The 5 R's of Reverse Logistics

Being smart about your supply chain means optimizing every link – from forward to reverse logistics. While most companies are actively working to optimize their forward supply chain, the returns management process remains a black hole – a cost center offering little visibility into what products are in the pipeline and whether they should be repaired, repackaged, restocked, recycled, disposed of or be in the reverse channel at all. As a result, returns cost consumer companies billions of dollars every year.

The good news? All that is changing. Especially in the automotive, retail, and technology sectors, where recalls and consumer returns are increasing. In an effort to squeeze more efficiencies and cost savings from the supply chain, companies are focusing on reverse logistics – the last and most overlooked frontier for supply chain optimization.

As they do, they’re streamlining the five R’s of reverse logistics – returns, recalls, repairs, repackaging and recycling. In all actuality, there are more than five R’s to reverse logistics (think receiving, recovery, reconditioning, re-boxing, resale etc). However, for the sake of discussion, let’s group them into five main categories and take a closer look.

What is reverse logistics and why does it matter?

Traditional (forward) logistics encompasses the flow of products from factory to consumer. Reverse logistics encompasses recapturing the value of returned products, parts, and materials from the end consumer by getting them back into the marketplace as swiftly as possible or by properly disposing of them.

Returns management activities typically include repair, warranty recovery, redistribution, value recovery, product and service contract returns, product recalls, used equipment and replacement parts for refurbishment, resale or sale as raw material.

So why does reverse logistics matter? Its impact is significant on two fronts – returns impact both the customer experience and the bottom line. An Aberdeen study revealed that the average manufacturer spends between 9 and 15 percent of revenues on returns. High-tech companies, especially, can realize significant near- and long-term benefits by optimizing their reverse logistics processes. In fact, improving reverse logistics processes in an effort to maximize asset recovery rates and reduce costs – can deliver a return of up to 5 percent of total sales.

In addition to financial impacts, a well-oiled returns process can have a positive impact on the customer experience – important when you consider that the average cost of getting a new customer is five times that of keeping one. When you interact with customers effectively during the return experience, you won’t just drive repeat orders – you improve customer satisfaction and loyalty.

For these reasons and more, it pays to improve returns management in five key areas.

Returns

Returns are typically the first step in the reverse logistics flow. Customers return products for a number of reasons. An item may be defective, damaged, seasonal, fails to meet expectations, or simply represents excess inventory.

Whatever the reason, the key to handling returns efficiently is having processes in place for receiving, inspecting and testing products, along with return material authorization (RMA) verification and tracking systems. Some companies find it’s more efficient to decouple the return and repair processes completely.

Recalls

Another way parts and products are returned is through recalls. A critical reverse logistics category, recalls are more complex than basic returns because they typically involve a product defect or potential hazard and may be subject to government regulations, liability concerns or reporting requirements.

High-tech devices are typically recalled because of faulty electronics, construction issues, problems with batteries or potential hazards. The key is to have processes in place to receive, replace, resell or reclaim failed parts/products – and whenever possible salvage revenues and turn a potentially negative customer experience into a positive one that builds brand trust.

Repair (also refurbishment, re-use, or re-manufacturing)

Not all products that are returned go directly to landfills. If the faults are not too severe, manufacturers identify the failure and repair, refurbish or re-manufacture the product to like-new condition and return it to stock. Alternately, at end of life, manufacturers may harvest various functional components for re-use.

These practices are becoming more common as manufacturers recognize the value of re-using materials from returned goods. This may be to advance sustainability efforts, recoup costs or both. Either way, retail shelves are increasingly stocked with both new and re-used or re-manufactured products.

Without a reverse logistics process in place to streamline the repair, refurbishment and/or re-manufacturing of these products – and inventory management processes to go with them, you may invest too much time and money on repair parts or labor. Visibility and tracking are essential to ensuring efficiency.

Repackaging (for restock or resale in secondary channels)

There are two scenarios where returned parts and products might be re-manufactured. Most products are returned because customers are dissatisfied with them (in the neighborhood of 95 percent) not because there’s something wrong with them. When testing reveals “no trouble found,” these products are typically repackaged and returned to inventory as quickly as possible.

Alternately, parts/products with minor flaws may be repaired, reconditioned and repackaged for resale. This is an area where co-locating forward and reverse logistics processes can deliver important returns. With multi-line packaging capacity already available for packaging new products, the same facility can be used to repackage returns for resale using secondary channels like overstock.com.

Recycling, disposal, and disposition

The focus on recycling returned or end-of-life parts, components and products is driving more sustainable practices in every industry, but particularly so in high-tech. When products reach the ends of their useful lives and must be scrapped, electronic manufacturers are increasingly finding safe, cost-effective and environmentally friendly ways to dispose of them. That might mean engaging third-party recycling companies to collect/reclaim waste and dispose of assets for them.

One area that’s seeing a surge in recycling and reclamation efforts is in high-tech devices like mobile phones or circuit boards, where companies recover rare earth metals like gold, silver, titanium, palladium or copper. By salvaging, reclaiming and re-using components, companies can reduce costs and minimize waste.

Setting up or fine-tuning reverse logistics processes can be a complex and time-consuming undertaking. Especially if reverse logistics is not a core competency or you don’t have the in-house resources to devote to it. As a result, many businesses outsource returns management to experienced third parties that can help them improve quality, cost savings, visibility, inventory management and the overall customer experience.