Logistics Wordbook

Reverse Logistics

Logistics Glossary

What is Reverse logistics?

Reverse logistics can be defined as a set of practices and processes designed to manage returns and shipments of products from the point of sale to the manufacturer for repair, recycling or disposal in the most cost-effective manner .

The boom in e-commerce companies has had a direct impact on logistics and has forced companies to update their strategies and processes to remain competitive. In the case of reverse logistics, the customers who bought items on the Internet carry out the returns directly.

Reverse logistics can be viewed from two different angles:

  • Entrepreneurial: Returns logistics is about managing the increasing number of returned items that need to be re-stocked with the company.
  • Ecological: One of the goals of reverse logistics is to minimize the environmental impact of business activity. With this in mind, companies are developing products and processes that are generally less harmful to the environment.

Why are products returned?

Product returns are made for a variety of reasons, including the following:

  • The customer is dissatisfied with the product because it does not meet their expectations or desires.
  • The product is faulty or has defects.
  • The item is obsolete and has reached the end of its useful life.
  • Excess inventory returning to inventory. These are stocks that are essential for the company to function, but are only used at certain times.
  • Seasonal items, ie those products that are only sold at certain times (like seasonal clothing or toys for Christmas) and are stocked for the rest of the year.

Returns require transportation and classification of received goods by item type and condition. This has an impact on the working hours of the staff and is associated with additional space requirements for this work and higher costs.

Management of returns

Businesses need a personalized solution to manage returns, e.g. B. setting up a specific area in the warehouse or directly providing a special warehouse for the returns. In any case, the implementation of warehouse management software (WMS) is essential.

The WMS must be able to manage the reverse logistics without disrupting or disrupting the rest of the operations in the warehouse.

After the returns arrive at the warehouse, warehouse workers must inspect the condition of the items and determine the reason for the return . You must also determine if the item can be resold or if repair or refurbishment is required.

Taking into account the condition and properties of the product , the WMS allocates a destination to the goods . The system can create orders to store the products in specific warehouse locations or send them for repair if necessary.


How can the number of returns be reduced?

Companies need to reduce returns through sales incentives , which in turn helps gain a strategic competitive advantage.

One way to do this is to offer more discounts on products , run more frequent promotions, and keep inventory updated with new attractive offers so consumers don’t have to return products and are completely satisfied with their purchases.

Another option is to set a limited trial period in which the customer can return the product if they don’t like it. However, after this period, returns are no longer possible.

How to reduce the costs associated with returns?

To reduce the costs associated with returns, companies must first conduct a business analysis that will help them identify opportunities for improvement. Companies with a higher return rate should put more emphasis on improving reverse logistics.

According to a report by S. Rogers and S. Tibben-Lembke , members of the North American Reverse Logistics Executive Council, to reduce reverse logistics costs, companies need to focus on :

  • Lifetime of the product. The articles go through certain phases (introduction, growth, maturity and decline) and each of them is handled differently.
  • Information systems and technologies. They enable products to be tracked in real time . The automation of data collection about the reverse flow of goods and its subsequent processing are key factors for the development of an efficient control of this chain.

Ecological aspects of reverse logistics

Reverse logistics is closely related to environmental protection . It deals with the handling of used and discarded products, components and materials for which the manufacturer is in some way responsible. Your task is to find a new use for these products and, as far as possible, to reduce the amount of final waste.

The use of old products eliminates the need for new raw materials in the manufacture of new items . This leads to a direct reduction in manufacturing costs, as well as a reduction in energy consumption and reduced air and water pollution.

For reverse logistics to run as efficiently as possible, it is imperative to involve consumers . Businesses have a role to involve consumers in this process, for example through campaigns that make citizens aware of their role in this and encourage them to recycle.

 

How can you give the products a second life?

In order to regain the economic value of the end-of-life products and give them a new life cycle, the researchers Martijn Thierry, Marc Salomon, Jo van Nunen and Luk van Wassenhove make some suggestions on how to deal with returned goods in their study Strategic issues in product recovery management :

  • Repair : Restoring the functionality of a defective product.
  • Remanufacturing : The process of bringing a used product back to a specified level of quality (usually worse than the original product).
  • Remanufacturing : Process by which a used product is provided with the same strict quality standards as the original products, but at a lower cost.
  • Excavation : Recovering a small portion of the reusable components for use in repair, refurbishment, or remanufacturing.
  • Recycling : Using the materials or components of waste products to manufacture new products, which may not be the same products as before.

 

Advantages of reverse logistics

Implementing reverse logistics offers companies the following benefits:

  • Minimizing the environmental impact . The reuse of materials in production processes eliminates the need for new raw materials and reduces energy consumption. This represents an immediate benefit to society.
  • Improving the company’s reputation and greater customer satisfaction . Reverse logistics represents a major competitive advantage for companies. Customers are increasingly turning to companies that are committed to protecting the environment.
  • Finding new solutions for reused materials. New markets can be opened up by recycling items that have already been classified as waste . An example of this is outlet stores that sell products from previous seasons or those with minor imperfections at significantly lower prices than usual.
  • inventory control . Reverse logistics results in improved inventory organization, avoiding the storage of obsolete products and reducing the possibility of errors.
  • All of these advantages have positive effects and result in cost reductions and increased profits .

The process of reverse logistics is becoming more and more common in the corporate field. While these actions are good for the environment, they also offer good business opportunities because the economic value of waste products is recovered. In all cases, companies need to thoroughly analyze their needs and goals to find the best solution for handling returns.

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