The National Retail Federation recently reported that returns from 2021 could top $761 billion dollars which is just over 16% of retail sales in the U.S., and a 6% increase from 2020. Clearly returns are growing at an accelerated pace, and how companies go about handling them will directly reflect on supply chains.
Returns is one area where it is essential to master the basics and then innovate with a solid foundation in place. We are walking through the basic principles of reverse logistics and how companies can efficiently and profitably navigate the upstream flow of goods.
Reverse Logistics Flow
Every reverse logistics flow will be slightly different and tailored to a business’s product offering and supply chain capabilities. For example, cosmetic companies and cosmetic retailers like Ulta cannot re-sell returned cosmetic items. This is because products could be opened or used, compromising the integrity and safety of the product. This makes the reverse supply chain for many health and beauty products a short process.
On the other hand, furniture companies, for example, have a more complex returns process that has several possible reverse avenues for the product to go down, making the product evaluation stage critical. A couch that is returned to Pottery Barn, for example, could have a small defect that disqualifies it for resale at the Pottery Barn retail store, but may be re-sold at a Pottery Barn outlet.
Creating a reverse logistics process flow that accurately details all avenues for returns is not only helpful for creating operational efficiencies, but also for building a reverse logistics strategy that has positive impact on your business and that aligns with your business values and goals.
The 5 Rs of Reverse Logistics
The 5 Rs are key foundational aspects of reverse supply chains that will help you make key decisions on how you decide to handle reverse logistics.
- Returns and Exchanges: Returns and exchanges are often the beginning of the reverse supply chain process as goods that are being returned or exchanged have to be correctly received and processed by the intaking business. Key decisions like what can be returned or exchanged, how long the return window is, and what products are exempt from being returned are the foundation to the return and exchange process. Being clear with customers on return and exchange policies is also important for customer satisfaction and building a positive relationships so that customers will keep coming back to your business.
- Reselling Returned Products: As mentioned above, some products like cosmetics and health supplements and vitamins simply cannot be resold due to health and safety concerns. However, if you are dealing with products that can be resold, then this process is integral to recuperating revenue. Reselling products is also a great way for higher-end brands to introduce customers to their brand. For example, Nordstrom Rack is a great way for customers who may not want to pay Nordstrom retail prices to still interact with the Nordstrom brand.
- Repairs: Offering free or low-cost repairs can be an effective way to reduce the volume of products in a reverse logistics flow. Lululemon, for example, offers free hemming on all tops and pants, thus reducing returns of items that could be perceived as ill-fitting by the customer.
- Recycling and Disposal: Proper recycling and disposal of items in the reverse logistics process is not only important for cost-saving, but also for the environment. H&M, for example, will resell clothes second hand or turn them into other textile products.
- Replacements: Shipping products back to the retailer is a hassle for customers, and many customers would rather hang onto an item and bear the cost than go through the returns process. Offering in-person returns, replacements, and exchanges can make the process easier for customers and save your business on shipping costs and shipping packaging.
The Importance of Data
Data is key to making decisions in the reverse logistics process. Data can help companies understand trends in reverse logistics and identify why certain items are being returned more frequently than others. Reverse logistics data is also essential for correctly forecasting and planning future inventory. Carefully looking at what products are being damaged or returned the most can help make better product and inventory decisions in the future.
Data is also helpful for reducing losses by tracking items throughout the reverse logistics process, particularly when the reverse logistics flow is more complex, and items can go down several different avenues.
Data also facilitates automation, and software systems can track items throughout the reverse logistics process, manage the repair, recycling, or replacement process, and provide valuable insights.
Reverse logistics can be an intimidating and nuanced process, but building a foundational process flow, and understanding how your business will handle items in each different scenario will lead to a successful reverse logistics flow.
Related Topics:
- Supply chain
- Transportation
- Product returns
- Business tips
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