The Modern Retailer's Guide to Reverse Logistics: Maximize Recovery, Minimize Loss

When logistics move along the line in the right direction, from manufacturer to wholesaler to retailer to customer, then everybody's happy. But if the customer isn't happy with the product and they want to send it back, or the item has been slower to sell than the retailer anticipated, there is going to be a financial loss to the retailer.

The growth of online shopping and E-commerce is driving reverse logistics, and increasing sustainability demands from customers today makes reusing and recycling unwanted items even more important. When items are sent back to the retailer or manufacturer, the cost of extra shipping and handling eats into the profits, and many items end up being sold at a loss or even end up in a landfill.

Online shopping is a very different process from buying in a shop, and online shoppers often buy multiple sizes and colours that they can try on at home and return what they don't want. Consumers also expect "free" returns on items, but all this can come at a huge cost for the retailer.

Reverse logistics eats into the profits, often costing as much as 20-65% of an item's value by the time the shipping, warehousing and labor costs are calculated, the "free returns" are paid for, and any lost value from markdowns or disposal is included. Net losses can be as high as $10+ per $50 sale, which drains cash flow and increases operational costs as more staff and space are needed.

Managing the flow of goods back up the supply chain is the perfect solution to recover the value of a returned item, and to help make consumerism a little more sustainable by reusing or recycling the product if it is no longer wanted. It is all about extracting value from returned goods, either by repairs, recycling or disposal, and maximizing the profits by reselling or reusing returned products instead of simply writing them off. By focusing on these four R's, you can better cope with the management of the entire lifecycle of returned goods and turn losses into profits.

Whether liquidation or in-house processing is better for your business depends on specific factors like the value of the product, the volume of returns and the existing infrastructure and labor costs available.

High-value items or those requiring specialized repairs can maximize value recovery with in-house refurbishments, but in-house processing requires dedicated expertise and resources. With the necessary infrastructure and labor, a company that has a high and consistent volume of returns will have complete control over inspection and refurbishment with in-house processing, although it may be a time-consuming process with hidden costs.

Low-value, fast-moving consumer goods may be better suited to liquidation, as this allows for a fast and efficient disposition of returned goods and frees up warehouse space immediately. Working with experienced partners who handle liquidation pallets can streamline the process and maximize value recovery.

Key performance indicators to check when looking for a successful reverse logistics partners include the efficiency and speed with which items move through the system, average processing times, costs per return, the customer's experience and the recycling rate.

It is important to understand the financial impact that returned goods have on your business. Your potential partner should be transparent with their asset recovery rate (ARR), returns volume and velocity. Reviewing performances regularly ensures that you get the best cost for your returns, and ensures that recycling rates and environmental impact align with your company values.