Reverse logistics is defined as the process of moving goods beyond their typical final destination for things like re-use, capturing value, or proper disposal. In supply chain networks, materials flow from suppliers through to end customers.
Supply chain executives measure the effectiveness of that flow using the on-time delivery (OTD) metric. It’s a common supply chain measurement, focused on ensuring delivery to the end customer is fast and efficient from the time the customer puts his or her order in place. However, the mission of your supply chain doesn’t necessarily end when the product reaches the end customer.
There are many reasons customers return products, including:
- The customer bought the wrong product
- The product was damaged upon arrival
- The product did not match its description
- The customer no longer wants the product
In those cases, you would then have to organize shipping of the returned product and send it through various processes such as testing, dismantling, repairing, recycling or disposing of it. All these processes require the product travel in reverse through your supply chain network.
There are many advantages to implementing reverse logistics, and the benefits extend to not only customers, but manufacturers, as well. For products at the end of their life cycles, reverse logistics extends their use through repairing, reshaping or recycling. It can act as a sort of asset recovery for manufacturers so they can extract as much value from the product as possible, providing a second return of investment.
Reverse logistics also has an environmental benefit for companies, who would gain tax credits and positive public attention for doing their part to ensure discarded products don’t end up in the landfill. Perhaps the most important reason for reverse logistics is the profit increase companies can see by decreasing material costs. Reverse logistics has become even more important with the arrival of the e-commerce era.
In recent years, physical retailers have been replaced with online ones, whose sales are estimated to reach $414 million by 2018. In online retailing, at least 30% of all products ordered are returned, compared to only 8.89% bought in brick-and-mortar shops. This rapid growth in the volume of returns causes huge uncertainties around reverse logistics, and puts pressure on supply chains to manage and implement product returns successfully. For that reason, you should plan and develop your reverse logistics carefully. There are metrics you can use to monitor reverse flow in your supply chain. They include:
- volume of returns
- type/condition of returned product
- dollar value
- percent of sales
In-depth analysis of these metrics can help you identify problem areas and convert the threat of returns to opportunity for improving your business. The benefits of employing a reverse logistics strategy far outweighs the cost of implementing it. Is your supply chain ready to move in reverse?