How Does Reverse Logistics Impact Supply Chain Management?
When we think about logistics trends and practices, we tend to think about moving products from the warehouse into end-users’ hands. But in more recent years, this has become only half the story. This is when you’re trying to provide a smooth logistical flow in reverse. Planning for this aftermarket process is what’s Reverse Logistics solutions are all about.
What Is the Importance of Reverse Logistics and Supply Chains?
One way of putting it is to say that effective reverse logistics is the process that occurs once a product has reached its intended user, and is later returned to the manufacturing company. If the product should need to be returned for whatever reason, the customer will likely do so. The product would then travel in a reverse direction through the supply chain network.
More broadly, however, a reverse logistics system refers to monitoring the life-cycle of products after they’ve reached the end consumer. This can also include things like how these returned goods could potentially be reused, how they should be properly disposed of, or any other way that they can be reintegrated into secondary markets and generate value.
In most cases, it would be the manufacturer’s task to organize this reverse shipping, alongside any additional processes such as testing, repairing, recycling, or disposing of the product. But when it comes to supply chain efficiency and how reverse logistics impact it the most, we can limit ourselves to the product return from the end consumer back to the manufacturer. The same thing can apply to any unsold merchandise being sent back from a store.
The Statistics of Reverse Logistics
Over recent years, eCommerce has seen a tremendous spike in popularity. This has also led to a sharp increase in return orders. In fact, the return rate of e-sales is somewhere around 30%. In the first week of 2017 in the United States, some 5.8 million packages were returned to manufacturers, while in 2015, the total return delivery costs were around $246 billion in North America and over $600 billion worldwide.
From the customer’s perspective, when it comes to returning unwanted goods, around 62% say they want a return label with their order. Similarly, some 57% say that they want automatic refunds, while 47% want the entire returns process to be easy to follow.
If the reverse logistics process is inconvenient or overcomplicated, some 85% of e-shoppers say they will look to change retailers. On the other hand, some 95% say they would make frequent repeat purchases if the retailer has simple returns processes.
The Challenges of Reverse Logistics
The challenges of a reverse logistics program can often be complex and unpredictable. Items will come back to the retailers in various states and conditions. As such, retailers usually have little to no information about what to do with those items, whether they should be returned or become overstock.
Plenty of retailers still use manual systems in their reverse logistics management. And without any physical or operational capacity, many of the return products will either be liquidated, discarded or returned to the manufacturer. It’s also not uncommon for manufacturers to instruct their retailers to dispose of these items on-site. They do this for brand protection or cost-related reasons.
Another challenge of managing reverse logistics is to recapture as much value from the returned product as possible, aside from satisfying the customer’s needs that weren’t initially met. For this to happen and for the supply chain operations to run smoothly, there needs to be strict procedures put in place. These should include things like comprehensive reverse logistics management, return merchandise authorization, warranty claims management, as well as any remanufacturing or reconditioning processes that may apply.
Logistics service providers today can no longer afford to look at reverse logistics as just another cost of doing business. There are way too many problems generated throughout a reverse supply chain strategy, not to mention the brand reputation and profitability opportunities that they are missing out on. It’s for these reasons why your supply chain management needs to be optimized to include reverse logistics as a core element.
The good news is that streamlining your reverse logistics program will have a positive impact on your customer satisfaction and profit, as well as other benefits.
One major reason why reverse logistics is a blessing and not a curse is the cost-saving benefits that it brings to your bottom line. It’s pretty well-known that inventories cost money and everyone should look to achieve more with less. By reducing the product return, repair, and replacement times, logistics service providers can also help reduce their inventory requirements. As such, they also work on decreasing their capital tied up in inventory.
A properly optimized reverse logistics solutions can also increase asset recovery and utilization. Manufacturers and retailers can expand a product’s life or value through repair or recycling. Additionally, there are other potential hidden cost reductions in terms of transportation management systems, administration, and technical support as a result of a comprehensive reverse logistics system. The importance of freight accounting management shouldn’t be discounted either as it helps the value recovery rate.
Higher Retention and Customer Satisfaction
As we’ve seen in the statistics, the majority of customers will want some degree of return order capabilities from retailers. If the retailers don’t have these systems in place, most consumers will turn to those that do. So, if a customer had a bad experience with the product, or if the product didn’t reach the customer, it’s in your own best interest to make it right. Repairing or replacing products will go a long way in generating higher customer retention rates and boosting customer satisfaction.
Having an optimized reverse logistics process set up will often make the difference between a one-time customer and a returning one. And we all know that it’s much harder and more costly to get a new customer than customer retention. What’s more, by keeping customer satisfaction levels high, you can also profit from some word-of-mouth advertising as well.
Smaller Environmental Impact
In today’s Age of Efficiency, simply discarding returned products is a complete waste. Logistics service providers around the world are continuing to implement newer and better solutions to lower their carbon footprint and improve their eco-friendliness. Reverse logistics, as part of a comprehensive supply chain program, will work to reduce your environmental impact.
Reverse logistics will help you identify and implement various ways of reusing, reselling, or recycling products and materials that would have otherwise ended up in the landfill. This is not only an effective solution for the environment but your brand’s reputation as well.
Better Reverse Supply Chain Process Transparency
With plenty of companies, supply management success is calculated only up until the product is delivered to the end-user. Unfortunately, this doesn’t always account for all situations. With both forward and reverse logistics in place, your supply chain system will become more transparent throughout the entire network. This will not only allow you to track performance indicators across the entire life cycle of a product and identify other opportunities but also for improving reverse logistics as well as to improve inventory management.
As such, performance measurements need to be given special attention by logistics service providers during their reverse and forward supply chain process for increased productivity and supply times. It will also boost overall effectiveness, reduce cost, and supply chain risks, as well as it improves customer satisfaction.