If you think to optimize reverse logistics isn’t relevant to your business, think again. The global reverse logistics market is expected to reach $604B in the next 5 years, according to Tech HQ.
The combined growth of eCommerce sales and closure of many retail locations led to a recent massive increase in volume of returns. If managing returns and reverse logistics was difficult before, now it has become a critical operational issue that retailers, logistics providers, distributors and supply chain executives cannot ignore.
Is your business ready for returns and reverse logistics at scale? How can you optimize reverse logistics?
Why reverse logistics is important right now
To understand why reverse logistics matter, it’s important to understand what it means. Reverse logistics refers to any logistics process which reverses the common flow of raw materials or finished goods along the supply chain, from warehouse to sorting location to the end customer (whether consumer or business).
This includes delivery drivers returning to a sorting center with products from a failed delivery attempt; or a customer returning a product in store, which is then sent back to a warehouse.
A reverse logistics flow may involve consumers, retailers, logistics providers, and manufacturers, along with multiple locations. The definition of reverse logistics varies as no two use cases look the same.
The reverse logistics process falls into two categories: planned and on-demand. To optimize reverse logistics you must improve both categories.
Planned reverse logistics
Reverse logistics can be a business model in and of themselves. For example, fashion and furniture rentals include reverse logistics from the get-go, with products either picked up by a driver or technician, or mailed off in a pre-prepared returns packaging. Bottled water delivery systems come on a planned weekly or monthly basis to replace the empty water jugs with full ones, and return the empty product to be cleaned and refilled.
Planned reverse logistics can include:
- B2C retail rentals – as mentioned above, this is common in subscriptions for bottled water; fashion, furniture and appliance rental; and the online second-hand industry.
- Recycling furniture or appliances – This process occurs when consumers make a purchase, and someone brings the appliance or furniture while taking away the old items for recycling
Many of these models are fueled by eco-conscious consumers who measure their carbon footprint and value product recycling and repair. Millennials in particular are aware of the environmental impact of the products they consume. It’s one reason that they do 60% of their shopping online, and tend to rent (rather than buy) more than previous generations.
At the same time, the surge in eCommerce adoption across all age groups has given rise to more verticals adopting these business models and the reverse logistics process it entails. For these businesses, reverse logistics are planned and a primary flow in their logistics operations.
With store closures, on-demand reverse logistics are on the rise
Where most supply chains struggle is with unplanned reverse logistics – particularly returns and failed delivery attempts. These on demand movements of products go ‘against’ the standard logistics model of the relevant business, yet they are the more traditional form of reverse logistics.
4 Examples of an on-demand reverse logistics process
1. Customer product returns – a customer decides they don’t like a product and want to return it
2. Failed delivery attempt – A driver-initiated flow where for whatever reason (customer is not at home, the address is wrong, etc.) a product could not be delivered and must be returned to a sorting center (or, in the case of deliver-from-store, a retail location).
3. Damaged product returns – another driver initiated flow, where some or all items in an order are found damaged on arrival at the customer. Before the customer signs for them, the driver marks some of the products as accepted, and returns the product marked as damaged.
4. B2B returns – the return of unsold products to a distribution center or distributor, from which point manufacturers and retailers can distribute them for resale.
The problem with returns and failed delivery orders is the time it takes to resell the returned product. In the traditional logistics process, a product can reach a sorting center directly from a customer, or delivery driver, but also from a store. This returned product then sits on a shelf, waiting to be reprocessed.
Often, there is no way to know the order number, or connect the logistics provider’s order number to the retail order number, further complicating product identification. Manufacturers and retailers lose millions of dollars each year on products that sit, waiting to be sent to a location from which retailers can resell them from another point in the supply chain.
This issue always existed – even unrelated to eCommerce. But the monumental, unexpected changes in the retail market and subsequent consumer habits have also affected the volume of returns.
Stay-at-home directives in some regions, and low in-store shopping rates in others, led many retailers to close brick-and-mortar locations. Consumers flocked to shop online instead, where over three-quarters of them proceed to make impulse purchases. Ergo, the rise in online purchasing boomeranged as a rise in returns in general.
What exacerbates the returns flow is both the sheer quantity of returns coming in from digital window shoppers, and the fact that, with so many retail locations closed, customers who otherwise would have returned items in store now need to ship them back to the retailer. Suddenly, reverse logistics – both the operations and the customer experience – become much more difficult to manage successfully.
The returns experience matters as much as the delivery experience – Customer experience is a primary pain point for both planned and on demand reverse logistics. If you’re a consumer, sending a product for return can feel like throwing it into a black hole. Did the returned product reach the retailer? Will you get your money back?
A bad returns experience, like a bad delivery experience, will deter customers from purchasing from a retailer again. If Amazon’s customers experience seamless returns with convenient options (e.g. a returns driver arriving at your door) and full visibility over the returns flow, they expect that from other retailers – and their logistics providers – as well.
Operational inefficiency keeps returned products on shelves and away from reselling – Operationally, the challenges for reverse logistics are two-fold: a lack of preparedness in the supply chain, and the financial implications of that unpreparedness.
The process of transporting returned products back to a sorting center, store or warehouse is usually inefficient. And every second an order spends in transit or in the sorting center until it can be resold, is costing the retailer money.
This refers mainly to on-demand returns, but not exclusively. What happens when a technician arrives at someone’s home to install a new washing machine and remove the older one, only to find they have no room on their truck for the older model? Even with planned reverse logistics, many operational elements get complicated as trucks and routes fill up with more reverse products.
The twin pains of operational efficiency and customer experience must be addressed if you want to efficiently manage the reverse logistics flow at scale.
Are your reverse logistics ready to scale?
These steps will help you scale and optimize reverse logistics, increase your time-to-resell and improve customer satisfaction:
Digitize your reverse and returns logistics process
Supply chains are going digital for a reason. Many businesses spend millions of dollars each year on support centers. These losses can be dramatically reduced by digitizing and automating the first steps in the reverse logistics processes. Customers should be able to request returns, receive printable barcodes, and schedule a return from a retailer’s website or app, or access the returns flow from a link in a delivery message.
Increase drop density by adding on demand returns to a planned delivery run
Much as logistics providers optimize dispatching and routing to deliver more per run using fewer drivers, returns and planned reverse orders can be optimized the same way.
A good dispatching software will enable dispatchers to add ad-hoc returns orders to a planned delivery run. This way, the order can be taken to a sorting center at little to no extra cost to the provider or retailer.
Use a Driver App to Manage Failed Delivery Attempts, Damaged Goods and Compliance
If a delivery attempt fails, the driver should be able to plug the information – including the reason for failure – into the same application used for managing delivery flows. This will make it easier to process the order in the sorting center and fulfillment centers further down the flow.
Alternatively, some driver apps can plug the order back into the driver’s current run, which is then rerouted to accommodate a second delivery attempt on the same run.
Any driver application should be detailed enough to allow drivers to scan specific products from a single order as ‘for return’ – for example, if a driver wants to return a spilled carton of milk, but the other groceries are accepted by the customer.
Driver apps which manage the returns flow are particularly helpful for protecting driver health and complying with health and safety regulations. When handling potentially hazardous products for recycling or waste disposal, drivers need strict instructions on not only where to go, but also instructions on proper disposal.
These instructions must be clearly marked in the returns flow, and the driver’s actions should be visible to management in order to verify that each step in the reverse logistics flow has been followed through. If digitized, this ‘proof of disposal’, like ‘proof of delivery’, will make the reverse process for these products faster and safer.
Sync logistics provider’s order number and the retailer’s order number
Often, disparate systems have their own number for the same order. Use tools that enable you to scan an order once, and correlate order numbers from different internal systems with that order. This will strengthen the chain of custody across the supply chain, making it easier to sort the product once it enters the sorting center or goes back to a store.
Use load planning to ensure space on vehicles for return or recycling orders
When a truck comes to pick up a used appliance or other item, it’s not always clear whether there will be space on the truck – or whether an object with those specific dimensions would fit. Load planning ensures that orders (for delivery or reverse logistics) are dispatched to a truck with the available volume and space for that order.
Manage Driver and Technician Skills
Do you know if the driver you sent out to uninstall an old air conditioner has the skills necessary to remove hazardous materials?
Often, delivering and removing similar goods require different skills. It’s one thing to install a brand-new air condition or fridge, but what if it is leaking hazardous materials everywhere? You need to ensure that only drivers or technicians with the relevant skills are dispatched to remove products slated for reverse logistics.
This will reduce the risk of an unnecessary truck roll, and prevent an uncomfortable situation where a customer has to wait TWICE for the same service.
Returns processing and data analytics
The more synced your delivery and returns processes are, the faster your returns processing will be. When returned goods enter the warehouse, they should be scanned by a system that automatically links each product with its previous delivery order, showing which warehouse or store it came from, etc.
The next step is understanding where along the supply chain it will be profitable to ship that product. How much will it cost to ship to a certain store? Should it be shipped to a regional warehouse? How much will it cost to ship it to an end consumer directly from the sorting center?
To answer these questions, you’ll need complete visibility over your delivery operations as well as your reverse logistics operations: fleet costs and availability, shelf life, and store inventory, to name a few data points.
Proper order inventory management and data reporting on every node in the supply chain will lead to reduced losses and faster time to resale for returns .
Connect your reverse logistics, forward logistics and inventory management systems
Ideally, your entire supply chain should be synced. In this case, your logistics operations and transportation management system should be integrated with supporting systems – including inventory management (IMS), POS, and WMS.
Integration management systems are what you need to understand where your inventory is, and where there is a present or upcoming need for it. If you can connect multiple systems, then the reverse inventory will be visible across the supply chain the moment it is scanned in the sorting center. This will make it easier to identify where it should be transferred for reselling.
Treat the reverse customer experience as you would any other
To get customers to trust your returns operations, start by providing full transparency across the reverse logistics flow. Send customers a notification confirming that the driver has picked up the product; send one when the returned goods have reached a service center; and when the customer has been reimbursed.
If you missed a delivery, send customers a message with a link to reschedule the delivery. Lastly, make sure to include customer ratings. This shows end customers that their experience matters to you.
Optimize Reverse Logistics
The benefits of efficient, customer-centric reverse logistics will quickly be felt by retailers and logistics providers. When digitized and automated, reverse logistics operations lead to reduced losses, higher shipper and end customer satisfaction, and a significant impact on the supply chain’s bottom line.