The traditional supply process of a product ends with the purchase and receipt of it by an end customer. However, in the e-commerce era of companies like Amazon or Zalando, this is not the final part: Zalando delivers 208 orders per minute. According to a report by Zeit Online, half of them are returned. The volume of returns grows rapidly and forces an effective reverse logistics.
This significant aspect of the supply chain strategy is often neglected since we mostly only talk about freight forwarding, i.e. the delivery to an end customer. Its counterpart reverse logistics is just as important.
What reverse logistics means
Reverse logistics deals with the process by which goods are moved from their typical final destination, e.g. through reuse or proper disposal. The type of reverse logistics, that has the strongest impact on the supply chain, is the return of products from the customer to the producer. The returns in the following four scenarios are considered as reverse logistics:
- Damaged goods
- Denial of price-performance ratio or incorrect product description
- The customer no longer wants the product
Operational challenges of reverse logistics
Due to high expenses, the processing of returns is an enormous challenge, especially for e-commerce traders. The amount of returned goods that are returned from the end point (customer) along the supply chain is usually much higher than originally calculated. Up to 50% of all deliveries are sent back. This in turn means not only lost sales for companies but also associated personnel and process costs. Furthermore, the high rate of returns takes a lot of time, since the returns of products need to be carefully checked and returned to stock or properly disposed of.
Benefits of effective reverse logistics
In fact, the effective handling of returns plays an important role when it comes to environmental sustainability. Through effective reverse logistics, corporations can avoid inefficient return processes that cause unnecessary transport movements. Subsequently, this helps to reduce CO2 emissions and improve air quality.
However, many businesses treat returns as waste and hence, simply throw them away. A German TV channel (Mitteldeutscher Rundfunk) reported that in 2018, approximately 4% of returns in e-commerce were destroyed. This corresponds to about 20 million items, of which an estimated 7.5 million were defect-free. In times of climate change and scarce resources, this is a huge problem that urgently needs to be addressed.
An effective reverse logistics contributes to several positive impacts, in particular in terms of sustainability and improved customer satisfaction.
Advantages of efficient reverse logistics
- Minimisation of costs caused by returns: Companies can apply reverse logistics practices in order to reprocess goods or defective end products. Thus, they can be reused or resold. In this way, the maximum value of a returned product is generated and accompanying costs are compensated or minimised.
- Positive reputation: In today’s society, the protection of the environment has established itself as a value and need of modernity. A company that recycles its end products sets a good example and meets the needs of the community. This leads to a stronger, loyal customer base, a gain in sustainability-oriented customers and a positive image in society.
- Improved organisation of inventory: With the help of efficient reverse logistics, a company can take measures to optimally monitor its stock. As a result, the storage of obsolete goods can be avoided and errors can be reduced through the quality check of returned products.
Companies should develop a sustainable plan for dealing with end-of-life devices, recall actions or repairs of equipment. Reverse logistics and recycling of goods strengthen companies by exploiting the full potential of a product, communicating a positive image to customers and providing opportunities for inventory optimisation.
Nevertheless, also consumers can contribute significantly to sustainability by using and ordering goods more responsibly. Finally, global warming and decreasing resources are the consequences of wasteful consumer behaviour by today’s society.
What is your opinion on reverse logistics? Share your thoughts with us in the comments.
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