The reverse supply chain constitutes a crucial part of the reverse logistics process. It determines the product flow from the consumer to the source (i.e., manufacturer, supplier, or company warehouse).
Reverse logistics is one of the biggest challenges faced by the e-commerce industry. It refers to the supply chain involved in the process of moving the product or item from the end-user or customer to the manufacturer or warehouse. The importance of reverse logistics comes into the picture when the consumer wishes to return the product.
Consumers are oblivious to the cost and the extensive supply chain management involved in reverse management. The reverse logistics process should be clear to eliminate the confusion about how the product or item travels back to the source or warehouse.
It's important to understand the difference between forward/ traditional logistics and reverse logistics to absorb the supply chain involved in logistics completely. Let's see what makes them different:
The direction of product flow starts
from the supplier to the end-user or consumer.
The direction of product flow is reversed
and starts from the end-user to the
supplier or source.
The traditional supply chain management
includes order fulfillment, order pick ups
and packing shipping to the customer.
The reverse logistics in the supply chain
focuses on Product return, recalls, refurbishment, repacking, restocking,
reselling or product disposal.
More orders placed increases the profit
of the company, unlike reverse logistics.
The profit of the company takes a
hit with a greater number of returns.
Reverse logistics is required because of the return requests e-commerce companies or organizations face in their daily operations. When goods, items or products are traced back through the supply chain and to the supplier or manufacturer, the importance of reverse logistics process becomes apparent. In most cases, the consumers or end-user opt for a return because of dissatisfaction with the product.
Ideally, the company wants to retain the value of the products returned by either reselling them or disposing of them. Although reverse logistics ensures convenience for the consumers, it becomes a hassle for the e-commerce industry. Smart companies look for ways to reap the benefits of reverse logistics by utilizing the return loss to enhance the customer base by retaining them.
The reverse logistics in supply chain management follows more or less the same steps involved in the forward or traditional logistics, except the direction of the product flow. A properly streamlined process leads to the following benefits of reverse logistics process:
The importance of reverse logistics lies in the fact that, If managed properly, it could result in better profit margins. If the cost of reverse logistics is reduced with smart and efficient choices resulting in the regaining of the value of the products returned. Think of ways to resell, recycle, and reuse the products to improve the profit margin. The return process incurs the same cost involved in processing a forward logistics order. Therefore, to optimize and reap the benefits of reverse logistics, every element in reverse logistics in supply chain management should be clear to the seller. Reverse logistics is required because understanding the customer's reason(s) behind returning the product would help in eliminating the future possibility of the same, reducing the frequency of returns.
The nature of your return process and how you handle the reverse logistics in supply chain management directly impact the consumer's opinion about your brand or company. Amazon makes the return process for its customers extremely easy and convenient by projecting good customer-centric reverse logistics examples. Receiving a defective product or mismatched one is common in the e-commerce industry, but how convenient you are making it for the customers determines the customer satisfaction level. Some of the sure-shot ways to cash in this benefit of reverse logistics are offering an option to return or exchange, processing refunds quickly, providing additional discounts or coupons for the inconvenience, etc., which would enhance customer satisfaction.
Reverse logistics is required because it not only increases customer satisfaction but also leads to customer retention. Before trying out a new brand, most consumers check the return policy of the brand. The complexities involved in the same would impact the decision made in favor or against purchasing. A faster turnaround time, where the products are picked up at customers' doorsteps and are repaired, reused, or refurbished quickly, would eliminate the need to buy new products.
Reverse logistics is required because it helps to recognize the different ways to resell, reuse, recycle, repair, refurbish or dispose of the returned goods or products to minimize waste. Finding efficient ways to curb waste would impact the customer satisfaction rate, profit margin, consumer retention, and also demonstrates your social and environmental responsibility. The e-commerce waste is piling up with the booming of the e-commerce industry, and it could be smartly tackled with a streamlined process of reverse logistics.
The nature and process of reverse logistics changes with the industry, products, and quantity of the products we are dealing with. Determining how the product will flow via the supply chain from the end-user to the manufacturer, source, or the company's warehouse is dependent on the return policies set by each company. Some companies also outsource this process to concentrate more on forward logistics. [Here are some tips to ensure inventory management].
For example, the beverage industry utilizes empty tap containers and reuses them to retain their value. Giants like Amazon have different ways of dealing with different products. For instance, grocery items, certain health care products, and items classified as flammable cannot be returned through Amazon. Other returnable products and picked up at the doorstep or dropped off at the nearest addresses, as per the customer's convenience.
Now that question of what is reverse logistics and how it work have been answered, it's time to understand the reverse logistics process steps. Mainly there are five steps as shown below:
The moment a customer feels dissatisfied and decides to return the product, the return process begins. This step is very crucial in determining and validating the return request placed by the consumer. It begins with a return authorization and identifying the product's condition and includes return shipments scheduling, approving refunds or replacing the faulty/defective product.
The next step is determining the return category. Every company should have a prior idea about where the returned items or products will go. When the product arrives at an interim location, like a centralized processing center, its inspected thoroughly to identify the right return category, which is pre-sorted like repair, resell as a new product, resell as return, refurbish, or recycle.
The key idea is to keep the returns moving. After the returned items are sorted into different categories, move them to the respective location to process and initiate the process of recycling, reselling, repair, etc. Storing return items without using them and finding the right alternative to use them would do more harm than good.
Once the product passes the review and becomes eligible for repair, it is moved to the repairing area to extract its value. If the product is not repairable, try selling the working parts of the product to mitigate some amount of loss you've incurred.
Upon reviewing if the product could be recycled, send it to the respective department or destination to reuse and resell the product and make up the cost.
Reverse logistics could be handled by companies differently based on their return management and return policies and procedures (RPP). A company's return management and RPP determine how the products accounting for remanufacturing, packaging issues, delivery issues, returned items, unsold goods, etc., are handled. Let's discuss the major types of reverse logistics:
The return management manages the products that are returned to the company. It includes crucial decision-making, including whether to accept the return, how to tackle re-return requests, how to prevent return by offering store credit or other alternatives, initiating a refund, etc. Once the return is accepted, the entire process of collecting it from the consumer to the correct destination (i.e., warehouse, manufacturer or return processing center) is ensured by the returns management.
Return policy and procedures are another way to tackle the products coming through the reverse logistics supply chain. Every company has its own RPP to some extent to regulate the backward flow of the products. Some companies do not allow certain products to be returned. No matter the case, the RPP is transparent for the consumers before they purchase any goods or items.
Another type of reverse logistics is to retain the value of the product by reusing and reselling it by refurbishing, recycling, and repairing the products. Refurbished items could be sold under the tag for a lower price for the consumer's benefit after getting repaired. If the product is beyond redemption, parts of it could be sold separately or could be used to rebuild new items or products. Reusing and reselling is the ideal scenario for every business to compensate for the cost of returned items.
E-commerce companies burn a lot of cash on the packaging of the material, and these are thrown out by the consumers, increasing the waste produced. From a business and cost-cutting perspective, companies can practice efficient packaging management, for instance, reusing the packaging material of the returned items while shipping new products.
The product flow of unsold goods from the retailers to manufacturers or distributors involves supply chain management. These are returned to the manufacturers or distributors because of poor sales, delivery refusals, or inventory obsolescence.
When a product reaches the end of life (EOL), it is no longer useful or operational for the consumers or users. Attaining EOL means the product cannot serve the intended need or it has been replaced by a better version. Such products are often recycled or disposed of by the manufacturers, as they may cause environmental harm. It's just like consumers throwing away something after its expiration date.
Another cause triggering the reverse product flow of goods is a delivery failure. When delivery fails, the delivery agents return the product to sorting centers which in turn travel back to the source or point of origin. In some cases, the sorting centers identify the reason for delivery failure and try to soles that to prevent the reverse product flow.
At times companies buy products on a rental or a lease basis. Once the contract comes to an end, it is sent back to the source company through the reverse supply chain. And the source company can reuse, recycle, and redeploy the product in the market as they seem fit.
Some products sold come with a product agreement where its subjected to repair and maintenance in case some problem arises. Once the product is fixed or repaired, it is resold or sent back to the consumer.
There are 5 Rs of reverse logistics without which the supply chain management for the reverse product flow would not be possible. Companies or businesses need to streamline the following 5 Rs of reverse logistics to reduce losses and be cost-efficient.
Every business stands on the base of the products, goods, or services they offer. Without a supply chain ensuring the flow of goods from source to destination, be it B2B or B2C, no business could withstand. The relevance of traditional logistics is quite evident to business owners, consumers, manufacturers, suppliers, or distributors. However, the importance of reverse logistics is only known to the business owners, suppliers, manufacturers, or distributer than end users or consumers.
From a business point of view, reverse logistics is required because of the following:
The reverse logistics process steps are complex and extensive, requiring high-level coordination between different enterprises via different channels, efficient planning, scheduling, product inspection, refurbishing, repairing, dispatching, shipping, etc. Thus, undivided attention must be given to every element and aspect of the reverse supply chain to ensure the product flows through without any glitches.
However, some issues are bound to arise during the reverse logistics process. Some of the challenges faced in this light are pointed out below:
Streamlining and optimizing the process and steps involved in reverse logistics is all business owners or companies dream. Even if you know the 5 Rs of reverse logistics, coming up with an effective strategy is still challenging. Don't worry we are here to tell you seven effective strategies to optimize, improve and enhance the process of reverse logistics:
Evaluate and assess relevant policies impacting every aspect of the reverse product flow and find room for improvement and optimization. Carefully update and modify such policies to save time, steps, and cost of the product flow. For instance, revise and recheck your return policy, vendor contracts, product lease agreements, and procedures associated with repair or returns. Analyze the root causes for return and find a way for them being repeating. Overlooking the clause of return policies or procedures may cost your customer and your position in the market.
Finding the right supplier with high reliability, dependability, and quality assurance is like finding gold. Therefore, it is crucial to carefully pick your suppliers and form and close relationship with them. Keeping your suppliers happy and having a positive relationship with them ensure the smooth transportation, shipping, and delivery of the products and goods, especially while handling product returns.
You need the information to understand the shortcomings and obstacles of reverse logistics in supply chain management. Collect relevant data on product returns, suppliers' problems, product transportation, etc., easily understand and analyze the issues arising at consumer's ends, supplier's end, delivery agent, and others to think of a game plan to tackle it. With the right data and information, you could optimize the process of finding answers to pressing questions like why the consumers are returning the products. What confusion is prevalent in the sorting centers? Why was the delay experienced in product transportation?
Recalls are a pain to any business involved in e-commerce. If the raw materials are linked correctly to the final product and customer order, it eases the process of tracking the ingredient or raw material during the selective recall process. Instead of suffering the double cost of forward and backward product flow to replace the product or part that has been recalled, forward and backward tracing eases the process and cost of recalls and product tracing.
Return centers are where the sorting of the return goods and items takes place, i.e., which product will go to which bin (among repair, reuse, recycle, dispose, refurbish) is decided at these centers. If the return centers are centralized, it makes the sorting process and the next best step for them easier. If products are accumulated in one center, it is much easier to determine the future direction of the product flow and how to retain and regain the product's value.
Optimization cannot be achieved without regularly monitoring, evaluating, and examining the process of forward and reverse logistics and transportation. The forward and the backward supply chain and very closely connected, and any optimization introduced in either one would enhance the overall process. Integrate the logistics and the transportation process to optimize the product's transit and flow direction. For example, if the delivery agents can pick up a product while dropping off new ones on the way, saving money and trips.
One of the best ways to optimize your reverse logistics process steps is automation. You could use software and applications to digitize and automate your logistics process enabling live tracking of the product flow, and asset recovery, using business analytics to manage returns, using AI-enabled logistics software to automate the recurring and repetitive documentation involved, etc., to streamline the operations.
The ease of return policies are procedures that play major roles in determining the brand option and purchase initiations for the consumers. Therefore, strategizing and managing the process of reverse logistics is crucial. Why not use warehouse management software and easily manage reverse logistics?
There are many warehouse management softwares available in the market, like the NetSuite WMS, Sphere WMS, Oracle WMS, Fishbowl, etc. Here are how the warehouse management systems can help with reverse logistics management:
Converting returned goods or items into sale opportunities is how reverse logistics creates value. Feeding the product back to the forward or traditional supply chain through effective strategies keeping down storage and distribution costs is the key to making a profit with the product returned.
Garter Research reveals that less than half of the returned items are resold at their full price. Value is created when you find the best disposition options or utility options for the returned goods piling up. Most companies resell their returned goods at discounted rates to their consumer as refurbished items. Some products are disposed of while others are recycled, repaired, and some are functioning parts sold separately. The point is to make the most of the returned goods by using them in any way you can to create value. Depending on the sector or industry, the options on how to utilize the returned items or goods may widen.
Boosting the efficiency of the forward logistics using the reverse results in value creation. Businesses tend to separate or integrate their forward and reverse logistics. The success of combining both logistics is determined by the company's experience, return volume, and product value.
Reverse Logistics Examples
In the e-commerce industry, Amazon delivers an impeccable reverse logistics example. How does Amazon do it? Well, Amazon effectively utilizes the warehouse worker training program and standardizes the reverse logistics process steps ensuring excellent service. Amazon's return process is very simple and consumer-centric, with easy returns and product pick-up from the consumer's doorsteps. However, the journey of the product from the user to the desired source is hidden away from the consumers.
The success of Amazon logistics is majorly contributed by these points:
1 Reducing the shipping and storage cost with automation, standardized process for every fulfillment and storing centers
2 Training employees on the reverse logistics
3 Making profits through the Amazon warehouse deals reverse logistics policy enabling Amazon to resell used products by repairing or refurbishment and repackaging and make money off the unwanted or defective items
Levi Strauss, the retailer, is one of the reverse logistics examples of focusing on the factor of sustainability in the textile industry. Textile is one of the industries contributing to accumulated waste. To ensure sustainability and reduce wastage Levi Strauss repurposes jeans by recovering and reprocessing the fibers into raw materials to manufacture new jeans. This company produces repurposed jeans using the other partner companies for repurposing, which are sold at a higher price.
Reverse logistics has become increasingly crucial for any business to run giving, impacting its business strategy, competitiveness, and sustainability. The increasing convenience provided by the simple return policies and the process is now determining the consumer option, customer retention, and loyalty, the three things that are extremely important for any business. The future of reverse logistics lies in automation and warehouse management software. The main point is to minimize the disruptions from the return, especially in the e-commerce and retail industries, with high return volume. Integrating and optimizing the return process, product flow, and the process is the key to a seamless supply chain.
We hope this blog was helpful in defining reverse logistics and exposing extensive processes and steps involved in the reverse supply chain. Standardizing, optimizing, and streamlining the reverse logistics, results in profitability. The pressing issue is to regulate and control the returned volume and find a sustainable way of dealing with the returned by minimizing the profit. One of the assured features of the Amazon Business, apart from the quality items and large online product catalog, is the easy returns and shipping we offer. Why wait? Become an Amazon Business customer to be a part of one of the largest e-commerce business communities.