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Reverse logistics can be a messy business. Most people think of item returns when they hear the term “reverse logistics”, but returns are far from the only aspect. There’s a quandary of information out there about reverse logistics, but I’ve consolidated some good information into five things you may not already know.
Your return policy has a huge impact on your sales.
Customers have a lot of choice about where they buy products. They factor many elements into that decision. One is the return policy you offer. In fact, the 2014 Pulse of the Online Shopper states that:
82% of those surveyed are likely to complete a sale if you offer a free return shipping label and in-store returns
68% are likely to complete a sale if you just offer the free return shipping label
But, only 20% are likely to complete the sale if you offer no in-store shipping and the buyer pays return shipping
66% of your customer will look at your return policy before they make a purchase
The study cites shades of gray between these scenarios, but the trend is clear: the better your return policy (in the eyes of the buyer), the more likely it is that they’ll make the purchase.
Poorly managing your returns can increase your costs.
Managing returns has influence on your costs and therefore your profitability. That means it’s important for you to take the steps to reduce this cost to your business. If you’re doing a poor job, you could be costing yourself money.
Logistics company Cerasis provides a helpful formula for calculating the impact returns are having on your business. Their reverse logistics cost equation is:
Processing Costs + Logistics Costs + Credits/Replacements Cost + Asset Depreciation = Total Reverse Logistics Costs
You might be surprised when you figure out just how much financial impact your reverse logistics processes have. This can also help you justify the investment in people who and technology that can help you get it right.
Re-shelving items isn’t the only way to make reverse logistics profitable.
The simplest-to-understand example of reverse logistics is something like a clothing retailer accepting returns. The customer brings back the pair of jeans. The retailer makes sure they aren’t damaged or worn. If they aren’t, the jeans get retagged and re-shelved for sale. If those jeans are still within the current season, they can probably still sell for full price.
That scenario has its own complexities: transferring items between stores, shipping online orders from returned items in stores, etc. It also has its own opportunities for increased profitability. But, if your business model doesn’t really align with that of a clothing store (for example), what are some other reverse logistics models you can consider?
Accepting used items to be disassembled and sold for parts. (Think cars.)
Taking in older items to be refurbished and resold at a lower price point. (Think computers and cell phones.)
Simply reselling items in a secondary market. They may not be as valuable as new products, but that doesn’t mean they won’t be profitable. I hear eBay is pretty good for this sort of thing. (Think music equipment.)
These are just a few examples. Ryder (the truck company) talks about some ways to take advantage of reverse logistics and the impact it has on sustainability. It’s worth a read for some more ideas.
You can outsource your reverse logistics to increase profitability.
Don’t think you have the budget or competency to invest in incorporating best of breed reverse logistics processes into your business? Did you know you can outsource that part of your business, and in fact, many Fortune 1000 companies do?
As with many other parts of your business, outsourcing can have a positive impact on the bottom line. It may cost a little more (it may not), but you’ll generally see gains in effectiveness of whatever was outsourced. Generally speaking, you’ll want to pay someone who really knows what they are doing to handle it for you. In the messy reverse logistics domain, outsourcing can really make it easier.
Fraser Direct offers some deeper insight into how you can profit by outsourcing reverse logistics. The article is a little self-serving, but they provide some good insight, all the same.
Managing reverse logistics is not like managing forward logistics.
You may excel at managing forward logistics, the typical kinds of things we generally consider along the supply chain. You may be lean and mean. But, that does not automatically qualify you to effectively manage reverse logistics.
Reverse logistics carries its own unique challenges and difficulties:
It’s largely unplanned and unpredictable, where forward logistics is typically very intentional.
There are different levels of what you could consider reverse logistics (it’s more than simply “returns”).
It can be largely undocumented, where forward logistics usually has a detailed paper trail.
Reverse logistics can have less obvious impact on the bottom line than forward logistics typically does.
Don’t just assume that because you can handle your forward logistics, you are doing a good job with reverse logistics. Assess your operation honestly and suspiciously.
Don’t just assume that because you can handle your forward logistics, you are doing a good job with reverse logistics. Assess your operation honestly and suspiciously.