Forward logistics is all neat and tidy, delivering perfectly packaged goods to happy customers. Reverse logistics, on the other hand, is perceived as a problem itself, as it deals with waste, damaged products, torn packages, and irritated customers. Supply chain businesses are adopting all sorts of technologies to get as much help handling reverse logistics as possible.
The Reverse Logistics Association (RLA) is spreading the word about major industry innovations to help supply chain managers gain more profits from reverse logistics and become more eco-friendly.
In this blog post, we spotlight all the hidden reverse logistics challenges and give you working solutions to them. Let’s first discuss core areas of responsibility in the modern reverse supply chain.
Scope of reverse logistics management
Primarily, reverse logistics takes care of the product journey after either a B2C or B2B customer decides to return a product. B2C orders account for the majority of reverse logistics operations, as with each passing year we visit e-stores more and brick-and-mortar stores less.
Most logistics businesses focus on forward logistics and wish to ignore the inconveniences of reverse logistics. There is even a certain shame around returning products. For instance, when you buy something at a brick-and-mortar shop, sales assistants are smiling at you, wishing you a good day. But once you come to return a product, they may make you wait for a long time and give you a mistrustful look when checking the returned item.
However, many advanced supply chain companies are already changing their attitude to reverse logistics services. Supply chain executives realize that by offering their clients a pleasant and convenient return experience, they improve their brand image and even attract new customers.
Below, we talk about essential reverse logistics services and their state in the current pandemic world.
E-commerce customer returns
As more and more businesses are scaling online and dealing with e-commerce sales, customer returns are becoming a frequent issue. The reasons why customers return products vary a lot.
According to a survey of Philips customers by the RLA on reasons for returning products, 76 percent of respondents said the products didn’t meet their expectations. As customers are getting more demanding, e-commerce companies are striving not just to meet their customers’ expectations but to exceed them.
According to a GXO global survey on e-commerce and returns trends in 2021, among 360 retail industry representatives:
- 36 percent of respondents say that over the past 12 months, online returns in their companies have increased
- 72 percent of surveyed retailers are investing more than in previous years in their returns management processes
The top three product types that US consumers return are clothing, shoes, and electronics, according to Statista. Plus, out of all 5,713 online shoppers surveyed by Statista, 44 percent returned their online purchases between 21 August 2020 and 21 June 2021. And with such a staggering return percentage, we conclude that reverse logistics flow requires as much attention as forward logistics.
Companies with manual reverse logistics management lack the resources to deal with the growing number of returns. An inability to efficiently process returns may increase the customer churn rate. To speed up and optimize return management, logistics businesses are reverting to robotics, specialized software, and advanced technologies such as artificial intelligence and machine learning.
Another sphere of reverse logistics is failed deliveries. Simply put, these are deliveries that didn’t get to their destination because of unfavorable weather conditions, accidents, the wrong recipient address, a driver’s mistake, and so on. Reverse logistics managers must tackle these failed deliveries as well as think through steps to avoid them in the future.
According to GBG’s 2021 Fixing Failed Deliveries report, out of 300 surveyed retail business representatives, 71 percent said that the major cause of failed deliveries was the wrong delivery address. Possible reasons for this could be typos that consumers make when manually entering addresses or differences in the way address data is entered in different countries. Data verification software could come in handy here to check each entered address and make sure it exists and is written correctly.
Preventing failed deliveries beforehand and proactively handling those that do occur can save operational costs and increase customer loyalty. This is another way that technologies and humans can collaborate to reach better business outcomes.
To ensure sustainability and reduce the amount of waste, supply chain companies are beginning to repair returned products to prolong their lifetimes and resell them.
For instance, Dell has already applied this approach to its reverse logistics practices. The company has adopted AI technology to streamline the product repair process and help repair engineers quickly assess a product’s condition and diagnose problems.
Of course, refurbishing returned products doesn’t apply to the whole supply chain industry. Some returns like clothing are simply thrown away or resold, if possible.
The most painful area of reverse logistics is waste management. Sometimes, there is nowhere to go with a returned product except the landfill. But often, logistics operators throw products away as it’s just easier than allocating warehouse space for them or figuring out how they can be reused, resold, remanufactured, or recycled.
Choosing to improve waste management in your reverse logistics branch isn’t only beneficial for your business but for the world as a whole. An article by Harriet Constable published on BBC Earth states that returns generate five billion pounds (two billion kilograms) of waste annually. To decrease this striking amount, the supply chain world may enlist help from adept digital technologies. For instance, AI technology can decide whether a product can be recycled.
On the one hand, we have a booming e-commerce market generating more income as people are purchasing more online since the start of the pandemic. On the other hand, online shopping only increases returns that add up to more waste year over year. Improving reverse logistics services is the way towards a sustainable supply chain.
Completely manual reverse logistics management leads to a number of challenges that, in turn, cause financial losses, customer churn, and the necessity to hire more workers.
Modern reverse logistics challenges
As we stated at the very beginning of the article, providing reverse logistics services is challenging for the supply chain industry. However, there are a whole host of issues that can further complicate the delivery of reverse logistics services. Read on to find out what they are.
Costly last-mile pickup of returned goods
The very first step in return management is deciding on the right strategy for picking up goods. Some delivery companies like UPS offer their clients the paid possibility to schedule parcel collection from their home or any other convenient location. However, consumers can also return their purchases for free at the nearest UPS drop-off points around the world.
On the contrary, in December 2020, Walmart partnered with FedEx to introduce a new service called Carrier Pickup, which allows consumers to return their products for free without leaving home. This was Walmart’s way of helping its customers more easily deal with returns during the pandemic.
However, free pickup of returned purchases from customers’ homes can impose more problems than forward delivery. Customers may excessively use free return policies — for instance, intentionally ordering extra clothing items to try them all on and then return those that don’t fit. Plus, to request returns, consumers have to manually fill out and print labels and then re-pack the goods. It’s no surprise customers make mistakes while going through this return hassle.
For instance, if a consumer enters the wrong pickup address or changes the pickup location too late, the driver will arrive at one place simply to see they need to go to another. Such unexpected situations increase fuel consumption and require drivers to work longer. Offering consumers the convenience of free return pickups from wherever they want may be disruptive for the supply chain.
Plus, planning routes for return pickups is harder than mapping routes for delivery (especially when doing it manually). Returns happen inconsistently and in different areas, of course, and it’s extremely costly to drive for just one pickup. Advanced technologies for efficient route planning may help, as they can create routes for both delivery and pickup in one area, saving time and costs.
Returned products occupy too much warehouse space
Some logistics companies have all their returned items just piled up in the warehouse, as these companies lack a strategy for efficient disposal of products. These shelves with unused goods have even gotten the name “walls of shame.” Management teams might have their reasons to simply put aside returned goods, as manually organizing, examining, and sorting them is just too cumbersome.
However, freeing up shelves for new stock can save companies a lot of money on warehouse operations and eliminate the need to build or lease more warehouses. There is, in fact, specialized software that can analyze and sort returned products to define their afterlife. You can also explore our recent solution for warehouse space optimization that helps logistics operators automatically distribute inventory across storage space.
According to a survey by the National Retail Federation and Appriss Retail on customer returns in the retail industry, returned purchases led to $428 billion in lost sales for US retailers in 2020, and fraudulent returns amounted to $25.3 billion in 2020 as compared to $14 billion in 2019. Given that returning products is already an issue for businesses, fraudulent returns make matters even worse and cause significant financial losses for the logistics industry.
In 2019, Amazon experienced the biggest return scam in Europe, costing the company $370,000. Instead of purchased items, the offender returned product packages filled with dirt. These packages were of the same weight as the bought merchandise. After receiving refunds from Amazon, the offender sold the original products to double his profit. The fraud was detected when Amazon reviewed its return policy and warehouse workers started opening boxes with returned products.
It’s impossible to avoid fraudulent returns altogether. But companies can take steps to prevent most fraudulent returns or at least prevent those that do occur from causing as much damage as they did for Amazon. For instance, a great practice is to take immediate actions against serial returners, or people who return too many purchased items over a short period. Companies can also carefully check up on all returned merchandise before initiating refunds.
Extra labor for processing returns
Even though we are witnessing a rapid rise of automation in the supply chain, many processes are still labor-intensive. Reverse logistics is one of those areas that isn’t yet automated to the extent it could be.
Workers are occupied with receiving returned goods and manually checking them (though in some cases, returns aren’t even checked). Then, in the most favorable scenario, workers sort returned products to define how they can be reused. In the least favorable case, warehouse operators simply put these products in the “wall of shame” we mentioned earlier.
From the moment of picking up the returned product from the consumer to the moment of its reuse or disposal, return management appears to be the most burdensome and costly process in reverse logistics.
Let’s find out how modern technologies can help logistics companies transform reverse logistics management into an efficient supply chain asset.
Technology solutions to tackle reverse logistics challenges
Technologies can remove the hassle of reverse logistics, improve relations between logistics companies and end consumers, and help supply chain businesses pursue principles of the circular economy and sustainability.
Return management software
Specialized software that allows consumers to easily return products themselves can save delivery and logistics costs. For instance, Re-turnz, a reverse logistics software solution our client developed, allows consumers to return packages right from their homes. A customer simply requests an order pickup in a convenient mobile app and leaves the package for the driver whenever they want. For the driver’s benefit and quicker return pickup, the app is designed to enable drivers to pick up orders on the go, akin to how taxi drivers pick up riders.
The Re-turnz solution also has an anti-fraud system that ensures products are delivered safely. Before registering drivers in Re-turnz, the system verifies their credentials and backgrounds. Besides, a driver can’t mark a parcel as delivered at any location except for an office of the courier service the customer has chosen.
Incorporating such a solution for returns management can relieve consumers from the stress of returning products, thus increasing the chances they’ll order from the same vendor again.
Another example of using return management software was at the 3PL company Sunland Logistics Solutions, which provided a leading retailer with reverse logistics services for sorting, assessing, and allocating returned items received in a warehouse.
As a value-added service, Sunland provided its client with custom return management software (developed by Sunland’s IT partner) that integrated with their client’s existing warehouse management system. This return management software gives Sunland’s clients real-time visibility into the number of returned goods as well as provides an enhanced user experience for customer service representatives who process returns.
Blockchain and smart contracts
Distributed ledger technology or blockchain technology is getting popular in many supply chain services. You can find more on the topic in our extensive guide on blockchain adoption for logistics.
The Danish logistics company Maersk together with IBM has developed a TradeLens platform for blockchain-based supply chain management. This platform is a digital environment for supply chain businesses to collaborate and securely exchange transportation documentation. For instance, TradeLens users can create document dashboards for their shipments and see beforehand which documents or data are missing to prevent failed deliveries or delays.
There are also other ways logistics businesses can take advantage of the blockchain. In particular, smart contract functionality (the digital equivalent of a regular physical contract) written on the Ethereum blockchain finds wide use in the supply chain. Since smart contracts are digital and have a decentralized nature, they don’t require any intermediary (e.g. a lawyer) to compose and manage them.
A smart contract is a secure digital contract built with certain conditions all parties involved have to meet. For instance, a smart contract can initiate a payment to the carrier once the customer receives the order. You can check out other use cases of blockchains in the supply chain industry on the blockchain logistics page of the Yalantis website.
For reverse logistics, smart contracts and the blockchain can be a good solution to identify return scams in a timely manner. Blockchain technology backed up with smart contracts can initiate refunds only after successful verification of a consumer’s purchase history and personal information and after receiving a notice from the logistics company on the condition of the returned product. Unlike with manual return management, a smart contract can carefully assess a consumer’s compliance with the retailer’s return policies.
Big data and predictive analytics
Big data analytics helps supply chain companies gain insights into their reverse logistics processes. Information retrieved from IoT devices, barcodes, and RFID tags can help logistics operators improve reverse shipment traceability and define the contents of returned packages without opening them. Warehouse staff can just scan a parcel’s barcode to define the products’ condition and the next step for it (e.g. reselling or recycling).
Plus, once a customer requests a product return, some companies ask them to fill out a short form telling why they’re returning their purchase. These answers can then be used to better predict the number of returns for a certain product type and prepare beforehand for processing these returns.
The ability to analyze raw data from diverse corporate systems, IoT devices, and third-party systems helps data scientists define and predict patterns in reverse logistics to improve overall logistics operations.
For example, 3PL company OceanX offers a wide range of tech-empowered services for its customers (mainly e-commerce and retail companies like Glossier and Mielle). OceanX has developed a Bridge platform which allows its clients to track lots of real-time data associated with order fulfillment, including returns. OceanX clients can find out reasons for returns as well as define trends in order to make adept changes to their return management services in the future.
Apart from those mentioned above, there are plenty of technical solutions for reverse logistics that could be integrated as part of transport management or warehouse management systems to tackle those issues that are specific to your business.
Streamlined reverse logistics management can help supply chain companies learn more about their clients and stay on track for continuous improvement. At Yalantis, we are constantly increasing our technical expertise to offer our clients modern and relevant solutions. If you realize now is the time to automate your reverse logistics workflow, make it hassle-free, and increase its profitability, we’ll help you implement a suitable custom digital solution.