What is reverse logistics?
The practice of reverse logistics is defined by the Reverse Logistics Association (RLA) as ‘all activity associated with a product/service after the point of sale’.
Reverse Logistics is an umbrella term for activities including returns, repairs, refurbishment, remanufacture and recycling. In particular the movement and processing of goods in these activities.
What challenges does reverse logistic pose compared to traditional logistics processes?
The standard logistics process sees good moved from a supplier to an end customer. Whereas the reverse logistics process sees goods moved back into the supply chain e.g. moving goods from the customer back to the manufacturer or distributor.
And as a result, the reverse logistics process poses different challenges to the traditional logistics process and supply chain management.
Forecasting is more difficult – reverse logistics demand is driven by consumer actions. It is more difficult to forecast these; which types of product will be more likely to be returned or fail and therefore how high demand is going to be.
Data capture – capturing data about why an item has been returned, the condition it has been returned in and customer data all present their own challenges and require efficient systems to manage.
High costs – the reverse logistics process involves costs for the returns process, transportation, repair costs, service costs and reselling costs. And it is thought some businesses struggle to keep track of these costs and assign them to the reverse logistics process. Not being able to track costs makes it difficult to control them.
Receiving returns – the receipt of returned goods or those moving back through the supply chain is unpredictable. Businesses do not know when they will come back to them. Unlike with the traditional logistics process which is managed by the supplier.
What is driving the increasing demand for reverse logistics?
Many factors are driving the increasing demand for reverse logistics such as:
- The rise of online shopping in the retail world is driving different consumer behaviour – ordering multiple items with the intention of returning one or more goods and more impulse purchases which translate into higher return rates
- Customer expectations are also changing, with demands for a more efficient and generous returns process and policy
- The rise of technology such as mobile phones, which when damaged or broken, need to be returned for repair or refurbishment
- Increasing consumer rights when it comes to returns, repairs and replacements
How should your business respond to this increased demand?
The Reverse Logistics Association suggests that returns are costing supply chains $50 billion each year and that these costs are expected to continue to grow.
So, if your business is dealing with an increase in demand within the reverse logistics process then keep some of these things in mind:
Recognise the need – businesses which have, at any point in their Supply Chain, the ability for materials or goods to move back upstream have a case for creating a formal reverse logistics process
Manage the process – Historically it is reported that many businesses give little attention to the reverse logistics process. If you put proper reverse logistics management in place you can drive down costs, increases revenue and meet consumer needs process
Focus on the customer – this gives you the chance to turn what can be a negative experience (the need to return a product) in to a positive one if you manage the process well
Use Data – you can use data created through the reverse logistics process to reduce costs, identify the cause of returns and aim to minimise future returns.
Supply chain management and risk management are important to business of all sizes. At Anthony Jones we have a wealth of experience advising our customers and getting to know their businesses so that we can identify any risks and the associated insurance needs. Get in touch with us today to find out more.
