What Is Reverse Logistics?

Reverse logistics is a type of supply chain management that moves goods

from customers back to the sellers or manufacturers. Once a customer
receives a product, processes such as returns or recycling require reverse
logistics.

Reverse logistics start at the end consumer, moving backward through the
supply chain to the distributor or from the distributor to the manufacturer.
Reverse logistics can also include processes where the end consumer is
responsible for the final disposal of the product, including recycling,
refurbishing or resale.

When Is Reverse Logistics Used?

Organizations use reverse logistics when goods move from their
destination back through the supply chain to the seller and potentially back
to the suppliers. The goal is to regain value from the product or dispose of
it. Worldwide, returns are worth almost a trillion dollars annually and have
become increasingly common with the growth of ecommerce.

The objectives of reverse logistics are to recoup value and ensure repeat
customers. Less than 10% of in-store purchases are returned, compared
to at least 30% of items ordered online. Savvy companies use reverse
logistics to build customer loyalty and repeat business and to minimize
losses related to returns.
Reverse Logistics vs. Traditional Logistics
Traditional product flow starts with suppliers and moves on to a factory or
distributor. From there, the goods go to retailers and customers. Reverse
logistics management starts at the consumer and, moving in the opposite
direction, returns products to any point along the supply chain.

Well-designed supply chains are responsive to changes and can handle

some reverse logistics requirements. This reverse process can return
products one step back in the chain or to the original supplier. They can
even send returned products back to regular sales or discount channels
(like liquidators).
How Reverse Logistics Works
Reverse logistics moves goods from the traditional endpoint of the supply
chain at least one step backward. This process can involve various plans
and controls. Some companies prefer to outsource this work.

Reverse Logistics Process

The reverse logistics process involves managing returns and buying
surplus goods and materials. The process is also responsible for dealing
with any leases or refurbishments. Reverse logistics vary across different
industries, and there are different economic incentives for improving
reverse logistics management.

For example, in the beverage industry, the reverse logistics process uses
empty tap containers. Beverage production companies want to recapture
the value of their containers by reusing them. This requires planning
transportation, managing shipping loads and cleaning the containers.

In the construction industry, reverse logistics moves and recycles salvaged

materials to new sites. As the construction industry adopts more
sustainable practices to reduce waste, there is an opportunity for cost
savings by using reverse logistics.

In the food industry, reverse logistics is responsible for returning packaging

materials and pallets. Companies also must deal with rejected food
shipments. Rejections can create logistical challenges due to delays that
lead to food spoilage and concerns over tampering. The Reverse Logistics
Association is developing secure, quick, reliable, login (SQRL) codes on
packaging to provide detailed product information and address these
logistical challenges.

5 Steps to Good Reverse Logistics

1. Process the Return
The return process starts when the consumer signals they want to
return a product. This step should include return authorization and
identify the product’s condition. This process also involves scheduling
return shipments, approving refunds and replacing faulty goods.
2. Deal with Returns
Once a returned product arrives at your location or centralized
 processing center, inspect it and determine its return category. (Note:
If you have optimized reverse logistics, you should know where the
product should go before it arrives.) Sort products into the disposition
options: fix, resell as new, resell as a return, recycle, scrap or
refurbish.
3. Keep Returns Moving
Reduce your daily waste by sending repairable items to the repair
department.
4. Repair
After reviewing the returned item/equipment and determining whether
it can be repaired, move it to the repair area. If not possible, sell any
sellable parts.
5. Recycle
Any parts or products that you cannot fix, reuse or resell should be
sent to the area for recycling.

Types of Reverse Logistics

The different types of reverse logistics are also known as reverse logistics
components. They focus on returns management and return policies and
procedures (RPP) and account for remanufacturing, packaging, unsold
goods and delivery issues. Other types of reverse logistics account for
leases, repairs and product retirement.

Reverse Logistics Components:

 Returns management: This process deals with product returns from
customers or avoiding returns in the first place. These activities should be
fast, controllable, visible and straightforward. Customers judge a company
on its return flow and re-return policies. A re-return is the return of an item a
second time. Often, these returns trigger the extended return policies, such
as offering store credit. For example, a customer buys a returned product
on clearance, takes it home and discovers it broken. The store policy would
not normally accept the return, but it does allow for a store credit for the
faulty product. A re-return can also occur when a vendor rejects the return
and gives it back to the purchaser without a refund. This scenario could
happen with custom-made items.
 Return policy and procedure (RPP): The policies about returns that
a company shares with customers is its RPP. These policies should be
visible and consistent. Employees should also adhere to them.
 Remanufacturing or refurbishment: Another type of reverse
logistics management includes remanufacturing, refurbishing and
reconditioning. These activities repair, rebuild and rework products.
Companies recover interchangeable, reusable parts or materials from other
products, also known as the cannibalization of parts. Reconditioning
involves taking apart, cleaning and reassembling products.
 Packaging management: This type of reverse logistics focuses on
reuse of packing materials to reduce waste and the disposal.
 Unsold goods: Reverse logistics for unsold goods handles returns
from retailers to manufacturers or distributors. These types of returns can
be due to poor sales, inventory obsolescence or a delivery refusal.
 End-of-life (EOL): When a product is EOL, it is no longer useful or
does not work. The product may no longer meet a customer's needs or be
replaced by a newer, better version. Manufacturers often recycle or dispose
of products that are end-of-life. These goods can create environmental
challenges for manufacturers and countries.
 Delivery failure: With failed deliveries, drivers return products to
sorting centers. From there, the sorting centers return the products to their
point of origin. While rare, some sorting centers may have the staff
available to identify why a delivery failed, correct the problem and resend.
 Rentals and leasing: When a piece of equipment comes to the end
of its lease or rental contract, the company that owns the product can
remarket, recycle or redeploy it.
 Repairs and maintenance: In some product agreements, customers
and companies maintain equipment or repair it if issues arise. In some
cases, the company sells damaged returned products to another consumer
after repair.

What Are the Five R’s of Reverse

Logistics?
The five Rs of reverse logistics are returns, reselling, repairs, repackaging
and recycling. Companies apply metrics to each of these options to track
improvement and success. Your business may want to take a closer look at
the Five Rs to streamline its reverse logistics processes and reduce losses
there.
Reverse Logistics Examples
Globally, companies are changing the ways they address waste, and the
supply chain is a big piece of that initiative. These reverse logistics
examples focus on returns, exchanges and recycling.

People are more likely to buy products from a company if they think returns
are easy and they are even more likely to become repeat customers if
they’ve had a good return experience. For example, Home Depot offers
reverse logistics help for online purchases via its website. In 2020, the
company’s online sales represented almost 15% of total sales. When a
customer returns goods, they have a choice: send products back by
printing a shipping label, or drop them off in-store. These items are then
sent to Home Depot reverse logistics centers that handle damaged and
misdirected products.

Retailer Levi Strauss uses reverse logistics to improve sustainability in

textiles. The business repurposes jeans or recovers and reprocesses the
fibers into raw materials to make new jeans. By partnering with other
companies for repurposing, Levi Strauss can produce reconstructed jeans
at a higher price point.

Kohl’s, a major retailer with more than 1,000 brick-and-mortar stores, is

another example of the reverse supply chain in action. Kohl’s partners with
Amazon to accept, screen and send back Amazon returns in a single
shipment. Customers who prefer returning products in-person benefit from
this relationship and Kohl’s gets customers in its door who may not
normally visit its stores. Kohl’s also carries some Amazon products and can
simply return them if they do not sell.

Some big brands are also turning to reverse logistics to address waste.
Proctor & Gamble, PepsiCo, and Unilever are shifting to reusable
packaging that consumers can return. The companies will clean and use
the containers again. Transportation and logistics are evolving for these
companies and will pick-up the packaging when they drop off products.

Some companies, such as GE Healthcare and Cisco, specialize in

refurbishing, repairing and remanufacturing defective or out-of-date goods
for consumers. Cisco remanufactures goods such as phones, routers and
switches. GE Healthcare remanufactures imaging devices and ultrasound
machines.

Microsoft has a large global initiative to deal with end-of-life for devices,
batteries and packaging. Microsoft’s product packaging is 100% recyclable,
and it has a program for refurbishing and reusing personal computers.

Some organizations resell overstocked goods to the secondary market, like

factory outlets, off-price and discount stores, and online auction sites.
Retailers such as TJX Companies (TJ Maxx, Marshalls and Home Goods)
buy these overstock items and sell them at a discounted price to
consumers.

Importance of Reverse Logistics to Your

Business
Reverse logistics is important because it maintains an efficient flow of
goods. The process reduces costs, creates value, decreases risk and
completes the product life cycle.

Gartner Research says that about 70% of businesses plan to invest in the
"circular economy." This circular economy follows traditional logistics and
then continues around through what Gartner calls a closed-loop supply
chain.
With this practice, companies are participating in a system focused on a
sustainable economy. Companies find new uses for disposed products with
recovery, repair and recycling. Materials once typically viewed as waste
have value again.

The circular economy also ensures compliance as many countries institute

a policy requiring "producers" to develop more sustainable practices. The
guidelines outline subsidies for waste prevention, research and
development and recycling. Other policies restrict landfills, mandate
collection and recycling programs, and penalize certain waste practices.

How Does Reverse Logistics Create Value?

Reverse logistics creates value by turning waste into sales and builds
customer trust. Businesses resell, reuse and recycle returned products. In
addition, effective reverse logistics keeps down any storage and distribution
costs.

Gartner Research finds that less than half of returned goods are resold at
their full price. There is value in finding the best disposition option for
returned items. For example, retail businesses like B-Stock resell returned
goods. B-Stock sold 70 million returned or excess goods in 2019. The
company buys the returns for a percentage of their original cost and then
resells them at a discount to the consumer.

Using reverse logistics to boost the efficiency of the traditional supply chain
benefits everyone. Some businesses separate their forward and reverse
logistics, and others combine them. The relative success of combining
them depends on the company’s experience, the value of its products and
return volume. Either way, they use practices to maximize their profitability
ratios with their supply chain activities. Read these expert tips on how to
maximize profits in business.