What is reverse logistics?
Reverse logistics encompasses all the logistics operations involved in returning, inspecting, and processing products shipped from a consumer, a company, or a retail outlet, to the distributor’s or manufacturer’s logistics warehouses. It therefore represents conventional logistics flows but in reverse, since the items return from the point of consumption (or sale) to the warehouse, where they’re exchanged, refunded, reused, repaired, refurbished, recycled and, if their condition allows, resold.
Reverse logistics has been around for some time. But managing the associated flows has become a much more complex task in recent years under the combined influence of the growth of e-commerce, much faster collection and promotion turnover rates and the shrinking of retail floor space (returns management), the circular economy (collection and resale of second-hand products), and a growing body of regulations aimed at reducing harmful waste.
The different types of reverse logistics flows
The growth of e-commerce has seen the number of returned products increase at a rapid pace. Allowing customers to return items easily and free of charge is now part of the sales pitch for marketplaces, e-commerce pure players, and distributors. Provided that the returned product is in good condition—and passes checks for counterfeiting—it needs to be returned to stock as quickly as possible so it can be resold. Parcels that are returned to the warehouse because of transport-related issues—such as deliveries sent to the wrong address, or that couldn’t be delivered because the customer wasn’t at home—have to be relabeled and reshipped.
Another aspect of returns management relates to unsold items in physical stores, which involve specific logistics flows, not least because of the sheer volumes involved.
Logistics for second-hand products and the circular economy
The circular economy, which aims to reduce waste and extend the lifespan of products through reuse and recycling, is also driving the growth of reverse logistics. More and more distributors are selling second-hand products via dedicated spaces in their stores and on their e-commerce platforms, which implies managing flows of recovered used products for subsequent refurbishment and resale, or recycling.
Reverse logistics linked to regulatory requirements
Regulatory requirements, such as rules relating to the handling of waste electrical and electronic equipment (WEEE), oblige companies and distributors to recover certain products for processing by a specialized operator. This type of reverse logistics involves grouping retrieved items for bulk shipment to approved processors.
Reverse logistics for containers
In some sectors and industries, the containers used to deliver products—such as pallets, boxes, and packaging—are returned to the point of origin for subsequent reuse. In cases like these, the challenge is to optimize the process of retrieving the empty containers and returning them to distribution or production centers so they can be used again.
The main challenges of reverse logistics
Reverse logistics poses a number of specific challenges, some of which are detailed below:
- Variable volumes: return flows are irregular and often unpredictable, which makes it hard to plan the necessary resources.
- Condition and quality of returned products: all returns need to be checked manually to confirm whether the customer has returned the right product, and whether the product and packaging are intact, as well as to guard against counterfeiting.
- High processing costs: processing returns involves receiving incoming goods, as well as inspecting, sorting, repackaging, refurbishing, recycling, and more—all of which generates a higher cost per unit.
- Customer satisfaction: slow and badly organized returns management leads to a poor customer experience.
- Unauthorized returns: sometimes, products are returned without notice. It’s important to keep instances like these to a minimum, since these returns are harder and more time-consuming to process.
- Stock management: the unpredictable nature of returns makes it harder to maintain optimal stock levels.
- Valuation: estimating the value of returned products for subsequent refurbishment and resale on the second-hand market is a complex task.
Implementing efficient reverse logistics
Reverse logistics: best practices and concrete examples
Based on our experience, customers who implement efficient reverse logistics processes—especially for managing e-commerce returns—typically apply the best practices detailed below.
Reducing shipping errors
- They link their online sales platform to a system that automatically checks and corrects mailing addresses to avoid deliveries being sent to the wrong address.
Applying a returns policy
- They have a clear returns policy, which sets out the relevant deadlines, terms and conditions, and procedures.
- They make the returns process as easy as possible for their customers, for instance by supplying a document for inclusion in the parcel, preprinted or print-at-home return labels, or prepaid packaging.
Optimizing reverse logistics processes
- They have standardized, documented returns management procedures—spanning inspection, sorting, reconciliation with orders, product valuation, and everything in between—to make the process as efficient and uniform as possible.
- They have a dedicated, trained team responsible for inspecting and sorting returned products, as well as for restocking, repairing, and reselling refurbished or second-hand items, and for recycling or scrapping products that can’t be resold. Or, alternatively, they outsource their reverse logistics to a logistics provider.
- They have processes in place for managing exceptions, such as damaged products, returns received beyond the deadline, or cases where the original order or customer can’t be identified.
- They have configured their WMS software to manage reverse logistics flows, and use the latest recognition technologies to identify returned products.
- They work in partnership with their suppliers, distributors, repairers, and recyclers to continuously improve reverse logistics processes.
Managing stock efficiently
- They have real-time visibility of stock levels across all their logistics sites (warehouses, stores, factories, and more).
- They incorporate reverse logistics into their general stock management process in order to avoid restocking products that are “pending return”, to limit overstocking, and to improve stock rotation. Some of these customers don’t place products “pending return” in stock, but instead allocate them directly to new orders.
Tracking disputes in real time
- They have real-time data that the customer services department can use to effectively resolve any disputes and other problems that may arise.
Continuously measuring, analyzing, and optimizing
- They use key performance indicators (KPIs) to measure reverse logistics performance and make ongoing improvements, focusing on metrics such as average return processing time and cost, level of customer satisfaction, and the share of returns that are refurbished or recycled.
Outsourcing reverse logistics
Some companies opt to outsource some or all of their reverse logistics processes to a logistics provider that has the requisite infrastructure, equipment, and skills to handle this flow.
Minimizing returns and extending product lifespans
Another challenge for manufacturers and distributors is to keep returns to a minimum by improving product quality and providing adequate consumer information. In the fashion sector, for instance, one recent development has seen retailers recommend a size based on the size, weight, and observed return rate of the item in question. Likewise, online furniture stores now use augmented reality technology to let prospective buyers visualize what a product would like in their space.
Some companies have gone the extra mile to reduce the number of returns while meeting consumer demand for longer product lifespans by encouraging their customers to perform an initial diagnosis or supplying at-home repair kits.
In any event, it’s important to use KPIs to see whether measures such as these are paying off by keeping track of changes in the number of returns.
The importance of scale and standardization in reverse logistics
In response to these challenges, companies need to implement strategies for scaling up and standardizing reverse logistics, as well as a suitably organized supply chain and appropriate technology-driven solutions.
Operational, financial, and competitive advantages
Scaling up and standardizing reverse logistics implies rolling out harmonized, optimized, and automated processes for managing returned product flows. The many advantages of this approach include:
- Lower operational costs associated with inspecting, sorting, processing, and restocking products.
- Improved stock rotation: scale and standardization help to speed up the processing of incoming goods, as well as the sorting, restocking, and resale of products.
- Less immobilized stock: returned products—whether new or second-hand—can quickly be reincorporated into the sales flow.
- Greater customer satisfaction: a quick and efficient returns process helps boost the company’s reputation and drive customer loyalty.
- A competitive advantage from higher service standards when it comes to returns management.
Lower environmental footprint
Efficient reverse logistics processes for products that can be recycled or resold on the second-hand market—as well as for products containing hazardous waste—help boost the circular economy and shrink a company’s environmental footprint.
Scaled and standardized reverse logistics: the role of the WMS
The warehouse management system (WMS) plays a key role in shaping organized, scaled, and standardized reverse logistics processes. As well as helping increase customer satisfaction through a more efficient returns service, it also addresses some of the specific challenges associated with reverse logistics.
- Automated sorting and classification: warehouse management software makes it quicker to identify and classify returns according to condition, type, and return reason. The appropriate process can then be triggered—a return, an exchange (followed by the shipping of another product), restocking, a repair, or recycling.
- Real-time stock management and improved stock rotation: a product that a customer wants to return can be indicated as “in stock” in the WMS system. This product can then quickly be re-listed for sale on the e-commerce retailer’s website, bypassing the storage steps of the process. Once the item is received at the warehouse, it’s inspected then immediately shipped in fulfillment of another customer’s order.
- Fewer operational errors: by automating reverse logistics processes, the WMS reduces the risk of human error, thereby increasing operational efficiency and helping to cut costs.
- Resource planning: by analyzing historical data, the warehouse management system can anticipate return volumes, assisting with resource planning for efficient returns management.
- Support for repacking and recycling processes: WMS software automatically redirects flows and shipments to the supplier, to another warehouse, or to the appropriate provider (such as after-sales service, a specialized treatment center, or an approved processor).
- Reporting: the WMS system generates detailed return activity reports, allowing users to pinpoint trends, product-specific quality issues, and areas for improvement.
Reverse logistics is the process of managing products returned from the consumer to the manufacturer or distributor for refund, exchange, repair, repacking, upcycling, and more. This logistics flow has become especially important with the growth of e-commerce and the circular economy, coupled with the development of stricter environmental standards. In order to implement efficient reverse logistics processes, companies need to develop strategies for simplifying returns procedures, scaling and standardizing returns management, and using their warehouse management software (WMS) to process returns more quickly in order to increase customer satisfaction, automate the entire process, and optimize stock levels in real time.
Reverse logistics FAQs
What are the main technologies used in reverse logistics?
The key technologies used in optimizing reverse logistics include warehouse management systems (WMS), automated photo recognition applications (for identifying and classifying returned goods), and mechanized and automated systems (for certain processes, such as automatically transporting returned products to the correct storage area).
What are the main challenges of reverse logistics?
Reverse logistics is more costly to implement than conventional logistics flows. Other challenges include variable volumes, the importance of inspecting returned products, the difficult task of optimizing stock levels (given the random nature of returns), and the need to process returns quickly in order to keep customers satisfied.
What are the main opportunities of reverse logistics?
Efficient reverse logistics opens up a number of opportunities: increasing customer satisfaction, obtaining information about products with a view to improving their design and quality, and reducing the environmental footprint of products by repacking them or reselling them on the second-hand market, which extends their lifespan.