Common Reverse Logistics Costs

Reverse Logistics: What is it and How do you Manage it?

While logistics typically refers to getting items to end users, an important piece of successful logistics includes the process of returning products, getting them from end-users back to the manufacturer or warehouse. The reverse logistics process is how companies recoup value from products that were in bad condition or were shipped incorrectly. Reverse logistics (also known as returns management) is actually a broad aspect of ecommerce fulfillment, and just as important for effective supply chain management as traditional “forward” logistics.

It can be costly and cumbersome to enact reverse logistics efficiently. Additionally complex costs of reverse logistics often go unchecked, because each step of the reverse supply chain might incur its own small cost; but adding them all up can mean diminishing margins. Despite being more difficult to understand, reverse logistics play an important role in controlling overall logistics costs. In addition to providing a better understanding of direct costs, successful reverse logistics management also increases customer satisfaction, reduces waste, and promotes sustainability.

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What is Reverse Logistics

When most people think of logistics they picture the process of moving a product from a seller to a customer—all the steps along the way to get goods to consumers. What isn’t obvious at first is what happens when those items need to be returned. This is reverse logistics (also known as returns management)—any time products are sent to a final destination but need to be returned for any number of reasons—and it is a huge aspect of logistics that is as intricate as it is important. A secondary aspect of reverse logistics process involves how products are dealt with once returned: reused, refurbished, disposed of, recycled, etc to extend their lifecycle. Because reverse logistics can be a very time consuming and costly aspect of doing business, many companies choose to partner with a third-party logistics provider (3PL) to handle both the supply chain process and help handle the returned products as well.

Benefits of Reverse Logistics

Because reverse logistics involves the same steps as traditional “forward” logistics (customer service, transportationinventory management, etc.), it requires similar efficiencies. By streamlining the way products move back through your supply chain, you will see benefits such as cost savings, happier customers, and improved sustainability.

Better Profit Margins

There are several ways to cut costs with reverse logistics, from reducing transportation spend, to reselling items that would have been a complete loss if disposed of upon return. If value is being regained from recycled and resold items, and the rest of the system is operating efficiently, your profit margins will improve. The returns process can cost the same, if not more, than the process of fulfilling a new purchase to a customer. It’s critical to the seller to understand each aspect of the returns process, optimize the process to minimize cost, and have a strong understand why the customer is returning the product for future reference. By decreasing the percent of returns by a minimal amount, the seller can see significant long term cost savings.

Increased Customer Satisfaction

The way your business handles returns could directly affect how customers feel about your brand. A defective product can lead to a poor experience. Dealing with errors is just as important as making sales. If a customer had a bad experience with your product, you have to make it right. By offering options to your customers who wish to return items that make it easier for them, it can go a long way to boost customer satisfaction. These can include providing a full refund no matter the reason for the return, not requiring the original receipt if being returned to a brick and mortar store, not requiring the original packaging, among others. A good 3PL will have the necessary technology and process to make the returns process seamless, helping increase the customers’ overall experience.

Faster Turnaround

If you have a streamlined process in place for customers to return products and then receive replacement products quickly, you’ll have huge customer satisfaction. It can also help to speed up the process that products are repaired, refurbished, or reused which will cut down on the need to purchase new products.

Reduced Waste

Reverse logistics can help you identify ways to reuse, resell or recycle materials that would otherwise end up in a landfill. This not only helps profit margins, but it also helps improve your brand’s reputation for social and environmental responsibility. By remanufacturing or refurbishing your products you can extend their lifecycle.