Reverse Logistics: Charting a Course to Protect Profit

In today’s marketplace, more of your customers are purchasing products online. Through the trust built by e-commerce giants, consumers are happy to purchase their products “sight unseen” with the assurance the right product will be delivered quickly and without issue. 

But in the real world, errors can happen without warning. From human errors in picking orders to wrong shipping labels applied to boxes, even the best logistics plans can face uncertainty. In fact, as more apparel shoppers buy various sizes and return what doesn’t fit, a perfectly processed shipment can still result in returned goods. That’s where the “Reverse Logistics” process comes in: returning items from the consumer back to the company with the goal of managing final disposition. 

Does your company have a solid reverse logistics plan? As customers demand more flexibility, it’s important now more than ever to consider how reverse logistics fit into your overall strategy.  

What is Reverse Logistics?

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The term “reverse logistics” was first coined in a 1992 whitepaper written by James R. Stock, Ph.D., a professor at the University of South Florida, and published by the Council of Logistics Management (now known as the Council of Supply Chain Management Professionals). In scholarly terms, reverse logistics is defined as: “the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal.” 

Five years later, a Dutch research team would delve further into that category with their own paper, published in the European Journal of Operational Research. Titled “Quantitative models for reverse logistics: A review,” the team acknowledged the “recently emerged field of reverse logistics” was a new area of study, and “…the time seems right for a systematic overview of the issues arising in the context of reverse logistics.” 

As computing advanced, the study of reverse logistics changed from an operational and mathematical field to a technology-driven field. Dr. Stock revisited the topic in a 2002 article published in Harvard Business Review, writing: “There are many reasons for this trend—the rise of electronic retailing, the increase in catalog purchases, more self-service in stores, lower tolerance among buyers for imperfection—but few companies are doing the best job of dealing with it.” He also noted several companies that were handling reverse logistics well at the time, including General Motors and Volvo.

In short: Every business that ships goods from warehouse to the customer needs a reverse logistics plan. And with technology touching every aspect of our lives, a traditional approach may not be enough to keep customers happy. 

The Problem With Standard Reverse Logistics Strategy

Traditionally, the reverse logistics plan always began with a human touch. After receiving a damaged or incorrect parcel, the customer called a toll-free number and requested permission to return their product. If approved, a return merchandise authorization was issued, and the customer was free to return their product via the preferred shipping method. The returned product  then took a long journey from customer to distribution center to returns center where the product’s ultimate fate was determined. 

Technology has made this model entirely outdated. First, utilizing traditional methods can add unnecessary shipping costs, making a return even more expensive than a lost refund. In addition, going through each of these steps adds a manpower cost – one which requires paying a salary and a share of benefits. 

While these steps were necessary in a pre-Internet world, technology has rendered much of this process obsolete. The problem is that despite the leaps that provide a much more customer-focused approach, some companies are still doing things the old-fashioned way – and quietly losing money as a result. 

The Benefits Re-Focusing the Reverse Logistics Strategy

Today’s reverse logistics doesn’t require a staff of hundreds of people processing  returns from around the world to determine their final disposition. Instead, a re-focus of reverse logistics can save a company time, manpower and realize a reduction in shipping costs. 

By utilizing a technology-focused approach to reverse logistics, the returns process doesn’t start with a call center and toll-free number, but with an automated form leading a consumer down a guided path. The right forms can lead users down a focused course of action that has more accuracy than a voice call and that effectively pre-sorts items before they are inspected for disposition. 

Through this pre-screening process, companies can significantly save on shipping costs. Once the technology determines where the item is destined, a return merchandise authorization form and shipping label with the most cost-effective means possible is automatically produced. This sends the item to the appropriate return center, where a quick inspection can confirm the item condition and bundle it with other items on an LTL load. Utilizing technology, the company reduces the amount of trucks required for shipping, resulting in actualized savings. 

Finally, a process that once involved several steps and weeks becomes a streamlined solution. Technology-enabled management of the intake process frees your workforce to focus on value-driven tasks, giving you optimal productivity from your team. 

The Downside of Advanced Reverse Logistics Strategy

Of course, there are still challenges that can emerge in a holistic reverse logistics strategy. While technology is a great customer service enabler, it downsides can emerge as well. 

For example: a 22-year-old Spanish citizen was arrested in August 2019 on suspicion of returning boxes filled with dirt to a major online retailer. Instead of returning items, the scam artist weighed each box with items inside, and filled them to the same weight with dirt. He was accused of taking over $370,000 in fraudulent returns from the company. 

In this situation, the reverse logistics plan experienced an unforeseen issue. Automated inspection prior to disposition resulted in widespread fraud and benefit abuse. This is where the power of a trusted third-party logistics provider (3PL) comes in: through deep analysis of costs, benefits, gains and weaknesses, you can build an advanced reverse logistics strategy that will pass many common tests. 

How To Get Your Company Ready For Advanced Reverse Logistics 

If your reverse logistics process could benefit from a technology boost, it might be time to get a parcel program assessment from the leader in 3PL management: Transportation Insight. As your partner in transportation management, we can help you start preparing or fine-tuning a reverse logistics plan that utilizes technology to give you the competitive edge. Contact us today and get started on a strategy that prepares you for the future.

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