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Reverse Logistics: What It Is And How It Works

What is reverse logistics? Reverse logistics is the process of managing and distributing goods after they have been used.

This includes products returned to retailers or products that one did not sell during a promotional event. It typically involves warehousing operations, transportation services, and inventory management systems.

In this article, we will cover everything you need to know about this valuable business praxis. 

So whenever you’re ready to dive deep into the intricacies of refurbishing global logistics, keep reading.

Reverse Logistics: The Basics

Reverse logistics is a process that most companies use to deal with returns, over-ordered items, and undelivered products. Some examples of these include:

  • Unsold groceries returned from grocery stores
  • Returns from retailers for defective merchandise
  • Undeliverable mail or packages produced by the postal service after they were unable to deliver them successfully 

The benefits of reverse logistics are :

  • Decreased warehouse and inventory space needed   
  • Improved company image through the ability to return products for free or provide refunds

Reverse logistics is a wise business decision because it allows companies to control their supply chain management processes by managing items after they purchased them initially.

It also helps decrease warehousing needs, improve your company’s public relations image, and save money on storage fees in the long run.

Difference Between Traditional & Reverse Logistics

While the end goal of both logistics processes is to get good quality products into the hands of consumers, traditional logistics focuses on getting high-demand items out to customers quickly. In contrast, reverse logistics are focused on returning low demand or defective goods.

The difference between them is straightforward when you consider what happens after a product has been delivered successfully. Goods shipped using traditional supply chain management are immediately turned over to retailers who will sell them in their stores or online catalogs.

On the other hand, with the reverse logistic process, these returned items remain under the control of suppliers until one can sell them through another channel, such as an auction site or recycling plant.   

Reverse Logistics Processes

In many cases, “reverse logistics” can be considered an extension of a company’s customer service department. However, it has grown into much more than just being about returns.

Other components are also included in reverse logistics such as repackaging, transportation management systems where goods are consolidated into pallets before distribution out again, recycling programs that re-use goods that one can no longer sell, and donation programs that give under-used or unneeded items to non-profit organizations.

Furthermore, reverse logistics can also be used as a way to improve the company’s services, such as:

  • Efficiently directing returned items back into inventory
  • Reducing costs through improving processes and following best practices for disposal of goods. 

Many companies have started including reverse logistic strategies in their business models because it allows them to manage products more efficiently than before, which results in lower overhead and higher profit margins. It is often considered one of the essential things when assessing an organization’s overall value.  

Reverse Logistics: Why It Is Important?

Returned products cost retailers money in shipping and storage fees and processing costs for returns, so it is essential not only from a customer service standpoint but also financially to have good reverse logistics practices set up.

On average, returned shipments amount to about 30% of all sales volume each year, according to CommerceHub. However, this rate varies depending on how often customers return merchandise such as electronics versus clothing purchases.  

Furthermore, reverse logistics also has an environmental benefit as it can lead to recycling and reusing goods that would otherwise end up in a landfill. This means that reverse logistics is not only good for customers and retailers but also the planet.

The importance of reverse logistics for any business cannot be understated.

With the right processes in place, it is possible to reduce costs and increase customer satisfaction, ultimately leading to higher sales.  

Examples of Reverse Logistics Done By Big Companies

Many big companies have been able to implement successful reverse logistics systems.

Amazon has implemented a practice called “Reverse Logistics” where they use the delivery trucks as mobile warehouses for storing returned items and those not sold during promotional events before sending them back out again on their way to be delivered or sent over to another warehouse location, saving money in transportation costs and improving the efficiency of its reverse logistic process.   

One of the major cell phone providers uses an automated system. It allows customers to return defective phones at any store within 48 hours after purchase with no questions asked.

This gets around the hassle factor involved with returns often experienced by retailers who can quickly lose sales. This is because people do not want to go through the time and effort of returning an item.   

Walmart also offers a similar automated system for defective cell phones where customers can return their phone without going through the hassle of calling customer service and waiting on hold, which is one way that many people avoid returns. Even though shipping costs may cost them more money, this helps eliminate any negative feelings associated with returns. 

reverse logistics

Reverse Logistics Challenges

While reverse logistics can be a massive benefit to any company that implements it into their business model, some challenges are also. The first challenge is manually tracking each item being returned which requires additional time and resources on behalf of customer service representatives.  

Another issue affecting many companies today is the ability for customers to return items without having to go through conventional means such as sending them back at their own expense or going directly to an offline store location .

This has led to people abusing return policies simply because they know they will not have very much trouble getting around it by either returning products online or just keeping them instead if returns take too long.   

Here are some of the other challenges to reverse logistics:

  • The time and resources necessary to track returns
  • The return process can be very complicated to set up due to the technology required, making it difficult for smaller businesses without much IT support. 
  • It is often unclear who will pay the return costs depending on how they are processed and by whom, which makes evaluating ROI more challenging.

Common Mistakes Made By Businesses When Starting Reverse Logistics

There are many common mistakes that businesses make when it comes to implementing reverse logistics.

The first mistake is not setting up a clear and concise return policy which often leads to customers abusing the system and wasting time and resources instead of getting their money back or exchanging an item for something else.   

Investing in new technology such as barcodes, radio-frequency identification (RFID) tags, mobile devices/apps, data analytics software. It can be expensive but will result in greater returns if done. This is thanks correctly to having better customer insight into purchasing patterns as well as improved inventory management practices.  

Another familiar trap business owners fall into is thinking they do not have any unsold products. This might happen with seasonal items, especially when companies do not have the time to set up a proper storage system.   

One final mistake is focusing on just one channel, such as e-commerce. In reality, customers are shopping across multiple channels, and having a diverse understanding of each will make a massive difference in overall profit.  

Should We Outsource Reverse Logistics?

There are many reasons to outsource reverse logistics. Still, the main one is that it frees up time and resources for you, which allows your business to focus on what matters most, such as keeping customers happy with excellent service.   

If you choose not to do this, then expect a lot of headaches down the road when dealing with returns because there will inevitably be issues like:

  • Slow delivery times caused by items getting lost in transit or damage occurring during shipment (and if it’s damaged – how does a customer know? Shipments can look fine from outside) 
  • The return process is complex and complicated   
  • You will need to spend time and money training your employees on how they should interact with the technology

All of these factors combined might be enough for some businesses to decide that outsourcing is their best option instead, after all.   

Your Logistics Made Easy

Reverse logistics is an underutilized opportunity for businesses that can help them save money on shipping costs and increase customer satisfaction.

If done correctly, it will allow you to cut down on transportation costs, improve efficiency by reducing wasted resources, and make more room in your warehouse or store while increasing customer loyalty through positive experiences with returns.

If you’re interested in starting your branch of reverse logistics, get in touch with us, and we will accommodate your needs

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