There is a common misconception that reverse logistics management is an unprofitable and expensive process. Many people perceive returned products as waste goods, but with an optimized and streamlined reverse logistics operation, businesses can reclaim value from their returned products. For retailers, product returns happen all the time. Customers return products, brick-and-mortar stores return products to warehouses, or apparel styles are not in season anymore and are pulled from shelves.
Today’s consumers feel entitled to return the product that they don’t need or want, which is why distribution centers and warehouses are faced with the necessity of having a well-optimized reverse logistics strategy in place. Otherwise, they wouldn’t be able to manage returned items effectively.
In the warehouse industry, the reverse logistics process is relatively new, so many companies remain unprepared to handle the high volume of returns. And with the holiday season being around the corner, you should know how to prepare for the flood of returns. So how do warehouses help with reverse logistics? To help you answer that, we will discuss the roles warehouses play in reverse logistics and returns management. We’ll also list a few of the best practices you can follow to improve the entire process.
The Goal of Reverse Logistics
The reverse logistics system involves the movement of products from the consumer (point of consumption) to the seller/manufacturer (point of origin). The purpose of the movement is either proper disposal of wastes or recapturing value.
Costs associated with returned products range from 8% to 15% of an organization’s top line, and it can be up to 2 times that of handling the original forward shipment. By optimizing the reverse logistics process in the warehouse, you will reduce the inventory levels of returned goods, minimize the time and cost associated with processing the products returned, maximize customer satisfaction, and decrease the product disposal time. When done the right way, this can be an excellent way to get increased sales, more loyal customers, and ultimately gain a competitive edge in your marketplace.
Proper Handling of Return Products in the Warehouse
- Having a dedicated area for returns
The first thing to do when optimizing a reverse logistics process is to dedicate an area for storing returned products. To handle the return process and consumer returns as efficiently as possible, the warehouse manager should consider optimizing or expanding your warehouse space. According to CBRE, about 400 million sq. ft. will be needed over the next 5 years to manage increased demand to process returns. A reverse logistics process typically requires an additional 15%-20% over the space needed for traditional logistics processes because of the unpredictable volume of returned products.
- Proactively allocating warehouse staff and space
Real estate can be expensive, while warehouses are often packed with inventory waiting to be processed, sold, or resold. When looking to optimize reverse logistics processes, warehouse managers must remember to allocate staff and space proactively to handle returns. Many managers out there think that their warehouses are stocked to full capacity, but there is roughly 80% of a warehouse sitting unused at any given time. By relying on the right technologies and data to optimize and allocate space in the warehouse, warehouse managers can simplify the last stage of the reverse supply chain.
Determining where to store items in the warehouse matters more than you might realize. It’s essential to have a strategically organized and purposeful warehouse because it offers staff the ability to maximize space while having the information about each item’s location.
- Sorting items as they arrive
After you dedicate an area for your product returns, it’s vital to categorize them as they arrive. To keep your stocks organized and make sure that each product is routed to its destination, you can use the three-bin categorization system – discard, restock, and return to supplier.
- Evaluating your performance by tracking the right KPIs
KPI stands for Key Performance Indicator, which is essentially a tool that helps you measure how successful your warehouse optimization initiatives are. These KPIs will enable you to monitor your reverse logistics process and determine how to improve your reverse logistics operations.
- Return rate. The rate at which sold products are being returned. To make the most out of this KPI, you should segment items by reason for return. This item segmentation allows warehouse managers to analyze the causes for higher return rates according to the reason for return. For example, when there’s a high return rate because of incorrect products sent to buyers, this can be an indication of problems in the warehouse picking process.
- Cost per return/cost per exchange. Several costs are involved in the returns process, including sorting, inspection, and reverse pick up. Monitor this KPI to be able to determine how much money is spent per exchanged or returned item.
- The total cost of refurbishment or repair. If the cost of refurbishment or repair for a returned product is high for this metric, it means that you need to find other methods to reduce the costs for refurbishment and repair.
- No fault found rate. The percentage of returns that have no defects is measured with the No Fault Found rate. These items are easier to put back on the shelves and sell as “good as new” or unboxed items.
- Scrap rate. Scrap rate is the percentage of returned items that need to be used as scrap or disposed of. You should aim to keep this rate to a minimum because it can be a source of high costs for your company.
- Establish strict returns policies
Customer returns will always happen. But to potentially alleviate the volume of unpredictable returns, you must have a strict policy for return. It’s important for clients of fulfillment centers and warehouses to establish a clear and strict return policy in order to have more control over the entire reverse logistics process. Such customer service policies include a shorter period for accepting returns or charging additional costs for collecting returned items. Having a strict return policy will indicate confidence in you (as the supplier), as well as help reduce the number of returns in your distribution center and warehouse. Furthermore, it will increase the likelihood of the product coming back into the warehouse in good condition.
- Adopt wearable warehouse technology and warehouse mobility solutions
When optimizing warehouse processes, technology like an advanced warehouse management system is an essential component. The use of wearables and warehouse mobility solutions might be the most appropriate solution for optimizing the reverse logistics process.
For example, the use of handheld scanners allows warehouse operators to save energy and time over manually checking each returned product. Such tech solutions decrease the probability of human error. When it comes to wearables, voice headsets are valuable because they enable hands-free communication. That leaves warehouse workers with two free hands to check and determine the condition of each returned product and improves overall warehouse safety.
Warehouse Technology and the Reverse Logistics Process
- Improving transparency into the item’s journey
The reverse logistics process begins the moment a customer decides to return a product they bought from you. As the item begins its journey to a centralized return point, warehouse staff can prepare their initial assessments with local screening while the item is on its way. Is the item damaged? Can it be repaired? Does it need to be thrown out entirely or scrapped for parts? By getting answers to these questions while tracking a product’s pickup, drop-off, and barcode information will provide transparency into the item’s journey throughout the reverse supply chain. It helps guide the shipment into the right customer’s return channel more efficiently.
- Optimizing the appraisal process
By conducting an immediate appraisal of each returned item, confirming its condition, and sharing data in real-time, you can make important decisions more quickly. To optimize this process, warehouse staff can use mobile computers, barcode scanners, and visual sorting to facilitate real-time data collection. The information collected en route can be shared with the staff on the warehouse floor next to receive the returned products. That will reduce the time that the product will stay in the reverse supply chain and increase efficiency.
This technology (especially barcode scanners) can protect manufacturers, retailers, and customers by tracking each item throughout its return journey. With information recorded in real-time, customers can rest assured knowing that the status of their return shipment is available. It prevents returned items from being lost in the process, ensuring that they will end up at their final destinations.
- Determining the best way to reclaim value
All data collected about a returned item can be used to determine the best way to reclaim its value. This will also determine where the item will be sent next for proper disposal, recycling, or reuse. Retailers and manufacturers can boost customer satisfaction by preventing the mishandling of return items, but at the same time, make sure that each of the items is effectively mined for its value.
The automated collection and sharing of data in real-time throughout the reverse supply chain keep the staff informed, enabling them to prepare for incoming items. It ensures the proper allocation and use of returned items as they re-enter the supply chain. Warehouse managers must understand how important it is to know how many items need to be repaired, recycled, resold, or disposed of. That enables the accurate ordering of products and new parts and eliminates the unnecessary expense and wasted time.
Since the rise of eCommerce, there has been a massive increase in the number of returns. The items tend to spend more time in the reverse supply chain than they do in the forward supply chain, which leads to warehousing and transportation costs, increased inventory, and reduced bottom line. Manufacturers and retailers must find ways to respond accordingly because the eCommerce market continues to grow. By implementing the right processes and tools, they can improve their customer satisfaction and ROI and make the most of their returns.
Redbird Logistics Services is a third-party logistics provider with experience in reverse and forward logistics, handling supply chain network optimization, inventory management solution, warehousing, and much more. We can help you optimize your reverse logistics solution (including your warehouse operations) and turn what was once considered a problem into a profitable opportunity. Feel free to contact us on our website!