Many tend to overlook reverse logistics in their business strategy, but they should now be thinking twice about deprioritizing this process. According to Tech HQ, the reverse logistics market worldwide is likely to reach $604 billion by 2025 as more brick-and-mortar retail outlets close while e-commerce sales continue to grow. Reverse logistics is an issue that distributors, retailers, supply chain executives, and logistics providers must pay attention to. Businesses should be gearing up for massive returns and reverse logistics.
What is Reverse Logistics?
Reverse logistics is about any process in logistics that reverses the usual flow of finished goods or raw materials along the supply chain. It includes customers returning products to the store or drivers bringing back products to the sorting center due to a failed delivery attempt.
The flow of reverse logistics may include retailers, consumers, manufacturers, and logistics providers, as well as multiple locations.
The reverse logistics process is categorized into two areas, namely on-demand and planned.
Understanding Planned Reverse Logistics
As its name suggests, planned reverse logistics pertains to logistics processes that are part of the business operations, since reverse logistics can be a business model in itself.
For example, subscription drinking water companies require the return of the empty water jugs so they can be cleaned and replaced with jugs filled with water on a weekly or monthly basis. Similarly, rental apparel or furniture companies have reverse logistics as part of their operations since products are sent off, picked up, or mailed off in already-prepared return packaging.
Planned reverse logistics can be part of businesses that are engaged in the following:
B2C retail rentals - As the example mentioned above, some businesses engaged in rentals such as furniture, fashion, and even water delivery subscriptions have planned reverse logistics inherent in their operations.
Recycling appliances, furniture, or equipment - Planned reverse logistics are part of recycling businesses that have customers making purchases and sending their old, used appliances, furniture, or equipment for recycling.
Many businesses adopt planned reverse logistics in response to consumers' demand for environmentally responsible and sustainable practices. More customers, particularly millennials, are becoming eco-conscious. A study showed that some 60 percent of millennials prefer to rent than buy.
What is On-Demand Reverse Logistics?
On-demand reverse logistics is the more traditional kind of reverse logistics and pertains to the movements of products that go against the usual logistics workflows of businesses such as failed delivery attempts and product returns.
There are several examples of the on-demand reverse logistics process
Product returns due to damage - Some or all items in the order are discovered as damaged upon delivery to the customer. The driver will return the damaged items but will mark the other ones as accepted by the customer.
Customer product returns - Some consumers return products after deciding they no longer want or need them.
Failed delivery - Some deliveries fail for several reasons, such as an incorrect address or absence or unavailability of customers. The product that was not delivered will be returned to either the store or the sorting center.
B2B returns - Unsold products are returned to the distributor or distribution centers so retailers and manufacturers can resell them.
There are many challenges involving failed order deliveries and returns. For one, it's difficult and time-consuming to resell returned goods in traditional logistics workflows. The returned product has to be sent back to the sorting center or retail outlet and will sit on the shelf until they are reprocessed.
Plus, product identification of returned goods is complex given the lack of a mechanism in identifying the order number or the logistics provider of the returned item. Retailers and manufacturers lose a substantial amount every year on returned products that are left on shelves, waiting to be sent to a new location for reselling.
The problems with product returns are nothing new. It's a challenge that businesses have been dealing with even before the growth of e-commerce. However, there are higher volumes of returned products these days because more consumers buy online.
Shelter-at-home orders in many regions this past year have led to less in-store buying, which in turn has forced some businesses to close their physical outlets. Consumers have turned to online shopping, where studies show that three-fourths of shoppers make impulsive buys. As such, the increase in online shoppers has also led to higher product return volumes.
The high return rate of products when many retail locations are closed exacerbates the return flow since the goods have to be shipped back to the retailer. Reverse logistics now overburdens business operations, thus affecting both cash flows and customer experience negatively.
Scaling Up Reverse Logistics
The best way to manage the reverse logistics flow is to scale it up so businesses can increase their time to resell and achieve high customer satisfaction.
Much like with other supply chain challenges, digitization and automation are necessary to scale reverse logistics operations. These two make the returns process—including requesting and scheduling returns, receiving printable bar-codes, and accessing the return status—much easier for the customer.
Here's how digitization and automation address the many pain points of reverse logistics.
Automatic dispatch route planning
Dynamic dispatch route planning solutions' uses go beyond deliveries, as businesses can also include on-demand returns when planning for the drivers' daily route. Doing so will allow for the returned goods to be brought back to the sorting center quickly at little to no cost to the retailer or manufacturer.
Plus, dispatch management solutions also make the load planning of vehicles more efficient. Load planning is crucial in scaling reverse logistics because it ensures that dispatched vehicles have the space needed to transport the returned goods, especially big items like appliances and furniture.
Driver mobile apps that are capable of plugging information such as delivery reason failure in the same system for managing delivery flows will make it easier for the business to process returned orders in fulfillment and sorting centers.
Order inventory management
Fast return processing is possible with proper inventory management systems capable of automatically linking every product with its delivery order history.
Why Integration is Necessary
Disparate systems create inefficiencies in any logistics operations. It's ideal for businesses to integrate transportation management systems with other supporting systems such as POS, inventory management, and WMS. Integration of systems offers better visibility of the supply chain management and helps lay the groundwork for more burdensome reverse logistics workflows.
Ignoring Reverse Logistics Has its Consequences
There are financial consequences when products for return remain unattended for so long. Every second a good spend in a sorting center or in transit means a longer period of waiting before the retailer can resell the goods or complete the order process as with the case of planned reverse logistics.
Businesses should keep in mind that providing a smooth and fast returns process is just as important as offering a great delivery service to consumers. A tedious return process is an ingredient to low customer satisfaction scores and hence low repeat business. Ignoring or neglecting reverse logistics will hurt a business’ profitability over time.