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The High Cost of Reverse Logistics

19Apr, 2022

Returns can eat away at your business—aggressively attacking profit margins, and gutting conversion rates. Reverse logistics activities include customer returns, disposal of excess inventory, and the return of obsolete inventory. Also known as the aftermarket service and supply chain, reverse logistics is critical to organizational profit and loss.

According to the Reverse Logistics Association managing the “return and repair” process accounts for 10% of total supply chain costs. The increase in costs occurs when the the supply chain gets stuck due to inefficient processes. When this happens, it will compound and reduce profit by 30%. According to UPS, high-tech manufacturers without a well-developed reverse logistics process could be losing more than 50% of returned inventory. The main reason for the loss is that most of the returned products that can be sold in secondary markets is improperly categorized or discarded.

According to Shopify.com, returns ecommerce sellers have twice as many returns than brick and mortar stores. The reality is that many ecommerce sellers are not equipped to handle a high number of returns online shopping generates.  And resources to determine whether returned items should be sent to the vendor, moved into inventory or thrown away can also be limited.

As a result, it falls on the distribution center managers who consider returned items an annoyance in their operations, thus missing the opportunity to quickly restock and resell.  Most often the products will be stored and improperly unrecognized as current inventory in the warehouse. amounting to a pile of avoidable waste in the making.

A Few Best Practices

One of the best ways to reduce customer returns is to be proactive. Establish a standard procedure for handling returns can make reverse logistics less costly. Make your pre-purchase return policy clear and prominent and explore the various apps and tools that make returns easier.

When it comes to assessing a reverse logistics, process is to design and optimize the experience for the customer and your business. This is where your customer is also a valuable resource. Get feedback and ratings on the returns process itself to discover valuable information to make your brand or products stand out.

As you continue to expand, consider outsourcing part or all of your returns process. Pay special attention to each fulfillment provider’s current list of clients looking for similarities with your products and experience in handling a high volume and fluctuations of returns.

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