Two steps forward – one step back. This old catchphrase is fitting for the current state of ecommerce and reverse logistics. The constant growth and rapid evolution of ecommerce is heightening the volume of returns. In 2016 alone, the ecommerce return rate was 30 percent, compared to under 10 percent of brick and mortar sales (Invesp). Retailers recognize that this number is quickly, and inevitably, rising. Yet, most treat reverse logistics as an afterthought, focusing time and resources on go-to-market efforts instead.
Why is this?
Historically, returns have been managed as a problem. However, with the right planning, reverse logistics becomes an opportunity for retailers and logistics professionals to differentiate themselves and increase revenue. Here are three questions to ask to move forward with reverse logistics and make this a reality.
What is the definition of “reverse logistics”?
We typically associate mistakes, broken, or faulty items with reverse logistics. However, it encompasses much more. For example, reverse logistics also handles the products from consumer electronic buy-back and trade-in programs and subscription-based clothing or other “box” order services with a “keep what you like, send back the rest” approach. Buyer’s remorse also comes into play here. Consumers want the option to send back or exchange items, even if unflawed. Robust return policies have become standard, with industry giants like Amazon now requiring its merchants to provide its same, flexible return options. Overall, the definition of reverse logistics has evolved, covering an array of scenarios that put products back into the supply chain.
How do we handle inventory management?
Reverse logistics isn’t simply doing go-to-market logistics backwards. Managing returns is a unique and intricate process. Given its complexity, reverse logistics is typically viewed as a cost center. If executed properly, it becomes a value center.
Retailers , or often the item’s manufacturer, must find a means to proficiently resell or liquidate returned items. Assessing an item’s profitably is necessary for this. The merchandise must go through quality inspection and testing to determine what, if anything, is wrong with it. The resale rate of a returned item is normally around half of its original value. Anything else is sold for less. Pending the item’s condition and if it has depreciated too much, it is recycled. Otherwise, it goes through the necessary refurbishing and pre-retailing for resale.
Inventory route planning is also pivotal. This includes accounting for product disposition, setting rules that ultimately determine how a returned product is handled. An example of this is putting specific criteria in place to assure products go to the right location for inspection and restoration. Then it must be determined where to ship the items next. This could be a store, another customer, or a warehouse. Additionally, it must be simple for consumers to make returns. Customers expect seamless, cheap (if not free) shipping that fits with their daily routines. This could be dropping the item off at a local store, carrier pick up, lockers, or drop boxes.
Exploring all of these considerations for inventory management is key to maintaining profit margins and assuring customer satisfaction.
Can our existing distribution center handle reverse logistics?
Reverse and forward logistics have different requirements that need to be managed and considered separately. Doing so provides an opportunity to achieve both facility and workload optimization that are pivotal to success. Effectively handling the growing volume of returns requires dedicated staff and resources. Most companies, however, lack the capacity to give reverse logistics this high a level of priority. An option is to outsource to a third-party logistics provider (3PL). This alleviates the strain on the company until it can expand on or build its own reverse logistics strategy. As companies scale, assessing the capabilities of their distribution centers is key to handling returns at a higher volume, and in turn, allowing them to grow their ecommerce offerings.
The questions above put retailers on a path for more capable supply chain execution. The next step forward is determining the right technology partner to help capitalize on reverse logistics.
Look for supply chain solutions that scale with your business. The combination of robust forward functionality, adaptable reverse logistics capabilities, and complementary features is key. This includes end-to-end inventory visibility and inspection. Consider quality management, image archival for documentation and damaged goods, and integrated supply chain analytics. These provide important insights into the lifetime flow of items moving out of and potentially back through the supply chain. Overall, this creates a supply chain execution platform suitable for today’s operations and optimized for tomorrow’s emerging needs.
Sean Elliott serves as Chief Technology Officer for HighJump. A 15-year technology veteran, Mr. Elliott has been the principal architect of the HighJump One platform and the technological convergence strategy at HighJump. Sean joined HighJump in 2014 with the merger of HighJump and Accellos, a global supply chain execution software provider. Earlier in his career, Mr. Elliott served within the architecture group at Infor, where he focused on distribution-centric supply chain. Sean has a passion for bringing leading edge mobility technologies to the supply chain, and enhancing end-user experience within the HighJump customer community.