If you’ve ever been unable to help a customer that wants to return a product to your company, then you’re already aware of the nightmare of not having a good reverse logistics strategy. Maybe your business is just starting out, and you haven’t had to deal with many returns in the past, or maybe you simply put off building up a strategy for too long and now it seems too daunting to get started. No matter where you are with your business, you could benefit considerably from having a good reverse logistics strategy. But how do you do it?
When creating a reverse logistics strategy, you will need to consider more than just transportation. You will need a good SCM system in place and good customer support agents to ensure that your customers have the best possible experience. Working with a 3PL can automate the process for you, and take the problem out of your hands.
Reverse logistics, also called aftermarket logistics, is the process of moving things backwards through the supply chain. Think of when a customer returns a product they are unhappy with, or when a manufacturer or construction company returns excess materials to the supplier. That is reverse logistics. It is an important yet often overlooked part of managing a company, and if it is handled appropriately, it can really reduce company losses.
Reverse logistics relies on the existing logistics and supply chain structure that is in place already, yet it can still pose a challenge to many companies. Just because a product has been returned and refunded does not necessarily mean that it will cost the company money.
When a customer decides to return a product, it must make its way back to the manufacturer, a warehouse, or the distributor, and then the customer should be reimbursed for the product. Usually, companies issue a refund, a replacement, or a voucher worth the value of the original purchase. Then, the returned goods have to be dealt with, either by reselling it, recycling it, or disposing of it.
The typical supply chain journey follows a series of steps. Although not every product follows each step, the steps always follow the same order.
Reverse logistics turns this entire process around, but how far back in the supply chain the product needs to return to depends on the condition in which it was received, and where. There is no need to send a product back to the manufacturer if there is nothing wrong with it.
The process for reverse logistics is as follows:
The difference between forward and reverse logistics is clear, just like it is clear when a car is moving forward or in reverse.
Forward logistics, often just called logistics, is the process of transporting something to its final destination or end customer. It involves the transportation, storage, and delivery of products to the people that purchase the product. It can also refer to the transportation of just about anything to a specific location, like military personnel and equipment to a war zone.
Reverse logistics also deals with transportation, so it isn’t a complete opposite of logistics. This kind of logistics deals with product returns, after-market transportation, and the removal of products, goods, and people from what was intended to be the final location. The departure of the military after a war deals with reverse logistics as well, since the soldiers and supplies are being removed from the area and returned home.
Forward and reverse logistics are not opposites, since they both deal with transporting goods or services. However, forwards—or regular—logistics deals with all the processes involved with getting the products and services to a customer. Reverse logistics, on the other hand, deals with the processes for getting the products and services away from a customer.
There are many reasons why reverse logistics would need to be utilized. Especially with large-scale operations, mistakes are going to happen, and things will need to be returned eventually.
Damaged or unsatisfactory items are the most common reasons for a product being returned by the customer. If a product is unusable, the customer will not want it, and many will go to great lengths to get rid of it again—especially for a refund. Usually, this is handled by the customer by bringing the products back to the store, or by shipping them back to the distributor. Regardless of the method, companies will need a plan to deal with these returns.
Sometimes, when dealing with eCommerce, customers can get sent the incorrect item. Products that are consolidated into a single package can occasionally end up with a misplaced item. Other times, entire packages can get sent to the wrong person. These things can happen, even if there are policies in place to prevent situations like that. When it does inevitably happen, the company will need to effectively sort out the problem, so all the customers involved get the correct products quickly.
If your company makes floor tiles, a construction company is more likely to purchase your product than an average person. In this case, products may be returned because the construction company overestimated how many floor tiles would be needed to finish building a house. The extra materials would need to be returned to the place of purchase, for the convenience of the customer.
Reverse logistics doesn’t only happen after reaching the final customer. Sometimes, products can go back in the supply chain earlier on in their journey. If a retailer receives a bulk package of products to sell that has been squished because of improper handling or packing, then the products will be returned to the manufacturer or producer long before it would ever reach the potential consumer. This is to ensure that only good products make it to the customer, to reduce the likelihood of returns later on.
There are many different ways that reverse logistics is utilized in the supply chain, so a solution that works in one situation may not work in a different one. However, in a lot of ways, reverse logistics relies on the structures already in place because of regular logistics.
If a pallet or box of products gets damaged as it is in transit from the manufacturer to the warehouse, the goods would likely return to the manufacturer before it even reaches the retailer or customer. Shipments get sent back mid-shipment all the time, and it is fairly easy to deal with at that point. The problems mostly arise when dealing with products that have already reached the customer and need to be sent back.
The most common application of reverse logistics is with customer returns, which causes the most trouble for companies. This is especially true of newer, smaller companies. Without any guidance, it can be easy to simply brush off the idea of customer returns and say that you won't do that despite how it could hurt your business.
Unfortunately, there is no easy way of applying a single formula to your process and calling it a day. There are many different variables to consider. Does your company have multiple channels? Will customers be able to buy goods at one store and return them to a different one? If a customer orders a product online, can they return it in a store? You will also need to consider the size, profits, and other factors of your business, as well as how to align your strategy with your mission.
Reverse logistics is often ignored by companies until it is needed, which can make the process messy and complicated. It is often given little thought, and as a result, many companies do not know how to handle it when it is needed. However, there are many common issues that can arise that would require utilizing reverse logistics—and if you aren’t prepared with a good strategy, those problems can end up costing a lot of time and revenue.
One of the most blatant examples of why reverse logistics is important is product recalls. When a product is released and is later found to have a harmful defect or contaminant, then the company must issue a recall to have the harmful products sent back to the company. When a recall is issued, the company must be prepared to receive hundreds, thousands, or millions of product returns, all coming from different places, all at the same time. This could be chaos if they haven’t devised a solid strategy for collecting, storing, examining, replacing, and disposing of the defective products.
Besides recalls, there are plenty of other reasons why reverse logistics would be needed. Some companies, like those that manufacture rechargeable batteries, may collect items that are at the end-of-life stage, to recycle the parts or appropriately dispose of the items. Although it is not as common as recalls, it is still an important consideration. If your company is going to collect the products sold after they reach the end of their life, you are going to need to consider this unique situation in your strategy.
Finally, returns can cost the company a lot of money. If reverse logistics is utilized correctly, some of that lost profit can be recovered by reselling, recycling, and refurbishing.
Having a good reverse logistics strategy is instrumental in running a successful business, but there are more benefits than just the obvious ones. By focusing on your reverse logistics strategy, you could improve profits, customer retention, sustainability, and brand reputation!
The number one benefit of utilizing a reverse logistics strategy is the potential to reclaim the value of the unwanted items. If a customer demands a refund for a faulty product, and you do not have the means of accepting returns, then you may have to refund the customer without recovering the item, essentially doubling the revenue lost in that transaction. Even if your company states that you do not issue refunds, you still lose the value of the customer, who will likely never buy from you again.
With a good reverse logistics strategy and customer returns plan, you can prevent as much loss as possible. If you offer an unhappy customer a refund and an easy process for returning the product, you are not only retaining that customer’s loyalty, but you are getting the item back. If there’s nothing wrong with it, you can still sell it at full price. Even if you have to sell it at a discount or break it apart to salvage the parts, that still minimizes the potential losses. Even a faulty item can be at least a little valuable.
No one wants to be stuck with an item that doesn’t work, or isn’t what it was advertised to be. If a customer receives a faulty, broken, or unsatisfying item, it can be extremely frustrating. If they reach out to your customer support team and are told that your company does not accept returns, or if the returns process is complicated, unfair, or just downright inconvenient, then the customer will likely never buy from you again.
Although losing one customer may not sound terrible, remember that it scales to a much larger problem. If one customer had a bad experience with your company, other customers are likely to experience the same.
Alternatively, if a customer reaches out about a bad product, and gets an immediate refund, voucher, replacement, or another reimbursement, then they are likely to remember the experience positively even though it was initially a mistake.
A convenient and fair returns process can put the customer at ease, and make them feel valued by the company. Customers that have a good experience with the company are much more likely to make repeat purchases in the future.
Not only is reverse logistics good for your company and your customers, but it can also be good for the environment if managed carefully. When a customer cannot return a bad product, then chances are the item will end up in the trash.
Obviously, this is a big problem already, but there are several everyday products that the Environmental Protection Agency (EPA) classifies as “Hazardous Materials,” such as:
If these products end up in the trash, they could cause serious damage to the environment and even public health. A good reverse logistics strategy is imperative for keeping these products out of the landfills, but it can also cut down on things like plastics, glass, and other items that could easily be recycled instead.
By accepting returns on faulty or broken products, you can ensure that the different parts can be salvaged, recycled, or disposed of properly. This can help you protect the environment, and build a reputation of sustainability for your brand.
Brand reputation is an incredibly important aspect of business. If the very name of your company strikes consumers as unreliable, unsustainable, unfriendly, or any other negative connotation, then that will tremendously harm your potential revenue. It is important to cultivate a positive reputation with consumers, so that they see your brand as one that they like and trust.
One of the best ways to leave a good impression on your consumers is with a good customer service team, especially when dealing with returns. They are the people that get direct contact with the customers, so they need to be helpful, understanding, and cheerful in order to leave a good impression.
Customer service agents are an important part of the reverse logistics process, and they will be the primary determining factor of whether your strategy is successful or not. By making the process easy, and by assisting customers with helpful information, you will build up a good reputation that will improve customer retention rates.
In order to be successful, reverse logistics requires a strong network between the manufacturers, distributors, and retailers, and a solid Supply Chain Management (SCM) system to execute it smoothly. If something goes wrong in transit, retailers need to be notified of the delay, and suppliers need to know to ship out a new shipment of goods. With a good SCM system, everyone involved in the process can be immediately notified of the problem, so that the appropriate actions can be taken to minimize losses.
Additionally, a good customer support team can improve the customer’s experience, and make them more likely to return for repeat purchases—even if the product was returned for being faulty. Customer support agents are one of the most important aspects of managing customer returns, so it is important to have at least one dedicated representative to communicate with customers. A good representative can make a world of difference, to both the customer and the business.
Once you have established strong ties of communication between different departments, your suppliers, and your customers, you can either manage returns yourself or outsource the problem if you are short on staff. If you choose to manage the reverse logistics yourself, make sure you simplify the process as much as you can for the customer, to potentially turn a negative experience into a positive perception of your brand’s timeliness and dedication to making things right.
Returns are a necessary evil when dealing with selling products. Eventually, someone will want to send something back; it’s unavoidable. How you choose to deal with this situation could substantially increase customer retention and brand reputation. Although it can be difficult, the last thing you should do is ignore unhappy customers.
There is no perfect reverse logistics strategy that will work for every company. There are just too many different types of companies that sell different products in different ways. Even the size of the company could substantially alter how the returns process operates.
With that in mind, it may seem daunting to try to create a strategy for accepting returns. However, there are a few things that apply to many different types of business. Here are some suggestions to get you started:
This all sounds complicated and difficult—and it is. Dealing with returns is often time-consuming and confusing, and can be a lot of work for what seems like a small payoff. Some companies might not have the time, space, money, or manpower to pull it off. There are many reasons why a company would neglect to focus on the returns process, despite compromising their business.
If you are in a position like that, where you cannot reasonably manage your own returns, there is still a solution! You can outsource your reverse logistics processes to a Third-Party Logistics (3PL) company, to let them handle the processes on your behalf. You could even outsource your entire warehouse operation to a 3PL, so you wouldn’t have to deal with keeping track of inventory, fulfilling orders, or accepting returns.
A 3PL is a company in the logistics industry that handles the more complicated aspects of transportation, logistics, and management on behalf of its customers, the business owners. They act as brokers to find the best carriers to move their customer’s freight, the best warehouses to store it in, and the best insurance policies to cover the freight if something bad happens.
Additionally, many 3PL companies offer freight brokerage or transportation consulting, to help get through the daunting paperwork associated with moving goods across state—and international—borders.
Working with a 3PL can also help you with your reverse logistics, optimize your returns process, and give you and your customers the best experience possible when dealing with frustrating recalls and returns. If you struggle to keep up with your reverse logistics processes, or if you just don’t want to have to worry about it anymore, then a 3PL could be the solution you need.
It’s no secret that accepting returns is a tiresome, expensive ordeal. It is great for retaining customer loyalty, but it can cost the company a lot of money. You will never profit off of a returns policy, since it will always cost to ship, store, and repair goods that have been sent back. That is an undeniable fact. You cannot make more money than you originally did off the product by simply selling it again.
It is not about making a profit, it is about cutting costs.
A good reverse logistics strategy can significantly decrease losses. On average, companies that accept returns but do not have a good reverse logistics strategy lose around 10% or more of their potential profits from dealing with customer returns and mismanaging product reclaiming. By optimizing the way returns are handled, companies can reduce those losses down to a mere 1%, gaining back a significant amount of lost revenue.
Companies still lose money on returns, no matter how optimized their reverse logistics process is. However, the benefits of utilizing a streamlined returns strategy far outweigh the costs.
If you already have a reverse logistics strategy, but you aren’t seeing the sort of optimized performance that you were hoping for, then you will need to rethink your plan. The point of a good reverse logistics strategy is to reduce costs and retain customer loyalty. If your strategy does not improve cost savings or customer retention, then it is not well-optimized. However, merely having a strategy at all is better than not, and you can still make improvements to it over time.
If you’re looking to improve your strategy, the first thing you will need to do is understand the plan you already have in place. What is working for it, and what is not? Identify the points that you would like to improve on, and focus on those. Using business analytics is a great way to find the aspects of the strategy that are falling short, and where improvements can be made.
Secondly, it is never a bad idea to look to your competitors for inspiration. Try to determine what they are doing successfully, and decide if it is worth it to try to emulate their strategy. Obviously, no one strategy will work perfectly for every company, but experimenting can help you determine what direction to head in for the future.
Once you have determined some new strategies that you want to try out, make sure you set goals and metrics to measure the success of the experiment. If it does not do as well as your existing strategy, then you will know to move on to a different plan.
Try to imagine how the journey looks for the customer. Examine the process of returning an item, dealing with customer support, and trying to get a replacement or refund. How is the experience for you as a customer, and how can it be improved? How fast is the process, and how long would you be willing to wait if you were already frustrated?
These factors are all important to consider, but in the end, if it still isn’t what you want it to be, you should consider outsourcing fulfillment and logistics to a 3PL. The stress of optimizing your process would disappear, and you could rest easy knowing that your company would be taken care of by experienced supply chain professionals.
The biggest disadvantage of creating and maintaining a good reverse logistics plan is that it is difficult. It is hard to manage, factors are always changing, and return rates change seasonally so it frequently demands different levels of management and engagement throughout the year.
Reverse logistics is complicated, and there are many different factors that influence success, like the time of year, the level of customer service, the weather, freight transportation, and warehouse management, to name just a few. That’s a lot to keep track of, especially on top of all the other tasks associated with running a business.
In addition to being difficult, it can also be tremendously time-consuming. Taking the time to plan everything out and set up an optimized strategy is definitely worth it, but it takes much more time than simply deciding not to accept returns at all. If you can put in the work, it will pay off.
If you’re still not sure about how to create a reverse logistics strategy, reach out to us at R+L Global Logistics. We offer affordable consulting services for all types of businesses and can help you formulate the best reverse logistics plan for your business. We also offer complete supply chain solutions, from warehousing and transportation to reverse logistics and customs brokerage. No matter what you need, we have what it takes to help. Call today!
Reach out to us and we’ll answer your reverse logistics strategy questions and how we can help with your distribution needs.