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As a business owner, you are likely to be familiar with the concept of goods transportation for your business. Question is, are you also familiar with the concept of reverse logistics? If your customers are returning or exchanging products (e.g., damaged, wrong deliveries, repair or maintenance required, failed deliveries, etc.) then your business is already involved in the goods returns management process. let’s learn more about it.
In this article, we will provide:
- An overview of what is reverse logistics and why it is required
- Role of reverse logistics in supply chain management (SCM)
- Its impact on overall business operations
- How to improve the returns and refund process
What is reverse logistics?
Let us start by understanding the meaning of reverse logistics.
We can define reverse logistics as the process where goods when returned by customers or end-users are picked up and moved from their destination, back to the warehouses and/or manufacturer for repair, disposal, refurbishing, resale, recall, reuse, recycle or any other.
Reverse logistics example:
Consider a typical eCommerce order scenario: You place an online order for a white, full-sleeve shirt in large (L) size. On receiving the delivery, any of the following scenarios can happen:
- You receive the exact product and keep it
- You receive a wrong product (e.g., white, half-sleeve shirt) and decide to return it
- You receive the right product with issues (e.g., wrong size) and decide to exchange it
- You receive a defective or damaged product (e.g., stain marks) and decide to return and get a refund for it
In the last three scenarios as a customer, you are deciding to return the good to the manufacturer/seller. These are all scenarios of reverse logistics in supply chain management (SCM), where the customer returns the goods due to defect or issues with the product.
In all these scenarios, there are logistics and transportation services, warehousing, and additional costs involved – which if left unchecked can gradually lead to larger challenges for the business.
Reverse logistics in Supply Chain Management
eCommerce business has been pivotal in shaping how consumers behave online – right from their buying to retuning behaviours. Leading eCommerce players in India, such as Amazon, Flipkart, Myntra, Nykaa, Lenskart, FirstCry etc. have made the returns and refund process so easy and effortless that more consumers are confident to buy and return goods online. The pandemic moreover gave rise to real need for online shopping, which accelerated the culture of returns.
For supply chain, returns management is a costly and complex affair. It not only requires efficient collection, replacement and/or refunds, but also identify opportunities for resale, reuse, recycle, and dispose. Warehouse automation, inventory management solutions, TMS and other technology integration in logistics systems have been beneficial, as it makes the process easy to track and account for. However, there are other challenges in reverse logistics management, (e.g., labour, sustainability, environmental impact, regulatory compliances) that makes it difficult for many businesses to manage it effectively.
To understand the role of reverse logistics in the supply chain value system, let us take a step back and look at the process of reverse logistics and how it can add value to business.
How the returns and refunds process works
Reverse logistics involves going backwards into the logistics process – i.e., goods being returned by the consumer to the seller/manufacturer and back into the supply chain for creating renewed value.
If you are a regular eCommerce platform user, the returns and refunds process is fairly easy-to-understand:
How reverse logistics work:
- Receive a defective/wrong/dissatisfactory product
- Place a return/exchange request
- Update details (i.e., size, T&C, date etc.)
- Select a refund mode if applicable
- Confirm request
On the scheduled date, an agent will visit you, collect the parcel (and provide the new parcel in case of exchange), check tags and details, and within 5-7 working days your refund amount will be returned (if applicable). Note – Ensure that shipping and billing addresses are correct for exchange, returns and refunds.
This part is fairly simple and straightforward from a consumer’s point of view. In the backend, there is a much larger and complex process at play, especially when it comes to the right method of reuse or disposal of the returned product.
For instance, once the good (e.g., the white shirt) is returned to the manufacturer’s warehouse, there are several scenarios and activities that can be at play:
- Returns: If the product is undamaged, it can be resold (e.g., in cases of size issues)
- Repair: If the product is slightly defective, it can be repaired and resold at factory outlets at reduced rates
- Unsold: If the product is unsold, it can be donated (i.e., losses for business) or recycled (e.g., sustainability clothing) or even disposed in an environmentally friendly manner
In case of electronic items (e.g., mobile phones, television, headphones, etc.), there can be:
- Repair/Maintenance: In case of items/machinery on lease/rent
- Refurbishing: Renovate, repair, and rebuild to give it a fresh look and feel, and reuse
- Disposal: Discard products that have reached end-of-life (and cannot be fixed and reused) in an environmentally compliant manner
All these are activities in reverse logistics management that are undertaken to ensure that goods once retuned are managed efficiently. In most of these cases, there are resource management, transportation, packaging, quality checks and many other processes involved that may cause challenges and incur additional costs for the business.
Challenges of reverse logistics
Reverse logistics is not always be profitable for the business. In India, logistics costs are already higher than the global average (i.e., 14% as against 7-8% global benchmark). Returning goods therefore can often lead to losses instead of adding value to the entire value chain. It also requires relevant technology to track the returns management process, make storage space, and strategize how to resell, recycle, repair, or reuse goods returned for overall value creation.
Some of the common problems faced include:
- Managing customer expectations and pickup timelines: Quick deliver is a priority for all (B2B and B2C) and businesses are trying to envision new strategies and transportation routes and systems to bring efficiency and keep customers happy. This naturally translates to efficiency in returns management systems that includes maintaining timelines for pickup, exchange, and refunds.
- Planning storage, reuse, and disposal: Receiving goods returned is one part of the reverse logistics process. The next part involves quality inspection of goods returned, planning warehouse storage, and strategizing what to do next. For instance, in the previously used example, if the white shirt is returned unused for size issues, it can be re-packed, and sold. If you are working with third-party logistics partners in India, 3P warehouses can come handy in such cases. However, if the shirt was defective, an alternative strategy for reselling or disposal had to be designed.
- Controlling costs and addition value: Whether it is for repair or maintenance, or returns and refunds, there are costs involved in every stage. If unplanned, this can lead to rising operational costs, that will result in loss of revenue and profits.
The role of reverse logistics in SCM is immense as it aims to add value to the product’s entire lifecycle, i.e., find new value even after it is returned or discarded. The actions collectively contribute towards building a more informed, conscious, and sustainable economy, that helps to reduce waste and keep businesses more compliant.
Impact on business operations
The purpose of reverse logistics is to create value – value from goods that have lived the lifespan of its original value. This is not a new concept. In fact, resale and reuse has been functional since eons. For instance, pre-used cards, second-hand books, toys or clothes etc. In each of these cases there is a reverse logistics process in play, and the goal is to create new value for the product.
Most businesses as such use elements of returns management across outbound and inbound reverse logistics. For instance, when raw materials are retuned from the warehouses for quality or any other issue, it calls for further action on whether to recycle it, reuse it, or dispose of it.
As a business owner, how you manage goods returns is a strategic business decision. For instance, for businesses dealing with few returns, this can be managed in-house. However, with businesses dealing with large volumes, or pan India locations, it is advisable to partner with 3PL providers companies to manage returns.
Advantages of reverse logistics
It is clear that reverse logistics has its benefits and place in overall business operations. Based on your current logistics management strategy, resources, budgets, and business growth plans, it is recommended to build a returns management strategy to add value to your logistics ecosystem.
- Customer satisfaction and loyalty: A simple and easy returns policy, pickup and exchange, is likely to earn your business customer loyalty and repeat orders.
- Brand value: Many consumers today are environmentally conscious and associate better with brands that have a well-defined recycling, reuse, and packaging system that leads to sustainability and less waste.
- Increase revenue and profits: It’s true that managing reverse logistics and returns is expensive, but when done optimally, resale and reuse of goods can lead to additional revenue streams for businesses and increase overall profits.
- Get relevant data: Data from reverse logistics using web analytics can also help businesses with valuable insights on which products are performing, what’s getting returned, what’s in stock, etc. to plan future strategies.
- Create value at every stage: Whether it is creating additional revenue through resale, or repairing goods for reuse, or simplifying returns and adding to customer satisfaction, or reducing waste, reverse logistics can create value at every stage of the logistics and supply chain process.
How to improve reverse logistics
Listed below are some of the activities that businesses can put into play to improve reverse logistics operations:
- Have a detailed and easy-to-understand returns/refund policy in place for customers and vendors: It is essential to detail out every minor aspect in the returns policy for customers and vendors. Details like terms and conditions for returns/refunds, timelines, quality, vendor/customer obligation, payment timelines, packaging etc. should be mentioned. Ensure all relevant marketing collaterals are updated accordingly.
- Provide accurate product details to avoid confusion and misdirected purchases: It is also necessary for businesses to provide accurate product specifications and details online. This will help consumers to make informed purchases, reducing the need for returns and exchanges.
- Use technology and data to optimise and automate the process: Logistics and supply chain management today is a highly data-centric function. Software solutions and new age technology can streamline the process, reduce time and effort required and errors made, and bring efficiency. It can also track the status of deliveries, identity cause of returns (e.g., product quality) and help to fix the root cause.
- Identify improvement opportunities at every stage: An ongoing practice should be to identify improvement areas across the logistics and supply chain cycle. For instance, working with local suppliers can reduce raw material transportation time and expenses. Ensure that you have clear business communication documents to intimate relevant teams on any key improvement updates.
For smaller businesses it is recommended to work with logistics service providers that have the means, experience, and resources to manage returns efficiently. Since ease of returns can directly affect customer satisfaction, it’s a smart move to let experts manage the same, when in-house expertise is lacking.
When finding a logistics partner for your business, ensure to find one who can provide affordable logistics services. Try Logistics on Tata nexarc and get quotes from top logistics companies in India for your logistics and transportation needs.
