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Managing the 5Rs of reverse logistics is key to business success

Discover how an optimized reverse logistics strategy can turn losses into gains.
Discover how an optimized reverse logistics strategy can turn losses into gains.
04 April 2024 •

Businesses have long concentrated on the seamless flow of products in supply chain management from production lines to the hands of eager customers — a process known as forward logistics. However, as commerce evolves in the fast-paced landscape of the 21st century, the return of products to the manufacturer or retailer, also known as reverse logistics,  is gaining prominence.

Going against the conventional flow from manufacturing to distribution to the end consumer, reverse logistics focuses on the journey of goods from their final destination back to the manufacturer or retailer. This process could occur for various reasons, including returns, handling rental equipment, addressing delivery failures, managing end-of-life products, and more.

Despite being a norm for most e-commerce retailers, reverse logistics remains a broad, confusing concept to many businesses. Many organizations limit their scope to handling returns, failing to establish processes for product returns until the user experience becomes overwhelming or fragmented.

To navigate this complex landscape successfully, businesses must focus on managing the 5Rs of reverse logistics: returns, recapture, remanufacturing, reuse, and recycle. Understanding how to best manage these processes allows businesses to build a robust strategy beyond mere transactional aspects to success.

Returns

With free shipping and generous return policies available today, consumers have grown increasingly liberal with returning products that do not meet their needs. In 2022, a study revealed that return rates for e-commerce sales in Southeast Asia were between 15 and 20 percent, more than double that of in-store sales.

Some brands enable returns through parcel lockers where recipients can simply scan a barcode, place the item back in the locker, and confirm the return.
Some brands enable returns through parcel lockers where recipients can simply scan a barcode, place the item back in the locker, and confirm the return.

The growth trend in online sales has sparked greater demand for an equally convenient returns process. 83 percent of survey respondents said they would increase their online purchases by at least 30 percent if a smooth return logistics process was available.

Behind the scenes of the returns process lies a complex logistics operation. Beyond a clear return policy and established process of how a consumer can ship the product back to the retailer, businesses must ensure consumers have easy access to return shipping labels, drop-off points, and tracking, to build a user-friendly experience that will raise customer satisfaction levels and business results.

Recapture: Optimizing returns management

The journey of returned goods does not end when they re-enter the warehouse; in fact, this is where the real work begins.

When returned, an item can be reintroduced into the warehouse and undergo necessary processes before seamlessly rejoining the inventory.
When returned, an item can be reintroduced into the warehouse and undergo necessary processes before seamlessly rejoining the inventory.

Labor costs, shipping fees, and the loss of profit associated with managing a return result in returns being viewed as losses. With the growth of e-commerce, returns were valued at nearly a trillion dollars annually worldwide in 2019. However, a streamlined and well-planned recapture process encompassing backend operations is critical in recuperating losses and quicker returns recovery. The backbone of this process lies in sophisticated and accurate tracking systems that tag and reintegrate products.

The key to propelling the business forward lies in data. Without comprehensive insights about its returns, a business essentially operates blindly without considering feedback.

Investing time, attention, and resources into managing recapturing thus allows you to leverage key insights that can arm your business with the strategic advantage and foresight needed to make informed decisions for operational excellence.

Remanufacturing: Breathing new life into returns

While unopened returned items can be sent directly back to inventory after a quick inspection, others may need to undergo the process of remanufacturing.

Remanufacturing involves the restoration and refurbishment of damaged goods. Typically involving products with warranty, products are carefully diagnosed and restored to ‘like new’ condition before being returned to their original owners.

In other cases, products can be resold for a second time, sometimes at a lower cost. The value of goods can hence be increased, since what would be originally written off as a lost sale can now generate revenue.

Instead of discarding such products, extending the product life cycle also reduces the need for new manufacturing.

According to Ricoh, a Japanese multinational imaging and electronics company, a typical remanufactured photocopy machine is priced 50 percent to 70 percent less than the price of new products, and profits from remanufactured machines are larger than those from newly produced machines.

Reuse: Waste not, want not

To reduce the wastage of resources, many companies have started extending the life of returned products by incorporating them into different applications. Some brands may disassemble returns for usable parts to be reused in the manufacturing of new products, while others explore partnerships with other industries or develop innovative ways to repurpose returned items.

Reducing the use of virgin materials during production is essential for achieving circularity, and lowering carbon dioxide output. A study found that the environmental impact of reusing textiles is 70 times lower, even when accounting for global exports and transport emissions. A whopping 3kg of CO2 is saved for each high- or medium-quality piece of clothing reused. In addition, only 0.01 percent of the water used to produce new clothing is required for reuse.

Beyond the immediate benefits of reducing waste and conserving resources, businesses can save on costs that would otherwise go into acquiring virgin materials and manufacturing entirely new products.
Beyond the immediate benefits of reducing waste and conserving resources, businesses can save on costs that would otherwise go into acquiring virgin materials and manufacturing entirely new products.

Tech giant Apple’s consumers are offered discounts on new products upon returning their old devices, which are then returned to Apple’s factories. By extracting gold and copper from one metric ton of iPhone components, an amount equivalent to what would typically require mining 2,000 metric tons of rock can be recovered, allowing Apple to use parts from previous models in their newer products.

Recycling: Closing the loop

Recycling is the final stage in the reverse logistics process. Any parts extracted from products that cannot be fixed or reused would be recycled instead.

For most businesses, this involves establishing partnerships with recycling firms to guarantee the proper collection and disposal of waste.  Partnering with SembWaste, the waste and recycling management arm of Sembcorp operating the largest materials recovery facility in Singapore, L’OCCITANE Singapore established a comprehensive post-consumer packaging recycling program, encouraging consumers to recycle their beauty empties in store in exchange for rewards.

Beyond promoting environmental sustainability, recycling allows businesses to demonstrate and uphold their commitment to environmental responsibility.

The "Global Online Shopper Survey 2023" by DHL eCommerce underscores a shift in consumer preferences, revealing that 77 percent of Asia Pacific online shoppers think sustainability is important. Apart from elevating a brand's reputation, recycling also allows customers to be involved in the last step of closing the circular economy loop.

The challenges of reverse logistics

Reverse logistics typically involves multiple parties, including customers, retailers, transportation providers, and recycling facilities. This complexity can result in a lack of transparency and difficulties in tracking the movement of products.

Furthermore, the unpredictable nature of returns complicates the handling and processing of products. Standard procedures for dealing with returns can be challenging to implement, resulting in higher processing costs.

Therefore, the primary hurdle in reverse logistics lies in the laborious procedure behind establishing a robust infrastructure that optimizes efficiency. This includes implementing sophisticated software for process automation, retraining of frontline staff to seamlessly adopt new methods, and ensuring that the logistics network is equipped to handle returned goods efficiently. The cost of investing in the right technology and skilled workforce needed to keep up with dynamic market developments also presents a barrier to entry for many retailers.

Hence, a growing number of companies are partnering with experienced Third-party Logistics Providers (3PLs), for support in navigating this complex terrain. 3PLs process returns quickly and efficiently, adapting to fluctuating volumes when necessary and transforming reverse logistics from a cost center into a revenue-saving mechanism. Businesses are then able to place greater focus on building their brand.

Whether through outsourcing or internal efforts, embracing a holistic approach to reverse logistics enables businesses to gain a competitive edge in today's dynamic marketplace. As such, it is paramount for companies to develop a comprehensive reverse logistics strategy.

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