Reverse Logistics (With Benefits, Methods And Challenges)

By Indeed Editorial Team

Published 29 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Reverse logistics is a set of complex processes that can cover product returns, debris removal and recycling, product refurbishment and product servicing. It is important in the supply chain operations of manufacturing, distribution and retail businesses. Learning what it involves can help you improve the efficiency of the supply chain management system in a company. In this article, we define reverse logistics, outline its various benefits, discuss its different methods and explain some supply chain challenges that manufacturers may face.

What Is Reverse Logistics?

Reverse logistics, which professionals also call after-market logistics, after-market supply chain or retrogistics, comprises various supply chain activities that take place after the sale of products. It covers the process of authorising merchandise returns and returning already sold products from customers to retailers, distributors or manufacturers. It also involves removing and recycling packaging and other waste after delivering and installing products. It may include servicing, repairing, reclaiming, rebuilding or remanufacturing returned products and returning or reselling them. Additionally, it often deals with warranty and warehouse management and the proper disposal of goods at the end of their lifecycle.

Related: What Is Supply Chain Management? (Benefits And Examples)

What Are The Benefits Of After-Market Logistics?

After-market logistics can bring profit to businesses. Here are some of its benefits:

It reduces waste

Manufacturers can use the after-market logistics to implement environmentally friendly practices and reuse waste and discarded items. They can reduce wastage by recycling used packaging and raw materials. By refurbishing returned products, they can avoid discarding them in landfills.

It provides valuable product data

Companies can gather key information about product attributes and issues through after-market logistics activities. They can find out why customers are dissatisfied with the products and are returning them. They can use this data to make important changes to improve manufacturing efficiency, product quality and customer satisfaction.

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It reduces business losses and increases profits

Companies can reduce business losses from product returns by ensuring effective handling, management and distribution. Instead of discarding the returned products, they can repair, recycle and resell them. They can salvage parts of these items to reuse or sell them. By repurposing returned goods, they can create new revenue sources that can bring profit.

It enhances the brand appeal and improves customer relationships

People are usually more likely to buy again from brands with quick and convenient product return policies. With a good after-market logistics system, customers can get the support they require for returning products or exchanging them for others. Knowing that they can get refunds without any issues can inspire brand loyalty.

It can cut business expenses

A well-established after-market logistics system can help companies track and analyse the exact expenses relating to product returns. It can factor in the labour costs for processing returns, providing technical support and managing vendors while considering storage and transportation costs. By making cost assessments for the different sections of the supply chains, companies can determine where they can safely cut expenses without affecting work efficiency.

Related: What Is A Logistics Manager? (With Salary And Skills)

What Are Some Retrogistics Methods?

Some of the retrogistics methods that companies often use to improve their supply chain operations include:

Automation

Companies can partially or entirely automate the operations of their supply chain systems. While the immediate costs of installing automated systems can be high, they can reduce operational expenses over time. By using automated controllers, sensors, scanners and drones to track stock, store data and carry out various processes, companies can reduce the need for human input and save on labour costs. Since automated systems have a lower margin of error, they can also reduce the number of faulty returns. Additionally, they can streamline the use of warehouse space, improve transportation and provide quicker service to customers.

Related: 8 Supply Chain Software Tools (With Features And Tips)

Centralised return centres

Centralised return centres are warehouses that companies use solely to process returned products. Returned items arrive at these centres, which sort them into appropriate return categories to proceed to proper destinations back up the supply chain. For example, companies may decide to recycle or scrap some returned products, or else they may resell some of these items as new, refurbish them or dismantle and rebuild them. These centres do not handle the process of moving products forward through the supply chain.

Clear policies and agreements

Clearly stated return policies and agreements with vendors can optimise the retrogistics process. In their return policies, companies can specify what products are returnable and under what conditions and circumstances customers can return products. Integrating such safeguards can prevent people from burdening the retrogistics channels by over-ordering and returning products. It is important that companies review and revise these return policies and vendor agreements periodically to ensure that they meet current requirements.

Outsourcing

Companies may find it more cost-effective to outsource their retrogistics operations than to manage them internally. This can allow them to save the time and money necessary to train staff responsible for performing such operations. Experienced external professionals can efficiently handle the existing supply chain infrastructure and upgrade it if necessary.

Related: Logistics Contracting: Definition, Benefits And Elements

What Are The Challenges Of The After-Market Supply Chain?

There are various challenges of the after-market supply chain that companies can anticipate and prepare for to maintain the efficiency of their supply chain processes. These may include the following:

Managing return order flows

Coordinating processes necessary to handle product returns from different locations and sending them back through the supply chain to various business partners can be challenging. Companies can resolve this by planning the returns management solutions in detail and maintaining clear visibility in their execution. After the products arrive at the centralised return centres, warehouse operatives or automated processes sort, verify, inspect and test them.

They assess if it is profitable to refurbish the returned products or to scrap them and recycle their components. They may repair the defective products at the centre or send them elsewhere for repairs or refurbishment. They may also repackage the products to resell them or return them to their vendors.

Related: What Are Logistics Skills? (Importance And Examples)

Authorising merchandise returns

When authorising merchandise returns, it can be challenging to maintain an easy and clear information flow between the different levels of the after-market supply chains. This can be particularly important when suppliers and customers are far from each other. It is possible to resolve this issue by having a returns management system that can receive return requests from multiple sources, centralise the data, relay it appropriately and track transactions. This may allow suppliers or vendors to contact customers to determine the reason for returning the products and attempt to resolve the issue by repairing or replacing the product.

Accommodating customer expectations

Manufacturers may find it challenging to meet customer service standards that their business-to-business and direct-to-consumer customers may expect. For example, customers often prefer to know that they can easily return a product they have bought, and it is important to comply with this demand to stay competitive in the industry. By simplifying the process of making returns and offering quick refunds, repairs or replacements, manufacturers can satisfy customers, build brand loyalty and increase their sales over time.

Lacking product knowledge

While customers often return defective or unnecessary products, they may also return perfectly good and functional items because they have insufficient knowledge about them. This can happen when the manufacturer fails to provide the necessary information for customers to use the products. To tackle this issue, the manufacturers can offer clear usage directions and technical specifications through brochures, manuals, inserts and online content.

Scaling operations

Scaling supply chain operations can be challenging but necessary for manufacturers to satisfy customer demands. Some solutions may involve automating operations, maintaining separate after-market supply chain channels and outsourcing repair or refurbishment services to third-party providers. It may also be important to maintain transparency in all operational steps and monitor performances.

Optimising warehouse space

Since the returns warehouses have specific storage limits, it can be challenging for manufacturers to manage product returns to avoid exceeding available space. They can handle this issue by maintaining a record of product purchase data and tracking the different product return stages. This can help them better coordinate product returns and transportation. They can also train employees to use warehouse storage more effectively to avoid overcrowding.

Incorporating environmentally friendly policies

Avoiding unnecessary product wastage and following environmentally friendly policies in returns management can be challenging for supply chain operations. Manufacturers attempt to meet government mandates to become more sustainable by incorporating the five R's of returns management. These include recovering, reusing, recycling, redesigning and remanufacturing products.

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