A Guide to Reverse Logistics

January 14, 2021

Reverse logistics is the reverse of the standard supply chain flow,

where goods move from manufacturer to end consumer. Reverse
logistics includes activities like returns management, refurbishment,
recycling, and disposal. It's an important part of supply chain
management, often involving the return of products due to damage,
seasonal inventory, restock, salvage, recalls, or excess inventory.

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.
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 The flowchart underscores the complexity and cyclical nature of reverse logistics, highlighting the
various stages a product goes through after it has been returned.

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.
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 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).

Forward logistics refers to the process of moving goods from the point of production to the end
consumer, while reverse logistics involves the journey of products from the customer back to the seller
or manufacturer for returns, recycling, or disposal.

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

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 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
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 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.

Video: What Is Reverse Logistics?

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
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 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.
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 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.

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 What Are the Five Rs 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.

Measuring the 5 Rs of Reverse Logistics involves assessing the efficiency and effectiveness of Returns,
Reselling, Repairs, Recycling, and Reclamation processes within a supply chain.

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.
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 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

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

Find more examples of how companies are making returns work for
them with reverse logistics.

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.

Reverse logistics is crucial for businesses as it enhances customer satisfaction through effective
returns management, reduces waste and costs by recycling and reusing materials, and improves brand
reputation by demonstrating environmental responsibility.
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 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
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 activities. Read these expert tips on how to maximize profits in
business.

Benefits of Optimized Reverse Logistics

Optimized reverse logistics produce financial benefits while
positively impacting the environment and business culture. Refining
the processes for what happens to products after delivery helps
retain customers and save money.

The product data collected when engaging with customers after

delivery is an advantage of well-executed reverse logistics. Data
provides insight into an organization’s supply chain and an
opportunity to improve products and/or the customer experience.

Optimized reverse logistics also leads to better supply chain

visibility, which leads to benefits like:

1. Cost reduction
2. Greater customer satisfaction
3. Better customer retention
4. Faster and better service
5. Loss reduction
6. Improved brand sentiment
7. Waste reduction and greater sustainability

Challenges of Reverse Logistics

A challenge of reverse logistics is that the flow must be bi-
directional. Managers need to set up the right infrastructure for it to
be effective. That often requires software that can automate and
track every step of reverse logistics. Additionally, once that
infrastructure is in place, management needs to continually monitor
and evaluate the organization’s reverse logistics processes to ensure
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 efficiency.

Companies must track inbound and outbound logistics to get the full
picture. Inbound logistics manages the receipt of raw materials or
goods from the supplier to the manufacturer. Outbound logistics is
the processes that deliver the finished goods to the end user. Both
inbound and outbound logistics are measured from the
manufacturer’s perspective, while reverse logistics can be part of
any point in the supply chain.

7 Strategies to Optimize Reverse Logistics

To optimize reverse logistics, companies need cohesive strategies
that account for speed, efficiency and cost. When taking action,
consider policies, partners, data, capacity, logistics and
transportation.

The seven strategic ways to optimize reverse

logistics are:

1. Evaluate Relevant Policies and Agreements

Review and revise the procedures related to your company's
returns and repairs. These policies should be clear and consider
the root causes of returns and repairs. The way a company
deals with returns and repairs can be competitive
differentiators.
2. Collaborate with Suppliers
Close collaboration with suppliers can help ensure a smooth,
integrated experience for customers, not a disjointed one they
will struggle to navigate.
3. Use Data to Optimize Processes
By collecting data on product returns, you can understand why
customers may be returning products. Then, you can make
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 adjustments in sales, product design and forward logistics
processes accordingly.
4. Track products forward and backwards
Linking raw materials to the finished good and the customer
order allows you to trace ingredients in the event that you need
to process recalls—instead of issuing them for entire lines, you
can find the issue and selectively issue recalls.
5. Centralize Return Centers
With a centralized return center, you can better sort products
and identify the best next step for each of them. With a center,
businesses can more efficiently determine how best to reclaim
product value. If your company lacks the resources to have a
separate returns center, consider dedicating a portion of your
warehouse or factory to returns.
6. Examine Logistics and Transportation
Regularly review the processes for forward and reverse logistics
and transportation. Determine if it is feasible to integrate some
of these processes and transit. For example, if your delivery
drivers can pick up empty pallets as they drop off full pallets,
you save trips, time and money.
7. Automate
Use cloud-based logistics software to help streamline
operations. For example, a software system can track asset
recovery, manage refurbishment and provide business
intelligence analytics.

How Do Reverse Logistics Impact Supply

Chain Management?
Reverse logistics provide another critical opportunity for supply
chain optimization. Supply chain management accounts for the
reverse and forward flow of goods, and a surge of returns can drive
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 up supply chain costs, harming profitability.

What Is Reverse Logistics vs. Reverse Supply Chain?

The reverse supply chain is the backward movement of goods (such

as defective products) from vendors back up the supply chain. It is
the opposite of the typical supply chain, where items go from
manufacturer to retailer to consumer.

Reverse logistics refers to everything related to returns and what

happens to those products after the consumer takes them back.
That includes planning and implementing strategies to reduce costs
and losses related to returns and to build a better returns
experience.

Monitoring Reverse Logistics in Your Supply

Chain
Companies monitor reverse logistics in the supply chain to find
better ways to process and dispose of products. There is a
considerable volume of information available in the ways goods
move back and forth through the supply chain. This detail can help
companies meet their delivery goals.

Some organizations have the simple goal of on-time delivery; others

reach for what they call the "perfect order.” For every order, the goal
is to get a perfect score in place, time, condition, package, quantity,
documentation, customer and invoice. The only way to achieve a
perfect order is to monitor the data, develop metric targets and
improve processes based on your results. Reverse logistics can play
a central role in delivering the perfect order.

5 Key Reverse Logistics Supply Chain Metrics to

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 Monitor and Confirm

There are five key reverse logistics-focused supply chain metrics

that will help increase asset recovery. Supply chain analytics can
help management make data-driven decisions at all steps of the
supply chain.

Key supply chain metrics include:

1. Volume: The volume of products returned and subsequently

resold, reused and recycled is a top metric used to track reverse
logistics. Companies should use these measurements to
identify missed opportunities or problems and determine where
process improvements can make a difference.
2. Percent of Costs: Compare the costs attributed to resales,
refurbishing, reuse and recycling to the total supply chain cost.
Determine the difference in the price of these activities versus
the cost of returns. Be sure to calculate the percent of expenses
recovered by item.
3. Condition of Returned Products: Some products come back
in perfect resale condition, and companies can turn them
around for resale at full value. Other goods may need some
work before a company can resell them. In that scenario,
companies should consider other sales channels for those
products. For example, companies may sell refurbished
electronics through another sales channel. Determine the cost
of materials and workmanship to determine the full value.
Review the percent of items sent to each sales channel and
whether the company is recouping enough money.
4. Financial Value: Each part of the supply chain has economic
value. Understanding what financial stake your company has in
each step can lead to better processes and efficiencies.
5. Errors: Every step in the supply chain also has the potential for
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 errors, such as unaccepted deliveries or defective materials.
Review the cost of mistakes and how frequently they occur to
identify opportunities for improvement.

Supply chain analytics should exist throughout the entire value chain,
from sourcing materials through distribution and delivery. Useful
metrics lead to growth in revenue, better margins and controlled
capital. Supply chains are increasingly going digital, so collecting the
data is easier. Read the supply chain analytics guide to learn how to
make the most of this practice.

The Future of Reverse Logistics

The future of reverse logistics is all about minimizing disruptions
from returns. Especially in ecommerce, and increasingly in the retail
industry, the volume of returns is increasing. Companies can use
reverse logistics to integrate all parts of the returns process.

One way to integrate returns is to connect the product’s data to how

staff needs to handle it. Documenting what happens to a returned
product—whether the item will go to resale, repairs, or be recused
for raw goods—the supply chain can support this integration. The
future of reverse logistics involves integrated supply chain
management software that helps make these determinations and
can also provide valuable reports.

Manage Reverse Logistics with Warehouse

Management Software
Managing your reverse logistics is essential for the bottom line and
reputation of your business. Consumers need to feel like they are
buying products from companies with integrity, and improving your
reverse logistics opens up opportunities for a number of sustainable
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 business practices.

That’s why it is crucial to have a warehouse management system

(WMS) that can manage inbound and outbound logistics and deliver
analytics in real time. Businesses need insights across transportation
and logistics providers, through warehouse and fulfillment and
ultimately need to integrate all that information with financial data in
an enterprise resource planning (ERP) system. ERP platforms like
NetSuite, paired with a warehouse management system, allow
companies to easily track returns, monitor the movement of goods,
issue credits through the accounting system and update everything
in the customer record.

Similarly, inventory management is key to efficient returns

processes. A high rate of returns can lead to inventory buildup, and
an effective inventory management system will alert you when
inventory levels are growing too quickly—faster than your rate of
sales.

Many companies are taking a closer look at their reverse logistics as

they realize returns are a major source of expenses and there are
opportunities to recover more money on those goods. Additionally,
rising return rates make it imperative for these businesses to figure
out a more cost-effective way to handle products sent back to them.
Evaluating your reverse logistics processes to identify inefficiencies
and address those shortcoming can boost your bottom line by not
only lowering costs, but increasing customer loyalty and elevating
brand reputation.

Reverse Logistics FAQ

You may have additional questions about reverse logistics. Below, we
answer some of the most popular ones.
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 What is integrated logistics?

Integrated logistics is the full process that covers delivery through

end-user issues and then deals with product disposition. Integrated
logistics stresses material and resource sustainability.

How much does it cost to implement a reverse

logistics plan?

Implementing a reverse logistics plan costs about 7-10% of the cost

of goods in a company. However, it’s worth noting that reverse
logistics planning should bring down the costs associated with
returns.

How does reverse logistics work in the

pharmaceutical industry?

In the pharmaceutical industry, reverse logistics helps keep

medicines safe (out of landfills and water supplies). The sector
handles product returns and disposal through third-party companies
and distributors.

Can you explain the role of reverse logistics in the

service industry?

In the service industry, reverse logistics helps address repairs more

quickly. Best practices include refunds, warranty work and credit.
Working out these policies keeps customers happy.

How does reverse logistics differ for the

manufacturing and service industries?

The service and manufacturing industries differ from others. Their

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 products and services are not standard, so the returns are not
standard. The reverse logistics process starts after the company
fixes the service or manufacturing part.

Manufacturing companies sell fixed parts as refurbished items.

These parts have a lower value and may go through a different
supply chain. In the service industry, companies can provide
warranty work, credit, or work refunds.

How can ecommerce organizations handle reverse

logistics to ensure it’s a low-cost transaction?

To make returns a low-cost transaction, ecommerce companies

should combine returns with deliveries. They should also consider
turning to third-party partners. Ecommerce businesses should
identify the root causes of problems and develop strategies to
decrease these issues.

What is a reverse logistics expert?

A reverse logistics expert is a professional who can help your

company be more efficient by suggesting and implementing process
improvements in your reverse supply chain. Good reverse logistics
experts consider your customers, business priorities and sales goals.

How are forward logistics and reverse logistics

different?

The difference between reverse and forward logistics is the direction

the product is moving along the supply chain. Products that come
from the manufacturer and move toward the customer are going
forward. Products coming back from customers to retailers or
manufacturers are heading in reverse.
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 What is reverse distribution?

Reverse distribution is the role of removing goods that are unsold,

damaged, expired or recalled from retailers. Like with returns, these
goods go in the reverse direction through the supply chain.

What is design for logistics (DFL)?

The concept of DFL states that products and their packaging design
can lower the expenses related to logistics. For example, soda cans
became flat on top, making them easier and cheaper to transport
and store.

What is design for reverse logistics (DFRL)?

DFRL refers to designing products and packaging that makes it

cheaper and easier to move in a reverse flow in the supply chain. For
example, manufacturers package products in reusable canisters that
they refill for retailers.

How does reverse logistics reduce business risk?

Reverse logistics reduce business risk by ensuring companies

adhere to policies for waste and disposal. Some governments fine
companies that do not meet guidelines. Reverse logistics also help
companies recoup value in unsold and returned goods.

How do you lower the cost of reverse logistics?

Cut the costs in reverse logistics by first decreasing returns. Experts

recommend enabling customer product reviews to help set
expectations and reduce returns. Then, look for ways to combine
reverse and forward logistics to drive cost savings.
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 How does reverse logistics contribute to a lean
supply chain?

A solid reverse logistics plan reduces waste. Lean principles can also
make the supply chain more efficient. Instead of separating shipping
and returns, a lean supply chain combines them.
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