Processing returns has always been challenging for many operations. E-commerce growth has exacerbated the impact returns can have on supply chains, making reverse logistics optimization critical for operational success. While automation has driven operational improvements in core distribution functions, reverse logistics processes often remain labor-intensive and space-consuming. There are organizations with highly automated returns operations, but they tend to be exceptions where scale, product characteristics, and business requirements justify the investment.
For others, the general practice has been either employing a very labor-intensive process or outsourcing their returns operations. Many organizations are now faced with a rising tide of returns that threaten to overwhelm their capacity and dramatically increase operating costs. So, how can a distribution operation improve its reverse logistics processes?
Key Strategies for Reverse Logistics Optimization
- 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. To optimize reverse logistics, organizations must take a holistic approach, examining both upstream and downstream impacts. Suppliers, returns delivery services, and disposal entities may all play a role.
- Pulling together a cross-functional team
Since reverse logistics cuts across many organizational boundaries, the big picture can only be effectively examined if all stakeholders are included in the process. While the primary focus may end up on returns processing inside the distribution center, teams should include finance, customer service, IT, and inventory management. Supplier relations management may also be necessary, as vendors often represent the start and end of the reverse logistics chain.
- Updating metrics and cost details as needed
Optimization requires a well-defined starting point. Outdated metrics and high-level processing costs lack the detail needed to define and justify process improvements. Take the time to update and refine metrics and cost profiles as needed.
- Reexamining cost and handling strategy
While automation and workflow improvements can reduce handling costs, some returns processes may not be cost-justifiable. For example, refurbishing and restocking certain product lines may not make sense due to associated handling and storage costs. All steps in the returns process should be thoroughly examined for efficiency.
- Concentrating on overall workflow improvements
Digitalization is a highly attractive starting point for optimizing workflows. However, procedural and layout changes can also yield significant results. For instance, reengineering returns workstations or altering product flow may produce noticeable gains without the expense of major systems upgrades.
- Considering Automation's Upstream and Downstream Impacts
Automating a returns process can yield significant results, but organizations must assess the impact on related steps. For example, using intelligent returns labels may enhance efficiency in receiving and disposition processes. Keep an end-to-end vision in mind when detailing improvements.
- Examining insourcing versus outsourcing
Not all organizations will benefit from internal process improvements. Depending on requirements, capabilities, and space availability, outsourcing returns processing to a 3PL may be more efficient. However, outsourcing does not eliminate the need for a thorough evaluation of end-to-end processes.
- 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.
How can we help improve your supply chain operations?
Schedule a consultation or contact Tompkins Solutions for more information.
Featured Posts
Discover valuable resources to enhance your knowledge.
