In the last few years, e-commerce has seen exponential growth, with the sector’s revenue in the United States nearly doubling between 2017 and 2021. By 2025, it is estimated that online shopping revenue in the United States will exceed $1.3 trillion.
However, this uptick in sales has also been accompanied by a dramatic increase in retail returns. A survey by the National Retail Foundation found that return rates jumped over six percentage points from 2020-2021, with the total value of returned merchandise in 2021 adding up to more than $761 billion.
This huge leap in retail returns presents a major challenge for supply chain managers, especially when most of their systems are designed to get products out the door, not welcome them back in. But developing an efficient reverse logistics system must become a top priority for supply chains: not only will it reduce operating costs, but it will also improve your company’s image and inspire greater customer loyalty.
What is reverse logistics?
Reverse logistics is a type of supply chain management that controls the flow of products from the customer back to the warehouse and, potentially, from the warehouse to the manufacturer. The end goal is to regain value from the product or dispose of it in a cost-effective and sustainable manner.
As for why a product might be returned, there are various reasons, such as:
● Defective product
● Failed deliveries
● Products damaged en route
● Waste management and disposal
● B2B returns of unsold products for resale
Whatever the reasons for the return, a well-designed supply chain should be able to handle the requirements of reverse logistics. Customers rarely, if ever, enjoy returning a product and can be extremely put off when a company’s return policy is not clear, expedient or efficient.
One study found that the perceived leniency and fairness of a return policy had the biggest impact on a customer’s decision to be a regular customer. For supply chain managers, the key takeaway from this study should be clear: if you want more repeat customers, you need to have an effective reverse logistics system in place that’s easy for customers to navigate.
Components of reverse logistics
Before you can start optimizing your reverse logistics system, it helps to first understand the key components that make up such a system. Not all supply chains will include all of these components, but if you notice something missing from yours, now might be a good time to add it.
● Returns management – Companies that deal with a lot of returns should have a dedicated return management team responsible for overseeing the entire reverse logistics process. Its job will be to handle customer calls on returns, ensure return policies are being properly implemented and look for ways to make the process more efficient.
● Return policy and procedure (RPP) – The company’s return policy should be prominently displayed online. It should be clear, consistent and familiar to both customers and employees.
● Remanufacturing, refurbishment or replacement – Companies whose return policies allow for the remanufacturing, refurbishment or replacement of a defective product will need a clear-cut system in place for handling these requests. For example, a damaged product might be sold to another customer after repair.
● Packaging management – Having customers return products in their original packaging will reduce waste and repackaging costs. Policies may be needed to ensure your packaging is durable enough to handle a two-way trip.
● Unsold goods – When unsold products are returned from a retailer or distributor, a system will be necessary for either disposing of or reselling these products.
● End-of-life (EOL) – Products that have reached their EOL are either broken or are no longer useful because they’ve been replaced by a newer and better product. Most supply chain managers either recycle or dispose of these products, which can be a challenge when they consist of environmentally damaging components.
● Delivery failure – Failed deliveries that have been sent back down the chain will need to be either put back in inventory or disposed of, depending on why the delivery failed.
● Rentals and leasing – Companies that rent or lease equipment will need a process for remarketing, recycling, or redeploying any returns.
Strategies to optimize reverse logistics
To ensure your reverse logistics system is fully optimized, you’ll need cohesive strategies that allow for speed, efficiency and cost-effectiveness. Implementing these strategies correctly may require both a top-down and bottom-up approach.
1. Implement clear return policies
Review and revise your return policies to ensure they are both efficient and fair to the customer. When customers know that your return policies are hassle-free, they'll be more likely to return the product in good condition and consider repurchasing from you in the future. Your service team should also know the return policy inside and out, which can best be achieved by providing them with a systems handbook that has all the information they’ll need.
2. Create a returns center
A centralized return center will allow your staff to sort products and determine the next step more efficiently. Ensure that each step, from the arrival of a returned product to its eventual destination, is closely tracked and monitored so that inefficiencies and bottlenecks can be eliminated. If you don’t have the resources for a separate return center, then try to dedicate an area in your warehouse for its operations.
3. Understand why returns are happening
Always try to determine the root cause for why a product was returned, ideally by having each customer fill out a return sheet when sending the product back. Over time, the data you gather on the reasons for returns can provide valuable insight into policy changes that may help stem the flow of returned products.
4. Digitize and automate
Supply chains are becoming more digitized and for good reason. Traditional inventory management practices are simply not up to the challenge of handling the massive quantity of products being sent out and returned. Moreover, customers are increasingly expecting simplified return policies that make use of product return portals on the retailer's website or app, complete with printable barcodes and instant messaging for easy mailing and communication. Increased automation, whether it be with product tracking, inventory management, or transportation management, can also significantly speed up and simplify your returns process.
5. Include return labels with the original packaging
What often slows down the returns process is the need for the customer to identify and write up the return mail address. This can be easily solved by including pay-on-use postage and a return address sticker with the invoice. Not only does this get the product returned much more quickly, but it will also boost customer satisfaction in both the short and long term.
Reverse logistics should be a crucial part of every supply chain, and companies who can successfully implement it across their facility will have a strong competitive advantage in the e-commerce industry. Even small adjustments and improvements can have an outsized effect that reduces costs, minimizes losses and boosts customer retention.