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What is reverse logistics?

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In the first 'What is' column of 2022, SHD takes a look at reverse logistics.

Managing the process of goods that are returned and guiding them back through the supply chain is known as reverse logistics. A term most usually heard in association with the retail sector – particularly since the online shopping boom - reverse logistics is by no mean exclusive to the retail sector and most other industries have plenty of incentives to optimise their returns processes.

For example, brewers often want to retain the value of their kegs and barrels by reusing them. This involves transport planning, the management of shipping loads and, of course, cleaning the containers before they can be refilled and begin their journey through the downstream supply chain once again.

In the construction industry, reverse logistics strategies are sometimes employed to move and recycle salvaged materials to new sites, while in the food sector, companies must deal with rejected food shipments as well as returning packaging materials and pallets.

In essence, the objective of reverse logistics is to minimise costs and recover value from unwanted products and, while companies are increasingly aware of the benefits of managing returns effectively, moving goods backwards through the supply chain can be a difficult and complex process. Indeed, some fashion retailers have concluded that it is simpler and cheaper to allow online customers to keep unwanted items rather than attempt to run a reverse logistics operation!

But businesses that do manage to implement an effective reverse logistics process can recapture a considerable chunk of an unwanted product’s total cost.  In fact, for retailers in particular, the battle to protect margin and remain competitive is increasingly dependent on the ability to master the returns process.

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It is estimated, for example, that between 30 and 50 per cent of fashion items purchased via the internet are sent back and, at any time, as much as 10 per cent of resalable inventory is within the returns process and unavailable for onward marketing. So digital fashion retailers that fail to put adequate networks in place to process inventory as it comes back to the business risk finding themselves at a significant commercial disadvantage.

And, with some studies suggesting that as few as 48% of returns are subsequently resold at the full original retail price, it is imperative that online traders have in place timely and efficient processes that realise the maximum residual value of returned goods at the least additional cost.

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The returns management process is influenced by many factors, from marketing strategy, brand image and customer service to the costs incurred and cash recovered.

Retailers, understandably, tend to focus on the front end of sales and marketing to get the customers in, but there is no point in driving more customers to a website or store if a retailer fails to get the supply chain fundamentals right, and that must include reverse logistics and returns management.

But for online traders, efficient reverse logistics is about more than cutting losses: countless studies point to the fact that consumers are inclined to shop more with retailers who make the returns process easier, so a good returns experience breeds loyal customers and drives sales.

Consumers expect a quick, often free, no hassle policy that allows them to freely shop with the confidence of knowing that they can easily return an online purchase if it is not suitable - for whatever reason. And it is increasingly common for shoppers  to review an online retailer’s returns policy before making a purchase and, if choosing between different sellers, consumers will usually pick the retailer that appears to offer the quickest and most straightforward returns policy.

Of course, the ideal position for retailers is to minimise returns and while some sellers might be tempted to make an effort to reduce returns volume by making the returns process less straightforward for the consumer, there are few brands or retailers who’d risk losing customers and revenue by introducing significant changes to their returns policy.

So, as companies across all industry sectors strive to hone their supply chains to enable them to meet the demands of their customers as efficiently and cost-effectively as possible, reverse logistics - once an often overlooked and frequently neglected aspect of logistics management – has a key role to play in modern supply chain strategy.

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