One of the most valuable yet overlooked parts of any company’s supply chain is the process of managing returns. This process is also known as reverse logistics.
Most companies overlook their reverse logistics strategy because they are primarily focused on forward logistics or selling and distributing new products to customers. The process of reverse logistics, or receiving returned products and then distributing those products back to market, is often costly and capital draining for businesses.
There’s no shame in admitting that your company’s reverse logistics strategy is putting pressure on your margins. After all, you are reading this article. Fortunately, there are strategies you can use reverse your reverse logistics strategyand that’s what we’re going to cover in this guide today.
But first there is one more fundamental question we need to answer:
What is reverse logistics and why is it important?
Reverse logistics refers to every step and link involved in managing customer product returns. As mentioned above, most companies are focused on the process of forward logisticsor ensure the flow of their products from the factory to distributors and ultimately to customers.
Applicable to both retail and e-commerce, reverse logistics is just as critical to optimize as forward logistics. Too many companies see reverse logistics as a gaping hole where they will inevitably lose money. But in reality, reverse logistics can still be an opportunity to create value for your business.
The reverse logistics process involves five primary components, or “Rs,” each of which we’ll outline and discuss in more depth later:
Each of the above steps is important because it involves recovering value by taking returned products and then putting those products back on the market for resale, or disposing of them properly. This is crucial for regaining the trust of the customer (especially if you need to repair a product and return it to the original customer) and make sure your business doesn’t lose money.
Businesses in today’s world in particular are facing a much greater strain on their finances than before. It’s already average costs about $40,000 to open a small business and operate it for a year. And the cost of goods and inflationin particular, most small businesses have further pressured to open and function as well.
Not to mention the increased basic cost of living, which puts even more pressure on individual entrepreneurs to stay afloat. For example, in Canada, the average cost of living is across all provinces now over $4,000 one month. In the United States, the average cost of living across the country is meanwhile almost $5,000 monthly.
If the returns process is currently one of the most expensive fronts of running your business, such as it is for many companies, it’s been a long time since you take action and optimize it so that it becomes cheaper.
The idea of reverse logistics is simple: returned products are not thrown away, but are resold, reused or recycled so that they can continue to generate value for your business and make customers happy.
For these reasons, it pays off for your business to develop your reverse logistics strategy if it is currently costing you money. And that starts with understanding what each step of the reverse logistics process is.
The 5 Rs of reverse logistics
Here are the 5 Rs of reverse logistics:
1 – Returns
Returns are always the first action taken in the reverse logistics process. This is when customers return a purchased product for your business for a number of reasons. Reasons for returns are usually:
- The product arrived at the customer defective
- The product arrived at the customer damaged
- The product did not meet customer expectations or did not work as described
There are several strategies you can use to optimize and reduce the costs of the returns process. The most crucial step is getting a Return Material Authorization (RMA) verification. allow a customer to return a product. The RMA number must be assigned by your customer service to ensure that the return can be processed. It should also describe your return policy and instructions on how to send the product back to you.
In addition, make sure you have a concrete return policy. For example, do you allow only defective products to be returned, or do you also allow returns that did not meet customer expectations?
Finally, make sure you have a process to test the returned product and confirm whether or not it is suitable to be sent back to the market.
2 – Memories
Recalls are another and more complicated way of returning products to companies. The reason recalls tend to be more complex is that they are subject to government regulations and involve basic construction issues that can pose a risk to the health and well-being of customers. For example, devices are often recalled if they have construction problems or defective parts that could endanger other people.
The best way to handling recalls is to have a process to receive and replace the recalled product. The main goal when handling recalls should be to focus on your customer and repair or replace their product with an alternative unit.
3 – Repairs/refurbishment
Repairs are when a damaged product is repaired (after the problem has been determined by the company) and then returned to the original customer free of charge. Refurbishing is when the product is returned to as good as new conditionso it’s ready to be sold again in the general marketplace.
Ensure you have a streamlined process to repair or refurbish returned products. Have an efficient tracking system and a portion of your inventory management team dedicated to repairing and refurbishing products.
Hopefully, if the faults or hazards with your product are not too serious, you can have the product repaired and returned to the customer or repaired and then returned to the market to be sold.
4 – Repacking
What happens if products are returned because customers were dissatisfied with the product, but not because there was something wrong with the product? In this case, the product must be repackaged so that it can be resold on the marketplace.
Your company’s returns policy should state very clearly whether you allow products to be returned due to customer dissatisfaction or whether you only return in the event of defects or recalls. If your company offers a product warranty (meaning you promise to refund the customer and take the product back if they’re not happy with it), then you should allow returns due to customer dissatisfaction.
In this scenario, it is absolutely crucial to repackage these returned products and get them back into your inventory as quickly as possible. First, check the product thoroughly and efficiently to see if there are any defects. If so, you must have the product reconditioned so that it is suitable to be resold as a repackaged product.
5 – Recycling
Last but not least, think about how you can do that make your products more sustainable so that they can be properly recycled or disposed of in an environmentally friendly manner when they reach the end of their useful life.
For most businesses, this means working with recycling companies to ensure that all waste is properly collected and disposed of. For example, in the case of technological devices, recycling companies can salvage rare earth metals that can then be returned to your company for reuse in future products. This saves your company money in the long run.
Return logistics is all about minimizing the costs and disruptions of the returns process. Keep the above points in mind and keep researching and thinking about how to do this turn costs into opportunities for the return, recall, repair, repacking or recycling of your products.