Reverse logistics services are the process in which goods are moved from consumers to producers and how they are managed afterward. In plain speak, it’s the process where companies receive and manage unwanted or damaged returned goods. So, how do reverse logistics work and why is it important?
The Process of Reverse Logistics
Reverse logistics processes generally follow the following four steps:
- The customer begins the return process by requesting a shipping label
- The customer brings the item to the postal service and ships the item
- Shipping company transports item to product’s point of origin
- The customer service department receives the item and issues a refund
After the returned product has been transported from the point of consumption to the point of origin, the producer has several options to choose from when dealing with the returned product. First, if a returned product is damaged and easy to fix, they may choose to repair it and attempt to resell it. Some companies, such as Patagonia and REI, offer such services through a “used gear” section of their websites, selling repaired goods at lower prices. In sustainably-minded consumer bases, this increases customer satisfaction by giving goods a new life.
If the returned goods are fine, but producers are unable to sell them at full price, they can resell them to third-party sellers such as liquidator services that purchase returned products in bulk. Amazon has a section of their website called “Amazon Warehouse” that offers items for reduced cost, sold directly from their warehouses. Similarly, corporations such as TJX Companies, Inc. (which includes TJ Maxx and Marshalls) purchase overstock or unsold apparel goods and sell them at discounted prices at brick-and-mortar stores.
Alternately, sellers may lease items, most often vehicles, or ensure proper disposal of returned products through recycling or landfilling. However, recycling products from multiple materials is difficult, expensive, and often impossible, and most unwanted products end up in the landfill.
Another option that producers have is to outsource reverse logistics by selling their excess raw materials such as textiles, building materials, and other bulk to companies that upcycle them to become new products. These materials will be broken down to their original form and molded to create new, usable, and value-added goods. Learn how ESG best practices can help you reach more customers looking to invest in companies with similar goals.
Why Is Reverse Logistics Important?
While the reverse logistics process may seem straightforward, there is an issue. Returns result in billions of dollars of losses from hundreds of thousands of goods in multiple business sectors and come with a high environmental cost. According to a 2021 study by the National Retail Federation, the two sectors with the highest return rates were automobile parts, at 19.4%, and clothing, at 12.2%. Last year, US retail returns were valued at $761 billion. Online shopping and eCommerce are readily available through companies such as Amazon, Walmart, Target, and eBay, and free shipping with low to no cost to return. This reverse logistics system, however, is not cost-effective. While customers get easy returns, returns management teams deal with massive amounts of damaged or unwanted products and companies lose billions in assets.
Furthermore, after returned goods have reached their points of origin, companies are likely to deal with the item with the most cost-effective method, rather than the most sustainable option. An investigation by the Canadian news outlet, CBC, and environmental justice nonprofit, the Basel Action Network, placed GPS trackers in twelve Amazon items they purchased and followed their paths. Where are they now? Only four of the items have been resold, while one was landfilled in perfect condition, another was sent to an e-waste recycling and product destruction facility, and the others remain in warehouses or in transit. The items that were resold traveled hundreds of miles before reaching their destinations, and the brand-new item sent to the e-waste recycling facility was a pair of overalls, thus was likely destroyed. This volume of the returned product is not only a significant loss of assets but an environmental catastrophe. Thus, optimizing the reverse logistics process is essential to reduce lost assets and environmental impact.
Sustainable Reverse Logistics Systems
The majority of reverse logistics models currently practiced by manufacturers follow a linear economy model: reverse logistics is designed for the returned product to be thrown away, or the product to be wasted in production, such as in subtractive manufacturing. However, there is another option: the circular economy model. In this model, reverse logistics is designed to optimize and combine traditional logistics (the process of producer selling to consumers) with reverse logistics. For example, when Coca-Cola originally sold its product, it had a bottle return system in which it collected, sanitized, and reused glass bottles to sell new products. A common example is when a customer purchases milk in a glass bottle and pays an additional deposit, and gets the deposit back when they return it. The bottle is returned to the processing facility, where it is sanitized to be refilled and sold again. This is an example of an effective reverse logistics system within the circular economy of a small business. When customers cooperate and return their bottles, it is cost-effective for both customers and businesses: producers purchase fewer containers, and consumers get their small deposit back. Want to learn more about sustainable manufacturing?
Optimizing Reverse Logistics Systems
Building on the circular economy of reusing existing materials, businesses can further optimize reverse logistics by hiring logistic service experts to upcycle their damaged or unwanted base materials into new products. Materials such as textiles, building materials, and automobile parts can be recycled and reused to create new products that have a higher value, and provide an environmentally and economically sustainable business model. Many companies are adopting these practices to reduce losses, grow profit, and adopt sustainable practices! How can your business optimize its reverse logistics management system for a more sustainable future?