How to Optimize Your Reverse Logistics Operations

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Published January 12, 2021

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Processing returns has always been challenging for many operations. E-commerce growth has only exacerbated the impact returns can have on a supply chain. While automation has driven operational improvements in core distribution functions, returns processing tends to remain a labor-intensive, space-consuming proposition. 

There are organizations that have highly automated returns operations, but they tend to be the exception where scale, product characteristics and business requirements have made the investment profitable. For others, the general practice has been either employing a very labor-intensive process or outsourcing their returns operations. Many of these organizations are now faced with a rising tide of returns that threaten to overwhelm their capacity and dramatically increase their operating costs. They must find a way of contending with this tide by improving how they process returns.

So how should a distribution operation pursue improving its reverse logistics processes? Digitalization and automation are certainly attractive, however, an organization should approach the need to improve its reverse logistics processes as a project where all options on the table. It must realize that there is no one-size-fits-all solution. Business model, customer service approach, distribution network, product characteristics and product margin will heavily impact the pursuit. However, there are common elements that should be part of any returns improvement project.

Improving Your Reverse Logistics Processes

  • Pursuing an end-to-end vision. Reverse logistics is its own supply chain that can start even before the customer initiates a return and continue even after the return is received and dispositioned. The big picture should be examined even if the immediate improvement opportunities are localized. What happens upstream and downstream has an impact on any link in the chain. Suppliers, returns delivery services and disposal entities may all be part of the equation.
  • Pulling together a cross-functional team. Since reverse logistics cuts across many organizational boundaries, the big picture can only be effectively examined if all organizational stakeholders are included in the process. The primary focus may still end up on returns processing inside the distribution center, but finance, customer service, IT and inventory management all have a role to play. Since vendors may represent the start and end of the reverse logistics supply chain, organizations should consider including supplier relations management on the team.
  • Updating metrics and cost details as needed. Optimization requires a well-defined starting point. Dated metrics and high-level processing costs do not provide suitable reference points for defining and justifying process improvements. Take the time to examine existing metrics and cost profiles and update, detail and develop them as needed.
  • Reexamining cost and handling strategy. While automation and workflow improvements can reduce handling expenditures, returns processing will still have an associated cost. For some operations, refurbishing and restocking certain product lines may not make sense. The handling and storage costs associated with steps in the returns process should be thoroughly examined. Any practice that cannot be cost justified should be on the table for elimination or restructuring.
  • Concentrating on overall workflow improvements. Digitalization is a very attractive starting point when it comes to workflow improvement initiatives. However, anyone pursuing a returns improvement initiative should not lose sight of the potential offered by procedural and layout changes. Reengineering returns workstations or changing the product flow within the returns processing area may not be as glamorous as major systems or material handling improvements, but they may still produce significant results.
  • Looking upstream and downstream when automating processes. Automating a particular returns process through systems and material handling solutions can yield significant results, but the upstream and downstream impact of the automation needs to be thoroughly assessed. For example, potential improvements in returns receiving may be greatly enhanced by leveraging an intelligent returns label or call tag. Improvements in the disposition process should consider post-disposition handling and storage steps. There may be opportunities to remove or streamline handling steps by combining processes that are currently distinct. Keep an end-to-end vision in mind when detailing improvements for any individual process.
  • Examining insourcing versus outsourcing. Improving internal processes may not be the optimal answer for every organization. Depending on business requirements, internal capabilities and available space, it may make sense to outsource returns processing to a 3PL. However, any 3PL will still be impacted by upstream and downstream processes and business requirements. If these require extra touches and manual steps during the receiving and disposition process, then the corresponding cost will be passed back. Any consideration given to outsourcing returns receiving and disposition should not eliminate the need for an end-to-end evaluation.
  • Evaluating transportation options and processing locations. Enterprises that pay for returns shipping should take a hard look at their current returns delivery service. Even when the customer pays for shipping, employing a customer-friendly, cost-effective service can significantly improve customer satisfaction and reduce handling costs. Where returns are processed should also be examined. Should they be processed at a dedicated facility or within existing fulfillment/distribution centers? Should there be a single returns site or do multiple sites make more sense? What are the current and future space requirements? What impact does processing location have on transportation costs? All of these questions need to be addressed.
  • Developing strategic and tactical plans. A true end-to-end vision requires both strategic and tactical plans. There is a natural tendency to focus on a short-term tactical plan that addresses immediate problems and opportunities, but like other supply chain initiatives, it may be prudent to approach returns improvements in multiple phases. Also, growth and a changing business climate will impact your future needs. Start with a strategic plan that addresses the entirety of needs as well as foreseeable developments.
  • Building a solid business case. No plan should be launched without a solid business case. Any investments in process changes, systems and material handling equipment must be justified. This starts with the delta between current state costs and service levels and the improvements being pursued.

For some organizations, the biggest challenge will be thinking outside of the box. While returns managers and other stakeholders may have good insight on where the opportunities may lay, there may be strong organizational headwinds that complicate any returns improvement initiative. While returns processing involves many stakeholders, it still remains a necessary but unwanted auxiliary process for many organizations, which tends to increase the resistance to change. This is all the more reason that any organization seeking to optimize their reverse logistics operations should employ a structured project approach that incorporates all of the above elements.

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