Articles

What is Reverse Logistics

by Matt Corby, 13 May 2022

Did you know that the costs a business accrues just from returns make up 5-6% of its overall lost revenue?

That makes it crucial to find solutions that can reduce costs while still maintaining efficiency and customer satisfaction.

This is where reverse logistics comes in.

What is reverse logistics?

Reverse logistics defines all processes and strategies for dealing with and making use of returned materials. 

It is a type of supply chain management that brings the sold goods back from the customer to the provider. If a customer is unhappy with a product they’ve received, there needs to be a process in place for returns or recycling.

Some reverse logistics strategies involve the customer, requiring them to do the disposal or recycling of the product, but the majority involves the customer sending the product back to the distributor. They, in turn, send it back to the manufacturer.

It can include recycling, reclamation of raw materials, reselling items, and refurbishment. It also includes transportation and the managing and selling of surplus.

These days, reverse logistics is one of the most challenging aspects of the world of e-commerce freight logistics. When it works, reverse logistics can make sure your costs decrease and your customer satisfaction increases.

We can’t look at what reverse logistics is without also looking at how it works. So let’s take a quick look.

How it works

The goal of reverse logistics is to regain value from the materials or items sold or to dispose of them.

It is also crucial to retain customer loyalty and to transform them into repeat customers.

In general, the reverse logistics process begins at the customer level, with the product getting returned and sent back to the distribution centre. Distribution sends it back to the manufacturer, where the recovery or disposal process takes place.

Let’s look at an example. If a customer receives a defective item, they return it. The distributor then returns it to the manufacturer, who has to organise shipping, testing of the product, repairing, recycling, or other disposal.

Types of reverse logistics

There are different components to reverse logistics. They deal with return management, return policies and procedures, as well as re-manufacturing, unsold goods, delivery issues, and packaging. You can also find reverse logistics strategies for repairs and product retirement.

Return management

This component of reverse logistics handles the process of returns and of how to avoid returns. Keep in mind that a company's return policies have a huge impact on what the customer thinks of the business and whether or not they become a repeat client.

Return policies and procedures

These are the policies and procedures that customers need to know about. They should be consistent and the customer should easily be able to find them.

Re-manufacturing

This kind of reverse logistics focuses on reworking, rebuilding, or repairing products. Companies will recover parts that are still usable to manufacture other products.

Packaging Management

Packaging management deals with reusing packaging materials to avoid wastage.

Unsold products

If a product did not sell, whether because of obsolescence, poor sales, or delivery refusal, this type of reverse logistics gets the product sent back from retailers to the distributor or manufacturer. 

End-of-Life (EOL)

If a product is considered not to work anymore and no longer useful, it is EOL. Manufacturers usually dispose of these products, either recycling them or finding other ways of getting rid of them.

Failed deliveries

If a driver fails to deliver a product, it returns to the sorting centre. The sorting centre sends the product to where it came from, a distributor or manufacturer. There are some sorting centres that have the capability of understanding why the delivery failed and fixing the problem.

Leases and rentals

If a product has reached the end of its rental or lease contract, the owner of the product can choose what to do with it. It can involve recycling, remarketing, or reworking the product.

Repairs

In some instances, items that were defective can be returned to the customer at no charge once repaired.

Benefits of reverse logistics

One of the most crucial benefits that reverse logistics offers is the uninterrupted flow of goods. Companies that use these logistics are taking part in a sustainable economy where there is less waste.

It also creates trust. Customers who know they can return defective items will be more likely to purchase from the company again.

It also reduces costs because it converts items and parts that would have otherwise been considered waste into usable items again. Efficiency is another benefit it can offer, allowing customers to receive repaired items or refunds in a timely manner.

How to optimise reverse logistics

There are ways of optimising your company's reverse logistics to make them more efficient. Here are the crucial ones to improve the process.

Outsource

One of the most efficient ways of improving reverse logistics is to turn to a company that specialises in it. This can allow you to focus on your expertise while still receiving excellent logistics.

Use data

Collect data on returned items to learn why the customer returned them. It is much easier, then, to make informed changes to the design or manufacturing process.

Centralise return centres

When you centralise the returns centre, you increase efficiency. You can better sort the returned products and categorise them so that you know exactly what to do with them. Having a centre that only deals with returns can solve many of the logistics issues you may face.

Examine transportation

Examine the transportation process on a regular basis to pinpoint issues and causes of delays. Maximise efficiency by training drivers and delivery people to do a number of different tasks in one delivery. GPS tracking and software specialised to monitor deliveries can be essential.

Use automation

A great way to streamline operations is through automation. There are software options that can track deliveries and returns, while others can provide analytics to help you improve your logistics.

Turn to reverse logistics

Now that we’ve unpacked the question “what is reverse logistics”, find out how you can use these strategies to transform your business. If you want to see how to implement them, we can help. Get in touch for a free demo of our services.

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