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About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

August 27, 2014



Reverse Logistics – A Key Competency & Strategic Advantages

In Both Physical Retailing & E-Commerce Returns are Inevitable!



Holste Says:

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By taking a potential liability and making it a competitive advantage with secure and reliable returns management RL processes can increase your efficiency, retain customers, and foster growth for your business.
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Reverse Logistics (RL) is a serious concern for most consumer goods retailers and manufacturers. This is especially true with high end products that can have relatively short life cycles. For example, at the speed that electronics technology moves, the latest new “must have” gadget may be out-of-date in just a few months. In addition to the necessity to return products to the marketplace quickly, distributors face challenges in the RL process including skyrocketing transportation and operational costs.

In the following article Mr. Ajeet Khurana outlines his unique perspective on not only what and why reverse logistics is important, but how it can become a strategic advantage.




What is REVERSE LOGISTICS?

by Ajeet Khurana

 

Mr. Khurana is an author, educator, mentor, angel investor, and speaker for ecommerce and online business. As a lecturer at the University of Texas at Austin, he taught ecommerce back in 1993, when the term "ecommerce" had not yet been coined. Read more about his profile on Google at:

http://ecommerce.about.com/bio/Ajeet-Khurana-99926.htm


What Is Reverse Logistics?

Reverse logistics (RL) is the collection of all processes that come into play for goods that move in the reverse direction, i.e., from the customer to the business. Here are the most important processes that are covered under reverse logistics:

 

  • Customer Support

This could be in the form of a call centre, support by email, or an online chat. Often it is a combination of all of these methods. The ecommerce business needs to make itself available for a conversation with the customer, who may want to return or repair the goods purchased.

 

  • Physical Movement of Goods

There are a wide variety of methods by which an ecommerce business can receive the goods from the customer. The customer could be required to mail in the goods, or drop them off at designated locations. Some merchants will organize for a pickup of the goods from the customer's location.

 

  • Warehousing

The physical goods that are collected need to be tagged, tracked, and stored. This is the purpose of the warehousing process. A warehouse is typically a large storage space on the outskirts of major towns or cities. In addition to storage space, large warehouses have many devices and automated processes to tag and track the stored goods.

 

  • Triage

Triage means sorting of goods based on their condition or quality. Some of the goods need to be repaired and sent back. Others have to be sold off as used / defective goods. Still others need to be sold as scrap. For making this decision, RL includes the important step of triage.

 

  • Repair

Repairs are an important process in the RL supply chain -- either for returning the repaired goods to the customer or for reselling the returned goods. Cost effective repairs can enable the RL center to actually become a profit center. In fact, the business model of several third party RL providers depends upon selling refurbished products at high markups. Some go so far as to actually provide warranties on the refurbished goods.

 

  • After Sales Support

Assume that the returned goods are refurbished and sold to a new customer. Now the RL provider has become the new seller. All aspects of after sales support, such as: servicing the product and supporting it with an Annual Maintenance Contract (AMC) are required even in the case of goods sold second-hand.

 

Why Reverse Logistics?

There are several reasons that make Reverse Logistics inevitable. Here are some of the most common:

 

  • Returns

Some goods are invariably returned to the seller. This is true in physical retail as well as in an ecommerce setup.

 

  • Mis-delivered or Undelivered Goods

If you are an ecommerce player selling virtual goods that can be delivered electronically, you might be blissfully ignorant of the nightmare of mis-delivered or undelivered goods. But physical goods not reaching the desired destination is a common problem that ecommerce merchants have to grapple with.

 

  • Damaged Goods

Ordering a brand new iPad and receiving one that has a cracked body or a scratched screen is unacceptable. But it is bound to happen sometimes. Such damaged goods get returned by the customer or the logistics provider.

 

  • Malfunctioning Goods

"I received the pottery wheel, but it refuses to spin" is the last thing a successful ecommerce business wants to hear. But since 100% error-free performance is impossible, there will be occasions when goods will not work. This is not exclusive to ecommerce; it happens in physical retail too

But a customer who physically collects goods at a retail store finds it logical to travel back to the store to return the malfunctioning goods. In ecommerce, the customer would prefer a pickup from her location, or at worst an option to mail in the malfunctioning product.

 

  • Exchange Programs

"Give us your old and obsolete gizmo and get the latest model" is a slogan that finds appeal with many. Several customers refuse to upgrade, as they are unwilling to trash a perfectly fine, albeit old, product. Exchange offers are compelling for the customer, but they create the additional process of collection of goods for the ecommerce business.

 

Why Reverse Logistics Is Important

If you have read the above list closely, you know that there is no escaping reverse logistics. But I would like you to think of RL as more than merely a necessary evil. Here are some of the reasons why RL is so important to an ecommerce business:

 

  • As a Strategic Advantage

Though the ecommerce enterprise is quite complex, customers have only two clear windows into the business -- the website and order fulfillment. If either of those two is found lacking, the customer will lose the confidence necessary to make a purchase. RL is an important part of order fulfillment. Hence a strong RL setup can be a strategic advantage to an ecommerce business.

 

  • Customer Retention

In much the same way as RL can act as a strategic advantage, it can also help in customer retention. A customer who is able to return or exchange with little pain is likely to be a satisfied customer. And a satisfied customer is likely to be a customer for a long time.

 

  • Regulation Compliance

When RL results in damaged goods, it leads to waste. And there are regulations relating to waste, especially e-waste. This proves that RL is not just about customer delight; it has to do with aligning oneself within the legal environment of business.

 

  • Profitability Through Asset Recovery

If your ecommerce business does not have a sound RL plan, it is probably losing out on the golden opportunity to profit from the piles of goods that fell out of the supply chain. In an era of wafer thin ecommerce margins, effective RL could be the difference between being profitable or not.

 

  • Shareholder Value

As a manager of an ecommerce business, you know that it is your fiduciary responsibility to deliver value to shareholders. So you need to cash in on the multiple opportunities that RL provides.

 

Using a Third Party Reverse Logistics Provider

Just like the logistics of an ecommerce merchant can be outsourced to a third party logistics provider, there are specialist third party providers of RL too. These are organizations that specialize in receiving goods from customers, refurbishing them, and selling them at steep discounts.


RL Outsourcing Insights


Interestingly, the markups that RL providers use often tend to be higher than the original markup by the ecommerce merchant. This isn't really the anomaly it seems, as the ecommerce merchants could get saddled with returned goods. Once these goods start piling up, the ecommerce merchant would not be able to continue its usual business owing to the monies blocked in these goods.

   
RL are often more time sensitive than getting the goods to the customer in the first place. This is because of the risk of obsolescence, or usability, of the returned goods. This is one of the many factors that motivate ecommerce providers to outsource their reverse logistics setup.
   
A significant part of RL involves trashing the goods collected from customers. Waste has always been a contentious issue with ever changing legislation. As a result, a specialist RL provider is usually in a better position to dispose off a product in a manner that is compliant with regulation.


Note:
For more on outsourcing – see “Outsourcing – Flexibility & Speed Are Key Factors”






Changes in both the B2C and B2B marketing, plus changes in the overall supply chain landscape have created a powerful need in many companies for an integrated returns processing capability. In response, many logistics companies are adopting Distributed Order Management (DOM) tools that have strong support for returns and other RL processes. When integrated with specialized RL services, as described above by Mr. Khurana, products can be more quickly and cost effectively returned to the marketplace freeing up manufacturing and logistics companies to focus on doing what they do best. As a result the supply chain industry performs more efficiently. For information relative to DOM see: http://www.scdigest.com/distributed_order_mngt.php .

Final Thoughts

 

While returns will always be a part of business they don’t have to be a cost of business. By taking a potential liability and making it a competitive advantage with secure and reliable returns management RL processes can increase your efficiency, retain customers, and foster growth for your business.

 

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