Reverse Logistics: An unexplored area for potential revenue growth
Returns offer a key point of differentiation for merchants. Clear communication of return policies and processes are important points which help in growing sales
The definition of ‘logistics’ is becoming more and more diverse, covering a wide array of operations inside and outside of a company.
Today, economics, environmental and social efficiencies are some of the core objectives for modern business development. Reverse logistics is one of the methods which companies can use in achieving sustainability.
Reverse logistics is a multi-facet process that connects chain of post-purchase services designed to increase customer loyalty and minimize return costs for merchants.
It includes the following services: return authorization, label creation, transportation, inspection and grading, refurbishment, product resale, recycling, liquidation, customer and merchant notifications, expedited refunds, and returns business intelligence. It is also a process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in process inventory finished goods and related information from the point of origin for the purpose of recapturing value or proper disposal.
Regular transaction cycle
Many industry sectors such as high tech, automotive parts, pharmaceuticals, medical devices, etc. where products and components return are part of the everyday transaction cycle.
Companies from within these industries factor the cost of returns into their pricing strategies and are good at managing the efficiency of flows for both the outbound and return supply chains, thereby helping to control the operational cost base.
However, some companies within these industries Fast Moving Consumer Goods (FMCGs) and other manufacturing sectors are not as focused on the returned goods supply chain, thereby unknowingly absorbing the cost of their reverse logistics activities into their ‘business as usual’ cost base.
In an email interview with Air Cargo Update, Joe Ballato, Product Manager, Parcel Operations , Newgistics, Jim Brill, Marketing Manager, UPS and Mike Hachtman, President and CEO, Relogistics, explained to us the working process of Reverse Logistics and how is it different from a traditional forward logistical flow?
The flow of Reverse logistics, however, is a different story. It involves Return Authorization, Transportation, Receipt, Product Recovery, Customer Credit, Restock, and Resale.
Shippers generally do not initiate reverse logistics activity as a result of planning and decision-making on the part of the firm, but in response to actions by consumers or downstream channel members.
When a return is initiated, the returned product is collected and sent to the distribution center. At the same time the relevant information about the return item description, condition at return, customer information etc., is transferred to the return-processing center.
Mike Hachtman, President & CEO at Relogistics, explains the product cycle,“As product is shipped to retailers, it is often shipped on, or in, a reusable or returnable packaging such as reusable pallets, totes and containers. A perfect example is the millions of wood pallets that move through the supply chain every day. After these pallets are emptied of their product, they are transported back to Relogistics where we segregate them by type. Some are returned to the retailer for reuse while others are ready for shipment back to their owner.”
UPS’ Marketing Manager Jim Brill explains, “The front end of the reverse process is those activities involved in the pickup and transportation of the goods or materials needing to be returned or recovered. The back end activities occur once the goods or materials are delivered; these activities then surround the receipt, unpacking, grading, reworking and decision making of what to do with these items. A key term here is the ‘disposition’ of the returned goods; what are we going to do with it?”
Reverse Logistics vs. Traditional Logistics
Reverse logistics is drastically more complex than forward logistics as there are many more steps and decision points involved when dealing with goods moving in reverse.
The emphasis has been shifted from speed of transportation toward total cost of return processing including time to refund, ability to recover an asset as close to full value as possible and prepare for resale.
Sales forecast is used to project sale requirement, when certain amount product is required, they will be shipped to the distribution center and then shipped to the retail stores from distribution center. At every single level of the supply chain, ASNs (Advanced Shipping Notices) will be assisting the useful information as the products flow.
Hachtman said, “Traditional logistics focuses on the shipment of product from manufacturing through distribution and ultimately to retail stores. At Relogistics, we focus on the reverse flow of the reusable, returnable and recyclable packaging as it moves from the stores back to its destination for reuse.”
“It requires strong data analytics and integration between the merchant and the reverse logistics provider. Solutions are merchant specific requiring product knowledge that may be different for every product line or every SKU. Reverse logistics solutions may need to adapt seasonally as product mix changes and returns become obsolete,” says Joe Ballato, operations manager, Newgistics.
Rising practices in aftermarket activities
Returns offer a key point of differentiation for best-in-class merchants. Clear communication of return policies and processes are important points, which will helpgrow sales.
Ballato said, “In many verticals e-commerce return rates exceed 30% and return costs eat away at product margins. A reverse logistics solution designed to maximize customer loyalty and maximize product recovery is critical to maintaining profitability”.
Hachtman said, “Reusable packaging improves the efficiency of the supply chain by providing better protection for the product it is carrying. While the increased use of reusable packaging has improved retail supply chains, it has also led to the need to find more efficient methods of handling and returning these packaging”.
Now part of Pitney Bowes, Newgistics combines its expertise in returns transportation and turn-key order fulfillment with even greater scale and data insights to create a bundled reverse dispositioning solution that allows merchants to outsource their returns processing.
The process of Reusing
There are several types of reusable packaging. Pallets are used throughout supply chains and include traditional wood pallets as well pooled pallets (CHEP, Peco, iGPS and others) that must be returned to their owner after use. Reusable Plastic Containers (RPCs) are used to transport the majority of produce to retail stores.
These must be sorted and returned to their owners to be used again. In addition, there are various types of containers and totes used to ship product to store shelves that must be returned to the retailer to use again.
“Ideally, returns are refurbished back to first quality for resale at full retail value. This provides the best-cost recovery for merchants and minimizes the problems created when returns are liquidated through aftermarket solutions, which can put price pressure on first-quality items. Purchasers of second-hand items expect manufacturers to honor original warranties even though manufacturers do not get the revenue on those sales.
Returns can be used to support warranty operations and parts recovery or sold on secondary marketplaces,” said Ballato.
Disposition activities could include return to inventory, light repair or touch up for resale, major repair or rework, dismantle and harvest parts or useable components, recycle, scrap and send to landfill, or donate, according to UPS.
Tracking system notifies merchant and consumer about every scan/tracking event as the parcel moves through the transportation network. Product catalog integration along with a business rules engine allows merchants to specify how each product should be dispositioned, i.e. refurbish, recycle, donate, RTV, etc. APIs facilitate fast transfer of information to and from the 3PL to the merchant and consumer.
Value of goods
Reverse Logistics is the process of moving goods backwards and then determining what to do with them; the RL process itself is not what reduces the value of goods. Rather it’s the erosion of product value due to time, the disposition activities, condition of returned goods, and the amount of re-work involved to get the goods back to saleable condition that ultimately reduces value.
The cost of returns should be forecasted along with product sales. A good reverse logistics program will improve the bottom line by reducing the cost of returns, according to Newgistics.
Relogistics utilizes its online, proprietary application, Velocity that provides online visibility to all data anytime, anywhere.
Hachtman said, “We also present a customized, comprehensive, monthly statement of all activity that includes a summary and various detailed reports depending on the services provided. By tracking all movements within the system, we can ensure that all assets are properly cared for, compensation is fair, and costs are as low as possible”.
UPS provides a variety of technology platforms to help merchants of all sizes provide return capabilities to their customer for a friction free experience. (front-end returns)
UPS and its alliance with Optoro help merchants then with the dispositioning process of the returned goods and materials (back end processing).
Ecommerce freight logistics
Reverse logistics presents one of the biggest operational challenges in the world of eCommerce freight logistics due to the sheer volume and cost of processing returns.
Effective reverse logistics is believed to result in direct benefits, including improved customer satisfaction, decreased resource investment levels, and reductions in storage and distribution costs.
The amount of returned goods going backwards along the supply chain from the end point (customers) is usually much more than people normally think.
For example, the sheer volume of returns generated i n many companies, ranges from 3% to as high as 50% of total shipments across all industries. Many other studies indicated the real costs of the returns take up roughly 3%-5% of total revenue.
Surprisingly, for the traditional bricks-and-mortar retail operations, returns are 3 to 4 times more expensive than forward (outbound) shipments.
“More merchants are now looking for ways to outsource all or part of their returns operations. Facing increasing pressure from: Amazon influence on speed to refund, trying to grow outbound while containing return rates, delay new capital investments needed for returns, avoid dealing with increasing labor costs,” says Ballato.
Return costs are a drag on product margins and a disproportionate percentage of distribution center expenses. In a drop-ship environment the return of goods to OEMs presents a huge challenge, according to Newgistics.
Future of reverse logistics
Supply chains are becoming more complex — and competitive — every day. Product is moving faster than ever before and more of it is being moved in reusable packaging.
Because no two-supply chains are identical, customized solutions to handle the return of this reusable packaging will grow in importance according to the experts.
“Reverse logistics will continue to grow in the coming years as ecommerce continues to grow, as well as new and exciting sales and service models are developed in all industry segments. There will always be the need for goods or materials to move in reverse and these needs will continue to grow along side of the growth of commerce,” concludes UPS’ Jim Brill.