returned product, whether it goes back into inventory, needs repackaging or refurbishing, is discounted, or is disposed of. Only when these criteria are met can a return logistics operation be considered truly “integrated.” The best way to tackle this massive undertaking is with a robust and fully integrated TMS.
Integration with Supply Chain Partners will Improve Your Return Logistics Strategy
High-cost products include electronics, medications, and specialty equipment. These items have a reasonable life-span, and their use may be necessary to literally save lives. Besides, failure of managing return logistics of such things may lead to an increased risk of exposing personal or company data.
For example, ISO standards mandate the proper disposal of electronics to prevent data theft. Failure to dispose of such items, mostly when returned for repair, replacement, or recycling, may lead to customers’ financial litigation. Instead of hoping disposal is appropriately addressed, integrated recycling supply chains keep everyone informed and hold outsourced service partners accountable.
Integration Can Decrease Your Return Logistics Costs
Integrated return logistics also eliminates the uncertainty behind returned products. When a customer returns an item, the costs of shipping, storage, diagnosis, repair, and replacement will fall to the retailer. In turn, those costs may then fall to the manufacturer. The cycle continues until the cause is addressed, and the item can then be resold, reclaimed, or otherwise repaired.
By integrating the process of managing return logistics with supply chain systems, particularly the transportation management system (TMS), managers can see reverse logistics KPIs and metrics in real-time. These values provide a measure of the whole reverse supply chain’s health for the business. As the KPIs change, organizational leadership can refine manufacturing, marketing, or other factors to reduce the risk of future returns.
Imagine this scenario. A customer returns an item based on a malfunction. It’s a simple weather radio. The manufacturer reviews the return data and sees a high trend of replaced or repaired radios based on the TMS trends. As a result, the manufacturer issues a recall to fix the broken items at risk of malfunction. Now, the retailer has an influx of returns.
Managing the products’ flow back to the manufacturer could become a nightmare. However, integrated return logistics processes within the TMS automatically route these returns directly to the manufacturer.
The process runs continuously behind the scenes to eliminate added inbound freight at the brick-and-mortar location. Of course, customers may opt to complete a return in-person. As a result, the TMS takes a more proactive role, showing retailers how to tender the shipment, when it is picked up, and bills the shipping cost to the receiving manufacturer. Again, it keeps costs under control.