In a traditional manufacturing process of a product, the supply chain usually starts with the acquisition of raw material, which goes through a transformation process to then be marketed and distributed to consumers / users. In the distribution process, problems may arise due to address errors, impossibility of contacting the user or even that once the product is received, the user decides to return it due to an error in the number of items, missing items, differences in measurements, color, sizes or quality problems.
Therefore, companies need to plan all the processes involved in the value chain: raw material acquisition, transformation/production, international transportation, customs duties, local transportation, warehousing, distribution and reverse logistics.
What is reverse logistics?
Reverse logistics also known as reverse distribution is the process of planning, organizing and controlling the flow of raw materials, in-process inventory and finished goods from the point where it reaches the consumer to the point of origin or where it was manufactured.
This modality follows the same line of traditional logistics, but in reverse, i.e., it will take the goods that were dispatched from the point of consumption to the point of origin in order to recover the value of the materials or ensure their proper disposal.
Reverse logistics allows the efficient handling of finished products, identifying those that will be recycled or reused once they have lost their useful life. The purpose is to recover them partially or totally, thus reducing production costs and the environmental impact that could be generated.
How does reverse logistics work?
Reverse logistics takes into account the different aspects involved in the process from the consumer to being returned to the manufacturer. In this last phase, the decision will be made whether the product will be reused or destroyed.
It covers the strategies of: production process, raw materials, emission of pollutants, waste generation and even energy consumption.
Reverse logistics activities
After the product reaches the consumer or end user, the reverse logistics process begins. The most frequent activities can be seen in the following chart:
It starts with the withdrawal of the goods or the collection of the product to be returned through reverse logistics. Then, it is transported to the warehouse of origin where the logistics processes are processed. The collection or return process can be carried out by the merchandiser or the user, depending on the merchandiser's strategy.
Once in the distribution center, the products received are inspected and classified according to the defined parameters: can they be reused, should they be recycled, destroyed, returned to the manufacturer, if the product can be resold, it is generally reconditioned or repackaged to be put back on the market.
If the product is to be discarded, it is necessary to define which part can be recovered and recycled. In the case of hazardous waste, the process will be followed to give it the appropriate treatment.
Why is a reverse logistics strategy important?
One of the biggest challenges for companies in the reverse logistics process is the return rate and transportation costs. Currently, suppliers must pay high return rates due to high competition and the fact that consumers of mass consumer products, beauty and textiles, consider free shipping and return included at the supplier's expense as determining factors at the time of purchase (See Online Sales 2022 study. AMVO. Mexico).
The return rate can only be lower if suppliers improve the speed, cost and efficiency of product shipment. A determining factor will be to negotiate with specialized last-mile services that have nationwide coverage and flat rates that decrease according to the volume of shipments, in addition to having various communication channels and preferably at least 2 pick-up attempts.
According to the "Online Shopping in Spain Study" prepared by the National Observatory of Technology and Society (ONTSI) in 2021, approximately 40% of Spaniards indicated that they returned a product purchased online. This figure triples the number of returns made in physical stores, which can reach 50%.
The same report showed that 51% of buyers consider that returning an item is more expensive than keeping it.
The percentage of returns varies depending on the area being marketed. These returns reduce profit margins and significantly increase logistics costs.
Examples of companies using reverse logistics
Currently, most marketplaces (Amazon, Mercado Libre) and online stores (especially clothing, accessories and beauty stores) include within their supply chain the reverse logistics service for the return process of products free of charge with pickup via telephone appointment or delivery in parcel points. Some even include the return waybill with the package delivery, optimizing customer service costs due to returns.
For example, Amazon has well-defined return policies and requires its customers to prepare the product to be returned so that it arrives safely at its logistics centers.
The most usual time allowed is 30 days after the date of receipt.
Reverse logistics strategies
The reverse logistics strategies that can be applied in the company vary depending on the country, industry and type of product. Generally speaking, the steps required include:
Return policy and manual
By having a clear return policy you will avoid many inconveniences with customers. You will establish how the process should be carried out. It will also be a key factor to improve communication.
At this point it is also necessary to evaluate whether to implement a call center or hire an external customer service.
Communication
Define the dissemination channels and the time at which the return policies will be communicated, when it applies, which costs are covered by the supplier and which must be assumed by the client, service levels (allowed times), responsible for communication and response time.
Technology
With the advancement of technology, all processes can be automated, which allows speeding up procedures. For example, food delivery users can return the order from the same application.
Delivery service
For large companies, the most common option is to resort to specialized services to outsource reverse logistics.
Evaluation and improvement
When returns occur, it is important to record data such as: date, reasons, reverse logistics management time and the level of customer satisfaction.
This information will help you to know the most frequent dates when returns occur, the main reasons and other data that will help you to take the necessary corrective measures.
