Introduction

Whenever one considers purchasing, the first thing that comes to mind is the return policy or procedure. They might want to get the product replaced or wish their full money back if they do not like the work later. The statistics state that 83 percent of consumers consider a return policy before hitting purchase. The e-commerce market has become quite popular in recent years because of their convenience and the easy return policy they offer. But what goes behind the return procedure is what is a challenge for the retailers. As e-commerce sales continue to increase, the returns that go-hand-in hand creates a significant problem for the retailers. Issues like returns being processed too slowly and the goods don’t get back on the shelves soon enough, which leads to a decline in the price of the product. The process of return and refund are crucial factors for a retailer as it is equal to creating loyalty among the customers. This problem of the return process is known as reverse logistics.

What is reverse logistics?

Reverse logistics is the process of moving the goods from the user to the seller or the manufacturer. A Reverse Logistic model includes returns from e-commerce and retail and also components for refurbishing and remanufacturing. The products can even be resold or disposed of permanently.

Importance of reverse logistics

Reverse logistics have been a part of the retailing industry for over 100 years. The past five-ten years have seen a rapid growth in reverse logistics because of e-commerce. As per the reverse logistics association, returns on e-commerce orders are three to four times higher than the brick and mortar purchases. This is because consumers have the convenience of a hassle-free return policy. Some of the benefits of reverse logistics include-

1. Reduced cost– if the companies plan their returns and make the return order right, they can save costs like administrative, shipping, transportation, etc.
2. It will also help in retaining the customer. If the customer has had a bad experience with the product and the company rectifies it without any hassle. It can engage more customers and maintain customer satisfaction.
3. Reverse logistics help with shipping the original product and replacement or reimbursement of the defective product. This will ensure better customer engagement.
4. With an excellent reverse logistics plan, the company can cover its loss of investment of the failed product by fixing and restocking the unit, scraping it for parts, or repurposing it in the secondary market.

Examples of reverse logistics

Some of the examples of reverse logistics include-

1. Return of goods by the customer
2. Refurbishment of goods
3. Recycling and disposal of end-of-life products
4. Reuse of packaging
5. Return of unsold goods by distribution partners
6. Repairs and maintenance as per the guarantee agreements

Remanufacturing of goods from returned or defective items

Why is reversed logistics a problem for the retailers?

When goods leave the distribution center, they are neatly packed, but it is like a mess of boxes containing the returned product, paperwork, and excess packaging from the shipment when they return. Also, a truck full of products from the supplier can take 6 to 8 hours to process and sort, while a truck full of return items will take around 48 hours to sort as one will have to check each item separately. In short, processing the returns requires 20 percent more space and twice the labor than the original package’s shipment when ordered. Reverse logistics is not a simple return but includes a host of other things like recycling, reclamation, reuse, and repackaging goods for re-distribution. Reverse logistics is one such problem that technology has been trying to solve for the logistics industry. Returns and overstocking is leading to approximately $2 trillion losses in the retail sector. The data also reveals that around 40 percent of customers process returns during the gifting season, which becomes a burden for retailers with excess inventory and price reduction.

How is technology helping the problem of reverse logistics?

The problem of reverse logistics was recognized by technology a long time ago. No doubt, with advancements in technology each day, it can better manage the receiving of returns. Technology will help solve various problems faced by the logistics industry.

1. Tracking the value of goods- the major problem with reverse logistics is that the products’ value decreases as the returns increase. For instance, if the dress costs 2000 rupees when the customer first orders it. But once someone brings the dress for recovery, the cost for the same dress decreases. This is because the cost to ship the goods back to the seller creates a loss of around 40-70%.

If one uses IoT, though, one can reduce these unnecessary losses. These zero cost items can be discounted or sold at outlets nearby to maximize these items. This will increase the value of the product for the buyer. This way, any unused item can fetch more price than the original price.

2. Tracking warranty status- with many products, some parts of the product have a more extended warranty period than the finished product. The technology can help by using software that can provide a list of products under the seller’s warranty. This will reduce a considerable amount of money by claiming warranty reimbursements from the suppliers. This can save the cost for both the buyer and seller.

3. Subscription model- many subscription models, send customized items to the customers every month. Customers are free to return what they do not like, and the reverse logistics technology will help customers return and deliver the product to a new customer on the same day. Thus, saving a considerable amount of money.

4. Handling the seller-chain dealers– before the product reaches a buyer, it goes through many people. It is first sold to the C&F agent, then to the distributor. Then it is sold to the wholesaler and then to the retailer and finally reaches the customer. The reverse logistics technology can come in handy here by keeping track of reverse logistics interaction between these individuals, which is impossible.

Some other ways in which technology helps in managing the receiving the returns

1. Integrated risk management software- supply chain executives should also use the integrated risk management software in the return process. Through integration, the executives can check the real picture of supply chain health and mitigate losses. The businesses should think of ways to lower their costs, handle the threats, and create sustainable reverse logistics processes.
2. Artificial intelligence– using artificial intelligence as a reverse logistics technology helps improve the modern supply chain. Artificial intelligence can help sort and process the millions of returns and repairs to understand the product’s possible issues. Artificial intelligence with the recycling and reclamation phase of reverse logistics can grow the supply chain’s revenue and productivity.
3. Sustainable reverse logistics process- how the businesses apply the technology to improve the supply chain also shows how sustainable the business process is. Sustainability here implies focusing on goals and delivering higher customer satisfaction along with the least environmental risk. The supply chain executives should train their staff on how to use these technologies efficiently.
4. Embedded analytics- analytics embedded within reverse logistics technology helps determine the inefficiencies and enables the supply chain executives to make better decisions. Analytics also has broad applications within the reverse supply chain. Applications like driver and carrier selection for returns management, tracing returns to specific distribution centers, identifying and notifying customers of possible recalls.

Key supply chain analytics

These four key supply chain analytics can help you understand the flow of returned products entering your supply chain.

1. Volume- if the items are being returned again and again in large volumes, then one may consider a recall or an overhaul of their production process.
2. Condition the product is returned in- if one has a problem determining the failure of the returned product or the product is failing after a specific operation, one needs to check on the quality assurance and error reproduction and correct the problem before it happens again.
3. Percent of sales- to monitor this aspect, one needs to understand the percentage of sales lost in returning the product. What one can do to minimize losses and so on.
4. Financial value– reverse logistics will help in figuring out the losses the company might suffer. With the help of reverse logistics, electronic companies manage to turn product failure into new profits.

Conclusion

Reverse logistics is going to be the next big thing to look for in the future. It will play a crucial role in the viability of business structures. The quality of reverse logistics will also impact the competitiveness and sustainability of the supply chains. Technology has made many advancements and is trying to look for new ways and techniques to resolve reverse logistics.