Reverse Logistics – the Opportunities Outweigh the Challenges
Mark Millar looks at reverse logistics, suggesting how the problems generated by customers returning products can be remedied and even turned into advantages.
Reverse Logistics is complex and disjointed but represents big opportunities for value creation.
It includes the key processes involved in moving product back through the supply chain to accommodate overstocks, returns, defects and recalls, and is defined by the Center for Logistics Management at University of Nevada as “the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal”.
For product returns, Accenture report that on average it takes 12 times as many steps to process returns as it does to manage outbound logistics. The additional steps include activities such as assessing, repairing, repackaging, relabeling, restocking, reselling, recycling and refurbishing, which can result in the cost of reverse logistics being four to five times those of forward logistics.
However, best-in-class practitioners can directly correlate their reverse logistics expertise and systems to positive impacts on Customer Satisfaction, Brand Equity, Competitive Differentiation and Profitability.
Reverse logistics is big business - in the USA it is estimated that manufacturers and retailers are now dealing with $100 billion of products being returned on an annual basis. Here in Asia, product returns are destined to expand exponentially, driven by two rapidly accelerating consumer trends – online shopping and the proliferation of electronic gadgets.
Why are products being returned?
According to the Reverse Logistics Association, products are returned for numerous reasons:
What is interesting about these reasons for returns, is how by improving processes within the forward supply chain, companies could surely eliminate many of these returns – for example Late Delivery, Missing Parts, Damaged, Not Functioning – representing some 46% of returns.
Furthermore, one could argue that additional diligence during the sales and customer service processes may further reduce the volume of products that are returned due to No Reason, Different than Expected, Not Satisfied with Performance, Did not want Product and Found better competitive product – another 39% of all returns.
In practice however, companies do need to balance their acceptance of product returns in line with their philosophies and policies for their brand, warranties and customer service.
The complexity of reverse logistics involves many more transactions than the forward supply chain and the various activities relating to product returns will span across many functional departments – sales, customer service, finance, warehouse, repairs and transportation. For the majority of these functions, product returns are likely seen as much more of an annoyance rather than a priority.
However, with effective returns management providing tangible opportunities for businesses to reduce costs, recover value and improve customer service, appointing one senior leader to be responsible for all aspects of product returns will focus attention and harness the resources to capitalise on the opportunities.