In the supply chain network, reverse logistics refers to the process of moving products beyond their final destination (the customer) for reuse, repairing, recycling, or proper disposal. It is a necessary step in extending the life cycle of products that are returned due to various reasons (the customer ordering the wrong product, the product being damaged upon arrival, the product did not live up to the customer’s expectations, etc.).
Similar to other steps in the supply chain, reverse logistics can be susceptible to various problems. Here are some of the most common issues that complicate reverse logistics for many e-commerce companies.
Fraud is an ever-present problem in eCommerce. There is never a shortage of people trying to take advantage of companies for whatever benefit they have in mind. Needless to say, fraudulent returns can hurt a business’s bottom line, not to mention create bumps that can affect the entire supply chain.
An infamous example of return fraud involves fraudulent customers returning product boxes with useless fillers instead of the products that were inside them. Other customers try to return products that were stolen from retailers, essentially making free money out of the scam. Whatever the case may be, return fraud can result in hundreds of thousands of lost revenue.
Businesses can fight back against fraud by improving inventory monitoring and return levels, ideally with an effective returns portal to make the job easier. Another effective method against return fraud is building a tight and consistent return policy that includes explicitly stated time frames for returns, rules about packaging, and if there are specific documents that need to be included with the package.
2. Tracking value
In reverse logistics, tracking the value of a product is a major challenge. Take this situation for example; A brand new gaming console worth $500 is shipped out to a customer. When the package arrives, the customer discovers that the console is defective, so then they ship it back to be replaced. The company ships out a working console in its place and receives the defective console back. What is the value of the defective console? It is not $500 since it doesn’t work, but it is also not $0 because it might still be repaired into a working condition.
One of the best ways to solve this problem is by using software that considers the usable status of the product and tracks its value in between the full cost and zero cost. In this way, companies can neither overestimate the cost of a defective product nor place the value at zero if repair is still possible.
3. Time and damage expenses
The more time that an item spends in transit, sitting in the warehouse, or waiting to be repaired, the higher the additional cost it incurs. Similarly, the window between getting the item back from the customer and reselling increases the risk of damage, which can reduce the quality of the item and lower profit in turn.
With that in mind, it is crucial that companies have strict yet reasonable time frames for returns to be able to get the item back as quickly as possible and put it back on the market again. High efficiency of the returns process is also vital in ensuring time and damage costs are kept to a minimum. Companies can refine their returns processes by establishing a triage wherein items are sorted according to the condition they return in with categories like used, defective, scrap, and so on.
The return process should be as hassle-free as possible for customers. Some businesses might think that purposely making the process a little difficult discourages customers from returning items, but this only decreases the overall customer experience and hurts their brand image in the process.
Return policies should be strict and explicit to make the return process more efficient, but they should also be reasonable enough. Customers trust companies more if they are confident they can return or replace something without having to jump through multiple hoops. Moreover, customers are more loyal and spend more money at businesses that offer hassle-free returns. Since they know they can return items easily, they are more willing to buy more products again and again.
Therefore, companies can lower their overall cost and improve the customer experience at the same time by improving the return process by offering flexible return options, making policies easy to understand, and putting free return postage on the original package.
Reverse logistics can be a complicated component of supply chain management. Nevertheless, the problems that often arise can be overcome and even avoided with effective technologies, processes, and policies in place.