10 Ways to Lower Returns Costs and Optimize Your Reverse Logistics

15 min read

60-Second Summary

Optimizing reverse logistics involves evaluating return policies, collecting data on returns, establishing centralized handling centers, creating accountability for returns processing, integrating logistics, automating processes, and working closely with suppliers. Effective management can reduce disruptions, improve profitability, and enhance customer service. Strategies include clear return policies, data analysis for return reasons, automated sorting, and software for inventory and order fulfillment, aiming to keep goods moving, reduce losses, and handle peak season surges efficiently.

Reverse logistics can commonly cause disruptions to the overall supply chain, hurting profitability if too many returns are improperly handled and processed. The goal of any reverse logistics operation is to continuously keep goods moving throughout the supply chain and resold, if possible, to help regain income and reduce losses.

On average, 30% of all products ordered online are returned, compared to less than 9% in retail brick-and-mortar stores. This makes it crucial to keep goods moving throughout the supply chain and deliver excellent customer service to offset returns costs.

1. Evaluate Return and Exchange Policies

One way to optimize your reverse logistics operation is to start with evaluating your product return and exchange policies. Your return policies should be clearly stated on your company’s website or discussed with the customer prior to any sale that’s made. A return policy should also clearly define when and how an item can be returned, making the customer experience and the returns process as simple as possible.

Having a comprehensive return policy isn’t just beneficial to your reverse logistics, but can also provide your company with a competitive advantage. The way your company handles returns and customer service can be a major factor in why a customer may choose your company over a competitor.

When evaluating your policies, consider:

  • Is the return policy making the return process more complicated?
  • Do the policies consider the cause or need for a product to be returned?

Another major factor that influences ecommerce sales is whether or not your business offers, or can offer, free shipping for returns. Around 49% of retailers offer free shipping for returned items to improve customer service and compete with other retailers.

2. Collect Data on Product Returns

Collecting data on why products are returned could be a key factor in streamlining reverse logistics. Knowing why products are commonly returned and how to classify them before they’re returned to your facility not only saves time, but helps to minimize warehouse clutter and lost items. This will also help returns to cycle back through the supply chain faster if they are able to be resold.

Return rates can be affected by a number of seemingly infinite factors, such as shipping costs, quality, ease of returning an item, and customer expectations.

Some ways you can collect data on product returns are to:

  • Create an online returns process where a customer can request a return and answer a few simple questions on why they are returning the item.
  • Examine the item upon its arrival to your facility as part of the returns management process.

Once you’re able to gather enough information, you can better prepare for these types of returns in the future or make changes to the product’s design or packaging, helping to prevent future returns.

When collecting data, take these questions into consideration:

  • Why are returns being made in the first place?
  • Are some products returned more than others?
  • What is the customer shopping experience? Is it easy for customers to find what they’re looking for and know the full specs of the product you’re selling?
  • Do customers order multiple sizes and colors and return what doesn’t fit?

 

3. Establish a Centralized Returns Handling Center

Having a centralized returns center, or a designated space for returns, in your facility or as a separate location, can help keep returns under control and minimize the disruptions returns can have on the distribution process. This returns center should allow for returned items to be sorted upon arrival so you can determine how to best handle the return.

Implementing an automated sorting solution in your returns center or facility can significantly streamline this process, requiring minimal labor and resources that are better used on other parts of the logistics process.

4. Create Accountability for Returns Handling

Where are returned items processed?

Who is responsible for processing returned goods?

According to McKinsey & Company, 58% of businesses say a lack of accountability for returns management is a pain point. Creating accountability and putting procedures in place for returns handling can help ease this pain point and turn reverse logistics into a vital part of how the company operates. Start by establishing a team that’s directly responsible for returns processing. This can be made up of employees working in inventory management or supply chain operations.

5. Integrate Forward and Reverse Logistics

Even though forward and reverse logistics may seem like separate processes, they’re both vital parts of the overall supply chain. Take some time to review your processes for both and determine if there’s overlap. For example, if your pickup locations for returns are close to delivery locations, try picking up and delivering packages on the same trip. This will save time, labor, and complexity as opposed to managing pickups and deliveries separately.

Ask yourself these questions:

  • Are you able to combine certain procedures rather than have two separate but similar processes?
  • Can you schedule deliveries around return pickups?
  • Can returned items be resold into the same channels after any repairs are needed?

 

6. Automate Your Returns and Materials Handling Process

Implementing automation into your returns and materials handling processes can provide significant benefits, improving your supply chain and lowering costs that eat away at your profitability. Automation even helps to streamline your reverse logistics operations by removing bottlenecks and complexity.

There are many different types of warehouse automation solutions that can help improve your reverse logistics, so it’s important to choose the solution that’s right for you.

For example, implementing an automated sorting system, such as the OPEX® Sure Sort®, enables you to handle returned items more effectively by quickly determining where and how the returned item will be sorted, without needing as much time and labor.

7. Implement Automation Software for Warehousing and Inventory

Implementing automation software can not only help to streamline returns and distribution processes, but can provide insight into product returns, track asset recovery, and manage product repair or refurbishment.

There are a few different types of software you may want to consider:

Warehouse Management System (WMS): A warehouse management system, often called a WMS, is software that helps to manage and automate an abundance of warehouse activities, including inventory management, stock levels, item location, and warehouse automation equipment.

Inventory Management Software: Inventory management software typically tracks inventory throughout the entire supply chain, providing an overview of stock levels and statuses that can be used to manage returned goods. Inventory management software is commonly used in conjunction with a WMS.

Order Fulfillment Software: Order fulfillment software primarily manages activities focused on order fulfillment, such as receiving orders, creating item picking lists, guiding order picking and packing, shipping, and item tracking. Implementing this type of software may help with connecting return items with the reason the customer returned them, helping you to make more informed decisions when deciding what to do with a return.

8. Track Goods Throughout the supply chain

  • How do your goods move through out the supply chain?
  • Are your customers getting their items in a timely manner?
  • Are items being damaged before delivery?

Tracking how raw materials and finished goods move throughout the supply chain can provide insight into why certain products may have been returned, what to do in the event of a product recall, and how products can be recirculated into the supply chain.

Once you have insight into how products flow throughout your supply chain, you might want to consider optimizing this process to speed-up delivery time for your customers.

7%

of Products are Returned Just Because They’re Delivered Late.

9. Work Closely With Suppliers

Work closely with a variety of suppliers to be prepared for price increases that could hurt your profitability or ability to sell certain items, especially in times of shortages. If the market is driving fluctuating supply and demand, you’ll want to be able to adapt quickly and acquire the inventory you need to keep up.

If items are difficult to get and prices rise beyond what the consumer expects to match the product quality, chances are they’ll return the item.

Having a few different suppliers, especially local or regional suppliers, can help you gather materials faster and deliver goods to customers more quickly, improving the customer experience, and lowering the chances customers will be dissatisfied with a product and return it.

10. Plan to Have a Buffer During Peak or Holiday Seasons

What does your business look like during the peak seasons or holidays? Are you scrambling to not only make sure orders are getting out on time, but also to insure that the returns that are coming in are handled properly?

We all know that both sales and returns spike during the holiday seasons. It’s important to prepare for the surge of returns that are expected to come in, rather than try to tackle them all at once.

This is where automating the returns process can be beneficial. Having a scalable solution in place that can handle typical returns volumes while easily scaling to accommodate higher volumes can be a game changer. Implementing an automated sorting system to help process returns during busy seasons can help significantly alleviate labor pains and get items processed faster.

Impact on the Supply Chain: How Optimizing Your Reverse Logistics Can Improve the Entire Supply Chain

What does your business look like during the peak seasons or holidays? Are you scrambling to not only make sure orders are getting out on time, but also to insure that the returns that are coming in are handled properly?

We all know that both sales and returns spike during the holiday seasons. It’s important to prepare for the surge of returns that are expected to come in, rather than try to tackle them all at once.

This is where automating the returns process can be beneficial. Having a scalable solution in place that can handle typical returns volumes while easily scaling to accommodate higher volumes can be a game changer. Implementing an automated sorting system to help process returns during busy seasons can help significantly alleviate labor pains and get items processed faster.

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