Reverse logistics represents a significant portion of the back-and-forth that takes place between buyers and sellers. When it comes to products moving from your business to your customers, costs can be easily managed and forecasted.
Yet, many companies fail to realize just how significant of a role the opposite course can play – as well as how important it is to optimize it.
Reverse logistics most commonly occurs when items move back upstream to the company that sold them. This can happen for a number of reasons, but what’s most important to note is that reverse logistics generate an entirely new set of expenses, challenges, and needs in the process.
To master this process, you’ll need to know what reverse logistics is all about and how to handle it effectively in a world of endless shipments.
What is Reverse Logistics?
Logistics pertains to the process of moving and storing all kinds of resources as they progress from point “A” (their origin) to point “B” (their destination). Reverse logistics effectively turns this same process on its head.
When a customer returns an order to a brick-and-mortar or an online store, that’s reverse logistics in action. This single action is part of the larger reverse logistics whole, which encompasses transactions between businesses and customers, customers and other organizations, or even between businesses and other businesses.
Interestingly, the term ‘logistics’ originally arose from military men and the highly controlled manner in which they managed the acquisition, storage, and transport of supplies.
This military-grade attention to detail is what makes worldwide shipping processes tick –without logistics and reverse logistics, items would have a hard time reaching their intended destinations and customers would have no way of ensuring returns make it back to the original source.
Reverse Logistics vs. Traditional Logistics
Traditional logistics commonly refers to the creation and movement of goods from suppliers, to manufacturers, to retailers, and ultimately to the end-user customer. Conversely, reverse logistics follow goods as they’re returned from customers to retailers, manufacturers, or suppliers for everything from disposals and exchanges to traditional product returns, warranty fulfillment, and scheduled maintenance.
In essence, reverse logistics begins with the end-user or recipient of a product. When this individual or organization initiates the reverse logistics process, the original provider of the product or material in question is expected to have systems in place for receiving and processing them.
Once received, products must be processed in accordance with both the provider and the recipient’s expectations. Specific reverse logistics practices vary between businesses, but they all have to provide a way to process goods efficiently – otherwise, they risk losing customers due to bottlenecks, delays, frustrations, or unexpected costs.
Types of Reverse Logistics
Although a full list of reverse logistics is difficult to draw up, given the complexity of retail and B2B spaces, there are a few common examples of reverse logistics procedures that can help you better understand the process.
- Product Returns: This is one of the most familiar forms of reverse logistics. Whether an item doesn’t fit, isn’t what the buyer expected, or is simply not needed, returning it means that it must pass through the stages of the provider’s reverse logistics program to return from the end user to the appropriate location.
- Refurbishing & Maintenance: Another vital example of reverse logistics, scheduled refurbishment and maintenance are offered by many businesses as a part of their competitive advantage.
- Unsold Goods: Here, retailers and third-party sellers may return inventory for credit with manufacturers or rotate their inventory periodically. Item recalls could also factor into this particular type of reverse logistics.
- Rentals: Leased, rented, or otherwise borrowed items may be returned to providers after a set period or immediately after use. A reverse logistics pipeline creates a smooth return journey back to the original provider.
Examples of Reverse Logistics
The following examples of reverse logistics in everyday operations and exchanges can help you better understand the term.
Reverse Logistics in E-commerce
Whenever a customer is left unsatisfied with an e-commerce purchase, their only recourse is to engage with the store’s reverse logistics process. This may mean requesting approval to return their product or item, and then receive a refund or store credit once the item has successfully been recaptured and redelivered to the appropriate warehouse or distribution center.
Reverse Logistics in Manufacturing
Reverse logistics plays a vital role in lowering materials costs for manufacturers of all types. End-of-life items can be sent back by buyers or picked up and brought to treatment facilities or recycling plants for careful processing. In this way, materials can be recovered at a reduced cost and new products can be created with a smaller environmental footprint.
How Reverse Logistics Work for E-commerce Businesses
For e-commerce businesses, reverse logistics processes begin when a customer reaches out to initiate a return. At this point, the seller can manually or automatically capture details regarding the return, as well as provide return authorizations and instructions.
When this is done, the buyer sends back the item and the seller takes the necessary steps to reintroduce the item to inventory or the appropriate disposition channel. This process is roughly the same for all e-commerce businesses, though the size of the company and the complexity of its tech stack can affect how exactly exchanges, replacements, sorting, and remuneration occurs.
The Importance of Reverse Logistics in E-commerce
Accommodating your customers with a full-featured reverse logistics program is essential for e-commerce companies. To help handle the intricacies of both standard and reverse logistics, many companies choose to bring on dedicated logistics professionals or outsource the management of logistics-related tasks to specialist providers.
Shippo can help your team tackle a number of common cost-related issues that can occur where reverse logistics are concerned.
Causes for Returns (and How to Limit Them)
Returns are often a fact of life for small businesses and e-commerce retailers. However, it is possible to decrease returns – and the increased costs and reverse logistics complexity that goes along with them – with the following steps, among others:
- Make sure that your website accurately describes and portrays all of your products
- Double down on quality assurance (QA) and maintain high quality standards
- Communicate clearly and frequently throughout the customer journey so that customers know what to expect
That said, customer return rates aren’t the be-all, end-all of small business success. Instead of trying to eliminate them entirely (which is impossible), focus on creating a great returns experience – perhaps by offering free return shipping or processing refunds quickly. You can also reference how other e-commerce companies handle returns for inspiration when building your own customer-centric return policy.
How to Optimize Reverse Logistics for Your E-commerce Business
Any improvement to the reverse half of your logistics processes can open the door to better customer relationships and greater customer loyalty. Fortunately, there are plenty of advanced tools you can employ to simplify your reverse logistics processes, while also ensuring your customers face little to no friction if they need to make a return.
Shippo’s full-featured shipping software can help keep your reverse logistics processes in check. Whether you’re aiming to simplify the returns process for your customers with auto-generated shipping return labels, or whether you need a better way to handle shipping cost management, Shippo can help.
Sign up for free today.