What is reverse logistics and how can you optimise it to reduce your costs?

December 5th, 2023
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While sustainability and cost reduction are high on the corporate agenda, product returns management makes up a significant challenge. Thanks to reverse logistics, also referred to as return logistics, this issue can be transformed into a real opportunity. By adopting efficient reverse logistics practices, companies can not only reduce their environmental impact but also improve their profitability.

Reverse logistics: Origins and definition

With the growth of e-commerce, product returns have become increasingly frequent. Depending on the European country, the return rate for products purchased online varies between 7 and 15% among adults (25–64 years old). Unsurprisingly, these figures rise significantly among young adults (18–24 years old)[1]. While these returns represent an obvious economic and environmental challenge, customer satisfaction should not be overlooked. Nowadays, customers want a clear and simple returns policy.

Consequently, managing these flows of goods is a real challenge for companies, particularly in certain sectors (distribution, fashion and clothing, electronics, etc.). This observation led them to take a closer look at the concept of reverse logistics, a supply chain management process.

By definition, reverse logistics refers to the process of returning goods in the supply chain, from their final destination (the consumer) back to their point of origin (the retailer, supplier or manufacturer). The global leader in transport and logistics, DHL, has outlined what reverse logistics is all about: “It’s the logistics activities after the initial sale of a product to potentially extract value or end the product’s life cycle. This includes the physical transport of goods as well as the organisational and administrative elements, such as managing returns, exchanges, and recalls."

Often mistaken with customer service, it nonetheless covers a much wider range of activities, including collection, sorting, warranty management, reuse, repair, refurbishment, reconditioning, resale, waste recovery, recycling and waste management.

The benefits of reverse logistics

Falling under the umbrella of circular economy practices, using reverse logistics offers several benefits, aligned with Corporate Social Responsibility (CSR).

Boosting revenue

First off, reverse logistics can boost a company’s incomes. The convenience of product returns remains a decisive factor in the consumer’s buying journey. The flexibility offered through an effective product return policy therefore contributes to attracting prospects, retaining customers, and consequently, increasing sales.

Opening up new opportunities

Through effective reverse logistics, a company can reclaim the economic value related to returns. Thus, new solutions can be considered for reusing materials or tapping into new markets

Limiting environmental impact

As it favours product reuse while reducing waste production, reverse logistics also plays a pivotal role in reducing a company’s carbon footprint. By avoiding the simple disposal of returned products, a company can lower its consumption of fresh raw materials and of energy in an effort to protect the environment.

Improving stock management

Finally, reverse logistics equates to improved inventory and warehouse management within a company, mainly as it limits overstocking of used products.

Ultimately, all these factors influence both a company’s competitiveness and its image in the eyes of customers.

Some key figures
· The global electronics recycling market was estimated at 39.8 billion dollars in 2022. It is forecasted to reach 110 billion dollars by 2030, with an average annual growth rate of 13.6%.[2]
· Paired with a number of smart robots, artificial intelligence reaches a precision level of up to 98% in the sorting of various materials ranging from plastic packaging to construction and demolition waste[3].

Best practices in reverse logistics

To create an efficient, cost-effective, and sustainable reverse logistics process, companies can rely on several best practices.

Analyse returns

The first step of implementing a reverse logistics system involves studying the causes and needs related to the return of an item or equipment. This way, each company can adapt its processes (procedures, terms, packaging, etc.) in order to reduce its operational costs.

Optimise processing

In a second stage, setting up a dedicated space for the reception, control, and storage of returned goods can be appropriate. This facilitates the control and tracking of these products, thus allowing the best option (repair, reselling, recycling, etc.) to be chosen with profitability in mind.

Emphasise automation

It is also possible to automate, or even robotise, various processes related to the handling, transport, and control of products. Thanks to new technologies, operators only have to scan the products and have them go through quality management so that they are automatically referenced and listed. This boosts productivity while limiting the risks of error or loss.

Outsourcing the service

Some companies specialising in reverse logistics offer to manage this type of service on behalf of other companies. Because they have the expertise and the required infrastructure, they can help their customers gain flexibility while reducing operational costs.

Of course, the best reverse logistics strategy remains the one that does not exist, as it would imply perfect satisfaction of customers’ needs and robust recycling channels. However, product returns management is very much a reality at the heart of the supply chain. For companies, it is a unique opportunity to differentiate themselves by rethinking their business model in favour of sustainable development.

[1] Statista, Average product return rates among digital shoppers in Europe, 2021

[2] Global Industry Analysts, Inc, Electronics Recycling: Global Strategic Business Report, 2023

[3] Ellen MacArthur Foundation, Artificial intelligence and the circular economy: AI as a tool to accelerate the transition, 2019

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