Retailers and manufacturers spend so much time focusing on the outbound supply chain that they often neglect the fact that goods also have to travel backwards through the chain. Reverse logistics is often forgotten a glaring oversight which can cause widespread cost when a large scale return of items occurs. Retailers and manufacturers need to start proactively managing the inbound supply chain in the same way that they manage the outbound supply chain.
The issue of reverse logistics has always been there, but why is it all the more relevant and crucial for manufacturers operating in the current business climate?
There are four main reasons why a reverse logistics strategy would be called into action. These are: product recalls; business to business commercial returns; stock adjustments, and functional returns. Due to the huge increase in online shopping over the past decade, the number of returns is also on the up due to the lack of a try before you buy facility. According to a number of industry research firms, return rates for online sales are substantially higher than for traditional retailing with some reports claiming return rates of over 30% from online sales.
Businesses wont be able to escape increasing numbers of returns and, if mismanaged, returns and reverse logistics in general can prove to be a costly business. It could be relatively straightforward to identify what exactly youll be receiving back, but the crucial question is what should be done with the products when they reach the warehouse or factory? The issue of transportation also comes into play. What initially went out as a bulk order perhaps might be coming back in much smaller quantities, affecting haulage and storage costs, and proving much more difficult to administer.
In the past, due to the often high cost of implementing a reverse logistics strategy, handling returns has been viewed as an inconvenience rather than a business opportunity. Returns have the potential to be a fruitful source of business data, offering an immense amount of information about products and consumers, information that few manufacturers and retailers capture at the moment. By examining the returns more closely, companies can, for example, track any trends in returns or frequent problems with particular products, and address these issues to perhaps decrease the total number of returns received.
Reverse logistics has been much neglected in the past. However, as the desire to improve customer service intensifies, more importance has been given over to reverse logistics. There is an abundance of solutions available to get goods out the door but its not so easy getting the goods back and then deciding what to do with them.
The best way to implement an effective reverse logistics strategy is to work with existing processes within the business. An efficient traceability and quality management system will identify products quickly and correctly, outlining the specific characteristics of the particular products and therefore providing information about what should be done with the product when it is returned.
The best way to manage the remainder of the reverse logistics process is through a tailored ERP (enterprise resource planning system). A tailored ERP system can automatically give out customer returns numbers, identify when a product comes back, choose the best course of action to deal with the product, allocate resources to dealing with the product, and recognise any trends in returns in general. An ERP system, combined with robust processes, should be enough for any company to manage its reverse logistics strategy.
The other crucial aspect to ensuring successful reverse logistics management is the notion of collaboration. Reverse logistics works most efficiently where there is effective collaboration - in order to create greater visibility, businesses must demand greater information sharing, supporting integrated decision making. Without a common vision, reverse logistics will not be successful. To ensure unbroken links in the both the outbound and inbound supply chain, constant communication and shared processes and strategies are vital.
Reverse logistics is not merely a hiccough in the day-to-day running of a business it is an integral part of any business involved in the supply chain, which can bring many benefits. All retailers, manufacturers and producers need to review their reverse logistics processes, ensuring they are financially watertight. Rather than investing in costly, made-to-measure reverse logistics systems, companies can work with their existing systems to establish a process that is the right fit for them and their supply chain partners. Reverse logistics has long been ignored but, the recent boom in online and mail-order shopping has meant that reverse logistics is a business necessity that can no longer be forgotten.
Steve Gardner is senior sales executive for Ross Systems UK, a leading provider of enterprise software solutions for process manufacturers. Steve has over 20 years experience of working in the IT industry, having previously worked for Intentia and BMS, a software provider for freight and logistics organisations. Steve is based at Ross Systems' UK headquarters in Northampton and is responsible for new business and account management at Ross.