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Reverse logistics economic best practices

12/6/2022

Reverse logistics economic best practices

A recession means budgets will be tight. Consequently, organizations will have to decide which aspects of their business operations they're going to prioritize and divert funds accordingly. Actors in the supply chain face a unique challenge because the manufacturing and distribution industry is multi-stage. This means that managers and supervisors need to analyze the costs associated with all their processes from start to finish.

This is where the problem of reverse logistics arises. It includes activities such as customer returns and exchanges, product recalls and end-of-life returns. They can be a costly affair because of the resources required to complete them, including fuel and labor. Businesses need to plan every financial aspect of their undertakings, so they must develop and implement strategies to mitigate the cost of reverse logistics.

Below are some methods to consider:

Keep reverse logistics front of mind

The first step in minimizing and managing reverse logistics costs is to include them as part of your financial planning and forecasting. This may seem obvious, but many people forget about this critical aspect of a supply chain business and it's particularly vital for companies that operate within the e-commerce space.

According to Richpanel, at least one-third of all purchased goods are returned (averaged across product categories). So, you need to run the numbers and try to predict how much you can expect to spend on these tasks. Then, factor them into the rest of your operational budget.

Partner with a third-party logistics provider (3PL)

In order to reduce your costs, you may be able to delegate reverse logistics tasks to an external business that specializes in it. This may seem counterintuitive because you'd have to be covering yet another expense to pay for the 3PL. However, many 3PLs offer flat rates (and these often cover every facet of the returns and exchange processes) which can work out cheaper in the bigger scheme of things.

Offer a wide range of return and exchange facilities and options

To cut down on the costs of picking up defective or otherwise unsatisfactory goods, give customers the choice to drop off the products at select locations and physical stores. Over 40% of customers choose this course because they can complete other errands at the same time. Alternatively, allow them to return merchandise via post (or offer both options).

The former allows you to collect the stock in bulk, thus reducing the number of trips you have to make (and, therefore, transportation costs). The latter requires a nominal fee, which is often less expensive for the business to cover than collecting products.

Use automation and technology wherever possible

There's a plethora of widely available software specifically designed to help optimize logistics processes. This includes reverse logistics — for example, you can invest in programs driven by data and artificial intelligence that help you plan the most fuel-efficient delivery and transportation routes.

Irrespective of which channels you employ, optimizing your reverse logistics component will help you reduce overhead expenses overall.