The Rise of Reverse Logistics: Optimizing All Links Across the Supply Chain

Online shopping is on the rise and, with it, comes the rise in returns. Although the COVID-19 pandemic and the 2020 holiday shopping season have both contributed to the growth of online sales and returns, these two events merely serve to underscore the increasing overall importance of reverse logistics and its role in the supply chain.

In this article, we’ll explore this under-examined and under-appreciated link of the supply chain and highlight its impact across your business as a whole.

First, let’s make sure we’re clear on terminology. Reverse logistics, as we’ll discuss in this article, refers to moving goods from their final destination back to their origin—from a customer back to your warehouse, for example.

By many estimations, the reverse logistics market is growing:

• According to Deloitte, industry forecasts expect that by 2022, retailers will receive 13 billion units worth $573 billion annually in returns.
• Additionally, Tech HQ reported that the reverse logistics will reach almost $604 billion overall by 2025.

eCommerce providers will feel the impact most significantly. While brick-and-mortar stores often see return rates of about 8-10%, online retailers experience rates in the neighborhood of 30%. Commercial real estate firm CBRE projects that businesses will need about 400 million square feet of real estate to manage these growing online returns. And, of course, the pandemic has only increased shoppers’ reluctance to buy and return items in-store, pushing many more transactions online than in the past. In fact, online holiday sales are projected to increase by 40% over 2019.

So what does this all add up to? Reverse logistics can be either 1) a threat to your bottom line or 2) an opportunity for significant optimization that, when done right, can offer you a competitive edge. Let’s explore how—and why.

An Area That Can’t Be Neglected or Ignored

Some businesses have tended to give less importance to reverse logistics. Rather than focusing on it as strongly as other areas, it’s sometimes been left to neglect, with little or no thought toward optimization strategies.

To illustrate this, consider the results of a recent reverse logistics survey of supply chain professionals. While 60% of respondents said reverse logistics was “extremely” or “very important” to their organization, and another 28% said it was “somewhat important”…

• Only 24% could estimate the savings their reverse logistics were delivering their company,
• 72% admit to being “somewhat” or “not very” prepared for the reverse logistics of eCommerce,
• 68% reported that there’s no one on the corporate/C-suite level who’s responsible for reverse logistics, and
• 40% predicted no changes at all within the next two years.

However, the projected growth in reverse logistics means that companies can no longer afford to ignore it. For example, clothing retailers, in particular, can spend as much as 17% of their cost of goods sold in processing returns.

That said, if an organization is willing to approach return logistics proactively, it could become an area of significant competitive differentiation. An Optoro survey, for example, showed that 90% of consumers who had a positive returns experience would be likely to return to that retailer again.

Additionally, if companies can collect the right data around the “why” behind returns, they can some critical insights. These insights, in turn, can help improve the customer purchase experience and even the products themselves. For example, if customers are experiencing significant problems with the way clothes fit, adjustments to the photos on a retailer’s website could better align customer expectations with reality, improving the customer buying experience? Or, if return data indicates that a product isn’t working as customers expect it to, could some manufacturing tweaks create in a better product that generates fewer returns?

Hopefully, you’re starting to see the possibilities that focusing on reverse logistics can offer. If the topic has piqued your interest, let’s dive into four areas of focus to consider along the journey.

1. Be Aware of Customer Expectations

Call it the “Zappos effect” (or the Amazon effect, since Amazon acquired the company in July 2009). As one of the first companies to offer free shipping both ways and a liberal, 365-day return policy, Zappos initially stood out in the marketplace. However, these days, customers have come to expect free returns with their purchases. In fact, as many as 51% of consumers avoid buying from online retailers who don’t offer free return shipping. If you sell direct to consumer, you need to be aware of this trend—and decide whether your business can afford NOT to provide it.

Even if you’re not a B2C operation, you still have customers, and those customers have expectations. Before you decide on your reverse logistics policies and procedures, make sure you have a grasp on what your customers want. That way, you can set up a reverse logistics process that delights them and keeps them close, rather than pushes them toward your competition.

As you create your policies, stay aware of the following areas—and how your competition stacks up:

• How long will you give your customers to return goods?
• How will you transport these goods? Will you provide shipping or ask customers to arrange for it on their own? Are there cases in which you’ll provide return shipping (such as a fulfillment mistake) and cases in which you won’t (a customer mistake)?
• Can you restock any of these goods and sell them yourself? Or will you consider selling them through an alternative marketplace?
• Would you consider outsourcing your entire returns process, or would you prefer to keep it in-house?

Consider these questions a start—and a run-up to the next big question.

2. Ask Whether It’s Time to Invest in Tech

As any supply chain professional knows, data is key to optimizing any process. Because reverse logistics has been a long-neglected link, it’s possible that your organization simply hasn’t invested in it as heavily as others.

As the importance of this area grows, it might be time to make the key investments that will offer your team the transparency and visibility it needs to get this link running smoothly. For example, understanding what’s being returned, how quickly you’re receiving goods back, how effectively they’re being returned to the supply chain, and other data points like these can help you control the costs around this expanding area. Without this visibility, you may not realize, for example, that one single product is creating a disproportionate number of returns. However, with the insight that data can bring, you may decide to discontinue this product and instantly boost your overall profitability.

Additionally, as we noted earlier, reverse logistics data can offer you valuable insight into the “why” behind your returns. This customer feedback can create significant opportunities to improve your customer experience and reduce returns overall.

3. Consider the Role of Automation

As supply chain automation continues to evolve, it’s important to consider its role within reverse logistics—and how it can offer you some additional efficiencies.

Leveraging automation could be as simple as an online system to handle your return management authorization (RMA) system so your customers can go online, request a refund, and print their shipping labels without any interaction from your customer support team.

Or, it could be as complex as Soft Robotics’ SuperPick Polybag Picking System, a robotic arm designed to pick, scan, and move a wide variety of items, including grabbing those slippery polybags and self-mailers from a bin without damaging them.

No matter which route you decide to go, speed is always critical to your return logistics processes, since goods in transit are goods you can’t take advantage of. If automation offers you speed and efficiency in exchange for an investment in the technology, it’s something you might want to consider.

The Rise of the Return

With eCommerce on the rise, reverse logistics have nowhere to go but up. Whether this becomes a thorn in your side or an opportunity just waiting to be fully leveraged is up to you and your organization. However, if you’re willing to give this area the attention and optimization it deserves, your return logistics can help you reap significant rewards now and into the future.

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Want some help optimizing your reverse logistics strategies? We’ve helped our customers develop creative solutions to their challenges in this area, and we’d love to help you. Just request a free consultation to get started.