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Reverse Logistics & Your Supply Chain: What You Need to Know

Moving things through your supply chain is one thing—but what about when items need to go the other way?

Reverse logistics play a big, beneficial role in the supply chain, but when handled incorrectly, they can also bring the flow of operations to a halt. From remanufacturing and refurbishment to returns management and waste, there’s a lot that companies need to consider with reverse logistics. Here’s what you need to know.

What is reverse logistics, and what does it include?

Reverse logistics is a widely used term that encompasses numerous processes. In its most general definition, reverse logistics is the process of moving goods backwards through the supply chain, from their final destination to somewhere else. Most often, the reverse logistics process is used for:

  • Product returns and exchange processing – When consumers need to return or exchange items they already purchased and received, they often ship them to return centres, where the products are processed and re-added to the company’s inventory.

  • Product refurbishing and remanufacturing – Goods and equipment that are faulty or have been worn down but could still be functional can be refurbished or remanufactured. Companies, especially in B2B industries, will return the product to the manufacturer to replace a worn-down part with new materials and test the item to make sure it passes inspection before sending it back to the customer. Companies that sell products with warranties also reverse logistics to bring items back to their factories or refurbishing centers.

  • Recycling and disposal – Some products can’t be disposed of in a regular old dumpster. For example, heavy machinery, batteries and chemicals require more specialized disposal, so manufacturers will set up distribution centers to accept the goods and dispose of them properly. Similarly, companies with recycling or zero-waste programs also accept returns of used products to recycle or break down for other uses.

  • Rentals and leasing – Companies that have rental and leasing agreements with their customers need a way to take back their products once the term has ended. Reverse logistics allow those companies to bring back the goods and re-add them to their supply chains.

  • Delivery failure – While not specific to just reverse logistics, many companies deal with failed deliveries to both residences and retail stores. When those delivery attempts fail, the business often has to find a way to return the goods to a warehouse or distribution center until another delivery can be attempted.

The pandemic has increased the need for reverse logistics in the United States and around the globe. With more people staying home and relying on e-commerce for their shopping, returns and processing returns have shifted from the retail environment to the mail. Even as the pandemic improves, reverse logistics will likely continue to play a large role in supply chains, and can be a competitive advantage for businesses—as long as they’re executed properly.

The impact of reverse logistics on the supply chain

For most companies, it’s not a question of whether to implement reverse logistics in their supply chains, but how. Almost every B2C business (and B2B, too) has returns, and needs to incorporate a smooth returns process to support customer service and a positive customer experience. But a reverse logistics chain that isn’t set up properly, or have the right systems in place, can wreak havoc on a company’s supply chain.

Scheduling and inventory can quickly be overturned by an unexpected rush of returns. For example, imagine a company orders 1,000 units of its products and plans to store them for six months in a warehouse until the items sell and supply dwindles. But suddenly the business is unexpectedly hit with 200 items being returned for refurbishment. Now the company has to figure out how to get the items to the warehouse and other locations in its supply chain network, as well as where to put them when they arrive.

And even if those items get refurbished quickly, the business still might be scrambling with lane forecasting and load-building.

Whereas the company may only have one truckload of goods shipped out a week, it might have two or three less-than-truckloads of products to ship out now, and figuring out how to transport those goods with a fast turnaround can be difficult.

But it’s not all downsides. Reverse logistics and reverse logistics services help companies save money, and recoup costs. This is called value recovery. Think about a business that sells high-value goods that can be used over and over again at low cost, like commercial ink and toner cartridges. By implementing a reverse logistics process, the business can collect emptied cartridges from the origin point, such as a business or university, and refill them (and resell them) for a fraction of the cost of disposing old cartridges and making new ones. And it’s not only costs savings that can be passed on to the customer, but a potential money maker. As environmental concerns become more universal, many businesses and consumers are looking to decrease their footprint. Decreasing the waste in a supply chain can become yet another selling point—increasing customer satisfaction and brand loyalty.

How to optimize your reverse logistics solutions

Across the board, the most important tool when implementing is technology. Software like a transportation management system can provide companies with more visibility and information about their returns management, and prevent unforeseen returns from causing a clog in the supply chain. It can also help businesses keep the cost of returns as low as possible, which is important when handling reverse logistics operations.

The value of reverse logistics isn’t always more than the cost. Think about an e-commerce company that sells perishable goods like fruit baskets, or a promotional business that distributes time-sensitive publications like coupons and flyers. Transporting those items back to a warehouse just to dispose of them after would be more money than it’s worth. So evaluating the cost of reverse logistics with transportation software can help companies evaluate whether a reverse logistics solution holds value.

Supply chain managers and transportation professionals should perform an annual audit of their shipments and transportation data to ensure their reverse logistics system is working as optimally as possible. The audit may show a need for an additional logistics facility in a new location, better packaging to prevent returns of a specific item (these opportunities can also be found in a claims audit) or the need to update vendor agreements to adjust to industry changes. Either way, visibility into the reverse logistics process is vital.

Working with reverse logistics companies

Handling reverse logistics in-house is a good solution for many companies. But for others, especially those with customer bases across the United States and internationally, partnering with reverse logistics companies can help businesses implement reverse logistics with more efficiency, lower costs and better customer satisfaction. A reverse logistics partner that is well versed in supply chain management and reverse logistics best practices can execute a program in a way that benefits both the end customer and the manufacturer.

Take a look at your supply chain to evaluate whether your reverse logistics strategy would benefit from adding 3PL services. Incorporating logistics solutions partners into your supply chain can be a game-changer, getting more use out of the company’s products, improving disposal, cutting costs and offering better customer service.

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