Defining the term reverse logistics
The regular supply chain flows from the manufacturer all the way to the consumer.
At times, it is necessary to reverse this process to return, repair, dispose, or recycle products as a result of damage, recalls, excess inventory, restocking, salvaging, failed deliveries, delivery refusal, etc. to secure sustainable business practices and increase customer loyalty and repeat business.
Sometimes there are processes involved where the end consumer leases the product and returns it at the end of the contract and the leasing company is responsible for the final disposal of the product, including recycling, refurbishing or resale.
At other times, resources like equipment or raw materials need to be redeployed on another project or used for a different purpose than what was originally intended and the stock flow reverses.
This reverse supply chain process from consumer to distributor, or from the distributor to the manufacturer, and final disposition of products, is known as reverse logistics and it needs to be managed as carefully as the normal supply chain flow, as part of warehouse management, because of the enormity and complexity of the processes involved.
The reverse logistics process is paired with a circular economy, defined by the Oxford Dictionary as an “economic system based on the reuse and regeneration of materials or products, especially as a means of continuing production in a sustainable or environmentally friendly way.” This means reverse logistics create secondary business opportunities and cash flow prospects.
Why is reverse logistics important?
Worldwide, it is estimated that the value of returned goods and end-of-life products exceeds 1 trillion US dollars, highlighting the enormity and complexity of that business sector. Properly managing reverse logistics through a solid reverse logistics plan, creates a huge likelihood of regaining value from returned or obsolete products and reducing the potential for loss. This figure does not even include the value of unsold goods and the value of customer satisfaction.
Without proper returns management and cost-effective flow of inventory, the cost of reverse product flow and the return process can be up to nine times that of forward flow in terms of handling, transportation, and replacement. An inadequate reverse logistics process could also be a reason for poor sales.
An effective reverse logistics system creates value by turning waste into sales and building increasing customer loyalty. Businesses that use sophisticated software and automated processes to effectively manage the reverse supply chain will build consumer trust, minimise losses and reduce storage and distribution costs.
With this said and done, reverse logistics is not just about reclaiming value from defective or unwanted products, it can actually expand business operations or interests and impact positively on the company’s reputation and bottom line. This is because reverse logistics enhances product support and creates new business opportunities for repair and refurbishment, with a secondary income stream. Larger companies and those in the service and manufacturing industries may choose to outsource repairs and refurbishment, thereby strengthening the secondary market.
For manufacturers, proper returns management and fault analysis can lead to improved design and extracting even greater value from improved products.
What is the solution to the challenge of reverse logistics?
Outsourcing reverse logistics can increase the efficiency of your business in many ways.
All-inclusive cloud-based modular software solutions such as ProSKU provide all the tools and resources to transform all aspects of your operations and help you achieve new levels of success, with both supply chain management and optimized reverse logistics and warehouse management.
Integrated supply chain management for traditional logistics and reverse logistics will enhance the efficient flow of inventory for both forward logistics and outbound logistics processes.
Contact us for a demo or introductory chat online, call 0800 170 1161, or mail email@example.com.
Understanding the complex nature of a reverse logistics strategy
The reverse logistics processes go through multiple stages and vary in cyclical and seasonal phases, such as Christmas, Black Friday, holiday periods, new releases, stock updates, etc. There may also be internal returns of products, for a variety of reasons.
Reverse logistics vary across different industries, and there are different economic incentives for improving reverse logistics management. Managers need to carefully set up the correct infrastructure, policies and procedures to maximise bi-directional flow. Some software can handle one or the other, while software like ProSKU can be fully integrated on a single, or compatible, platform with all processes and systems in the company.
A few types of reverse logistics:
There is not a single industry which does not need both inbound and outbound logistics. Reverse logistics refers to a reverse supply chain and returns management to complete both sides of business administration.
This is an incomplete list to illustrate different challenges in reverse logistics processes, but at the same time, many of these challenges extend across the boundaries of other industries and recognising them could help you develop a fully integrated logistics strategy that leads to customer satisfaction and customer retention.
In the food industry, reverse logistics involves managing returns of containers, packaging materials, and pallets; food spoilage and tampered products, etc.
Responsible waste disposal is also one of their huge challenges that should be managed as part of reverse logistics.
The construction industry has to deal with environmental factors, waste disposal and cleaning up, either themselves or outside logistics providers.
Optimized reverse logistics assist in redeploying resources and salvaged products on other sites to reduce waste and maximise profitability.
The beverage industry has to recapture value from used containers and caps, having to manage collection, shipment, cleaning, and reusing them.
The electronics industry has permeated every sphere of life and managing e-waste is a major challenge, but at the same time, there is huge potential for remanufactured, refurbished and renewable devices.
Car rental industry
Car rental and leasing companies implement reverse logistics throughout the life of the vehicles in terms of maintenance, repairs and cleaning.
Renting and returning vehicles, collection points, and a host of other processes have to be managed.
When the vehicle reaches its end-of-life cycle, the company needs to have a reverse logistics management plan in place to handle remarketing, redeployment or recycling.
The service industry, including hospitality, healthcare, and education, is faced with enormous challenges that threaten their growth potential and profitability, necessitating waste reduction and optimising resources.
These businesses also require a lean supply chain and cost-effective measures for proper disposal of waste, in particular hazardous waste, that will meet environmental sustainability standards and regulations.
A critical component of manufacturing is dekitting. This involves the reverse flow of parts and components from the floor when assembly kits have to be dismantled and returned to stores.
There are also times when parts are cannibalised from lower-priority kits to complete a higher-priority project on schedule.
Proper handling and packaging management are important operations related to outbound and reverse logistics processes required for reliable inventory management.
A meaningful reverse logistics strategy plays a crucial role in the safe and proper disposal of expired, damaged, returned, or recalled pharmaceuticals.
Both manufacturers, distribution centres, and retail businesses in the pharmaceutical industry are bound by extremely strict environmental and health standards and regulations for the handling of raw materials in process inventory, and managing their reverse logistics processes to avoid drugs causing environmental pollution or entering waterways.
Worldwide, the military arguably has the largest reverse logistics system of any industry and has been at it for centuries.
The army, navy and air force routinely need to dispose of dangerous weapons or materials to safeguard the environment and population.
Damaged or unserviceable equipment can be salvaged or recycled.
The economies of scale are enormous, calling for very high levels of both traditional logistics and reverse logistics processes.
The nuclear industry faces perhaps the greatest challenges in environmental sustainability, both during their operational periods, upgrading phases and through decommissioning and dismantling, making a failsafe reverse logistics process imperative.
This is an incredibly sophisticated and high-tech industry, requiring the most sophisticated reverse logistics plan, driven by the most sophisticated software.
All other industries
In almost any industry, some companies recover interchangeable and reusable components or materials, creating enormous possibilities to regain value and increase profitability through various types of reverse logistics.
Each of these examples, in addition to the inexhaustible number of industries not mentioned, poses unique challenges and different processes that need to be managed and sophisticated warehouse management software solutions like ProSKU optimise the warehouse management processes, optimize reverse logistics, and heighten productivity and profitability.
The objectives of reverse logistics
Customers judge a business both by the quality of its service and products and by its return policies and flow.
Someone cleverly called it the “Five Rs of reverse logistics”: Returns, reselling, repairs, repackaging and recycling. Of course, each of the five R’s involves several other reverse logistics processes.
Reverse logistics has as its aim to recoup value, optimise business, and build customer loyalty. This is especially true of eCommerce, where at least 30% of sales are returned, compared to 10% of in-store sales.
How does reverse logistics work?
Some businesses separate their forward and reverse logistics, return process, and reverse supply chain management, while others combine their returns process, and reverse distribution, to reduce costs and cost-effective flow, depending on circumstances, and the value and volume of returns.
Here is an example of the steps followed in the reverse logistics process for returns:
Similar policies and procedures are to be developed for leases, rentals, unsold goods, end-of-life products, etc. All these activities should be planned for, be fast, controllable, measurable, fully visible, and straightforward.
Determine and communicate your return policy
Clearly inform clients, business partners and staff. In drawing up a policy, also consider how customised items will be handled.
Determine the root cause of returns and attempt to minimise them.
Receive notification of intended returns and authorise them if within the bounds of policy, otherwise effectively communicate with the client to explain reasons for declining a return.
Implement shipping or collection of returned items. Sometimes it is cheaper and more efficient to simply refund the item and let the customer keep it and dispose of it themselves.
Some companies centralise returns, while others handle them by department.
Log receipt of the item from the client.
Inspect items to determine condition and classify accordingly.
Process the return and identify measures to reduce returns and missed opportunities. Key metrics will include:
Volume of returned products.
Value of returned items.
Percentage of turnover and profit and recouped value.
Reasons for returns. Implement measures to reduce returns.
Condition of returned goods. This will determine what happens to the returned goods.
Impact on inventory buildup and storage requirements.
Determine and sort into the correct return category and action further processes:
Document and track procedures for future reference and business decisions.
Replacement item processed and sent to customer and/or,
Refund to client processed and communicated, and/or
Put undamaged items back in stock to resell as new or,
Return damaged items to the supplier and obtain a replacement or refund, or.
Repair/ refurbishment of the returned item.
Move it to the repair area or send it to the supplier for repair.
Track repairs or receipts from suppliers.
Return the repaired item to the client.
Schedule communication, and shipping, and.
Determine the resale value and refurbished category and,
Put back in stock or remove from inventory and sell via another channel, or
Enter into an agreement with a company that refurbishes and sells faulty goods.
Recycle items that cannot be repaired or resold:
Reuse parts and/or
Dispose of items that cannot be recycled.
Follow the procedure in your policy.
Remove from inventory and
Safe destruction or disposal.