Returns are part and parcel of running an e-commerce brand (no pun intended). The average rate of retail returns reached just over 16% in 2021, meaning that more than $761 billion of merchandise ended up back in stores and warehouses.
Product returns set off a series of events known as the reverse logistics process. eCommerce retailers see slightly higher average rates of returns, making it all the more important to have a reverse logistics solution in place. These solutions help you organize your reverse logistics operations, retain the maximum possible value from returned or unsold goods, and automate some of the manual parts of reverse logistics to help your business run smoothly.
In this guide, we’ll cover the ins and outs of the reverse logistics supply chain and how to use reverse logistics software to minimize any negative impact that unsold goods could have on your business growth.
What is Reverse Logistics?
Reverse logistics is the process of returning a product back through the supply chain to the original retailer or manufacturer. The Council of Supply Chain Management Professionals defines reverse logistics to include the movement of products after the sale and after delivery to the customer—meaning reverse logistics includes product returns for repair and/or credit.
It can often be helpful to think of the reverse logistics process as the inverse of a traditional supply chain. However, reverse logistics doesn’t just apply to consumers; it can also be initiated by distribution partners or wholesalers.
And, reverse logistics doesn’t only apply to instances of damaged goods or returns. If there’s unsold inventory at the end of a holiday season, a retailer may send overstock back to a distribution partner for re-selling on a secondary market.
Types of Reverse Logistics
The process outlined above is just one example of how the reverse logistics process can function. There are many variations in steps in the reverse logistics process that depend on whether the retailer is offering free returns, refunds or store credit, refurbishments, or any other type of warranty for customers and supply chain partners. Let’s dive deeper into the different types of reverse logistics.
Receiving and Processing Returns
Returns management is the process of receiving and processing returns from your end customer. This type of reverse logistics is all about customer service: how can you easily and efficiently receive a returned product? How to decide what happens next with the item? And how to meet the customer’s needs?
As the customer-facing element of reverse logistics, there are many things to consider:
- Does your store have a clear returns policy to set expectations for customers?
- Does your store offer a warranty that impacts what you do with a damaged item?
- Does your store offer a refund, and how long does a customer have to wait to get that refund?
- How will you handle re-returns and final sale returns?
The right reverse logistics software can help you answer these questions and manage the process of authorizing and identifying a product’s condition. Logistics management software can also help schedule return shipments, approve refunds and replace faulty goods. Your return management system must be set up to meet customer needs, so it’s important to have the right tools in place to process returns expeditiously.
A return refurbishment means an item was damaged, but can still be fixed and brought back to the market. The retailer may send the item back to the original supply chain manufacturer or to a third party that can repair, rebuild, or re-work the product or its parts. Alternatively, if a product is damaged beyond repair, the company can recover reusable parts or materials from the item and use them to refurbish other products.
Resale of Returns
A resale in reverse logistics means that a product has been sent back through the supply chain to either a distributor or manufacturer to be sold in a different market or upcycled.
Resale is a great option for goods that are unsold due to low demand, overstock, or inventory obsolescence. Some distributors and wholesalers will accept overstock and take it to a supply chain overseas, or rebrand and sell it to a different target audience.
Some companies will also sell a product back to the consumer after it has been repaired. Large retailers like Best Buy have specific filters for customers seeking to buy refurbished or pre-owned cell phones. Levi’s also has a program that sells second hand denim at a more affordable price.
If an item is EOL—meaning it has reached its end-of-life—manufacturers must recycle the good or use it for spare parts. Products are considered EOL when they are no longer useful or do not work; for instance, a piece of tech that’s been replaced with a newer, better version.
Sustainability is a key consideration in end-of-life reverse logistics. Organizations are facing increasing pressure to recycle what they can from EOL products that are being returned to the manufacturer or warehouse. One option is to break down an item into its parts, reuse what you can, and recycle other components. Another option is to work with third parties who take on the responsibility of disposing of the good in an environmentally-safe way.
Importance of Reverse Logistics
No retailer wants to see high rates of returned items. But, with reverse logistics, business owners can still maximize value from unsold goods.
First and foremost, reverse logistics offers better customer service. Retailers that have a system in place to streamline the processing of returns are able to remedy the issue for a disgruntled customer fast, either by sending a refund or a replacement. One report found that poor customer service costs businesses more than $75 billion a year. Reverse logistics can help make sure your customer returns are hassle-free and give you a competitive advantage.
Reverse logistics is also good for your bottom line. Refurbishing and reselling goods can generate new streams of income. It extends the lifecycle of certain products by opening new ways to increase their functionality through repairs and replacements. Reverse logistics can also mitigate some of the risks of inventory management, such as waste from overstocking goods.
And, it can lower your costs. “With the rise of e-commerce, returns have become more frequent too, so these costs would really start to add up after a while,” wrote one expert. By having a sophisticated reverse logistics workflow that includes a warehouse management system (WMS), companies can save on the cost of each return. WMSs and other automation tools enable smooth inbound and outbound operations, saving time and money.
Finally, reverse logistics is an eco-friendly business practice. Reusing and recycling products increases sustainability, helping to build brand trust with consumers and supporting your CSR efforts. As the global market steps up efforts to penalize bad environmental business practices, you could avoid the risk of fines as your business grows.
Using Reverse Logistics Software
Reverse logistics software can streamline the returns process, helping retailers to (at least partially) recover some of the value from the original sale. Reverse logistics software streamlines communication with the customer, maintaining your returns policy, tracking returned inventory, and managing a refund or product exchange. These tools help companies manage customer expectations and immediately remedy issues, thus protecting their brand reputation.
There is a range of returns management software features that help retailers receive returned goods and track inventory in real-time, as well as improve customer satisfaction. Here are a few things to look for when working with a returns management software vendor.
Consider tools that offer customers a hassle-free way to start a return with a hosted customer portal. A portal guided by a clear return policy can immediately alleviate some of the frustration a customer is already feeling by having to make a return or exchange in the first place.
How do these portals work? Customers can initiate returns at their convenience. According to the rules you’ve set in your returns policy, the portal can automatically approve the return, allow customers to choose the shipping or drop-off method, print a shipping label, and share their reason for the return. Some tools even keep customers engaged with automatic email notifications as the return progresses.
On the merchant side, barcode scanning enables better management of returned goods and inventory tracking. Your warehouse or inventory team can receive items and scan a barcode to quickly get product details, log the item into the system, update the order status, and get real-time stock-level data. Your retail operation can reduce the time-intensive parts of returns management in one easy scan.
Shipping and Tracking
Retailers need an easy way to ship and track new items sent to customers. They also need to be able to track items sent to third parties and manufacturers for refurbishment or repair. Returns management software can help organize all these different workflows to help your team clearly see what’s going where.
Your software should track which items are being sent out for different tasks, such as resale, exchange, or repair. Likewise, easy label tracking can show you where each product needs to be shipped, where it is en route, and whether the item has been delivered.
Reports and Analytics
Finally, a returns management tool should provide tons of reporting and analytics features to help you improve your operations. Find a software provider that can track KPIs such as:
- Number of re-returns (returns made twice)
- Qualitative data, such as the reason for the return and customer satisfaction/feedback
- Number of returns
- Value of the return
- ROI of resale or repair
Real-time reporting can also show you where there may be obstacles to processing your returns, helping you improve your operations and improve the returns experience.
Benefits of Reverse Logistics Software
Without the right software, reverse logistics is a labor-intensive, manual process that can burden a business and hamper growth.
Imagine trying to process returns without the features that returns management software offers. You would need many people working around the clock to receive packages, match them to previous sales, determine what to do with each item, and route it to the appropriate next party. The cost of labor alone would make this inefficient process unsustainable.
Reverse logistics software makes it easy for retailers to improve the customer experience, lead to more sustainable business practices, and save money.
Increased Customer Satisfaction
First and foremost, enabling customers to have a degree of control over their product return can boost customer satisfaction right away. One survey found that more than 50% of respondents would avoid buying from a company with strict return policies. Empowering customers to quickly provide feedback, ask for a return or exchange, and get a prepaid label can dramatically increase customer satisfaction — and retention.
It’s impossible to avoid returned goods altogether, but you can reduce the costs of the returns process. Reverse logistics software enables companies to reduce transportation costs and resell items to regain some of the potential lost revenue. And, warehouse management solutions enable teams to work efficiently, meaning you can reduce hourly labor costs to improve your profit margin.
Reverse logistics software can reduce waste and improve your environmental impact. Software can help you better track items for reuse, resale, or recycling — diverting some materials from winding up in a landfill.
Some companies use their software to find ways of making transportation more efficient. Your returns management analytics can show where there may be opportunities to consolidate returns in one warehouse. You may also be able to avoid some returns altogether, thereby reducing greenhouse gas emissions from shipping and packaging waste.
Speeds Up Workflows
Reverse logistics software simplifies tracking, from the moment a customer logs a return to when the item is collected to when a replacement is sent out. The ability to see where products are throughout the logistics process helps everyone work more efficiently.
Logic built into reverse logistics software can reduce blockers and keep everything running smoothly. This also helps you optimize your human resources and leave the repetitive tasks to automated reverse logistics tools.
Streamlining Reverse Logistics Software
Reverse logistics is a process that every e-commerce retailer has to go through. For some, this business operation can be labor-intensive and drag on your bottom line by increasing operational costs. But, with the right reverse logistics software, companies can improve optimization and profitability.
Reverse logistics solutions help manage the entire process of receiving a good, categorizing it for refurbishment, resale, or recycling, and keeping the workflow running smoothly so your reverse logistics operations are efficient. These tools help boost customer satisfaction and business growth.