Reverse Logistics: Processes, Types, and Strategies

The goal of supply chain management is to turn raw materials into finished products and move those finished products through the supply chain to end customers as efficiently and profitably as possible. But, as Newton’s Third Law of Motion states, for every action there is an equal and opposite reaction. In supply chain management, that reaction is reverse logistics.

Reverse logistics—as defined by TechTarget—is “the set of activities that is conducted after the sale of a product to recapture value and end the product’s lifecycle.” Essentially, it’s finished products coming back through the supply chain for any number of reasons: returns, unsold items, things that need repair and maintenance, things that need to be disposed of, and more.

Most consumers don’t think about reverse logistics—until a business mismanages the process. While little known, reverse logistics has a big impact on business success. “When done right,” says former Forbes Councils Member Mahesh Nandyala, “reverse logistics makes it easier for customers to make returns while reducing business costs and enhancing customer satisfaction.” Reverse logistics “done right” also boosts efficiency and environmental compliance.

Today, we’ll take a deep dive into reverse logistics and how Enterprise Resource Planning (ERP) solutions can help ensure success.

Reverse Logistics Categories

There are two primary categories of reverse logistics: consumer returns and business returns.

Consumer Returns

End customers typically return products for three main reasons: they have found a defect; they are dissatisfied with the product; or they have changed their minds about the purchase. But products get returned to the supply chain for other reasons like when they can be recycled or refurbished or when they have special disposal requirements only the seller can meet.

No matter the reason, customers expect the return process to be a hassle-free, streamlined experience, and, when it is, they reward the impeccable service with their loyalty.

Business Returns

Businesses or retailers may return products to manufacturers or distributors when the products aren’t selling, when there have been delivery failures, when items have reached the ends of their lives, or when a product has been rented.

By returning such products back through the supply chain, businesses maximize their inventory, minimize waste, and stay in compliance with environmental regulations.

Reverse Logistics Processes

Just as there are different categories of reverse logistics, there are also different processes within reverse logistics. Below are brief descriptions of each.

Returns Management: The primary goal of returns management is to make sure that products returned by consumers smoothly flow back into the supply chain. This requires a business to transparently display its return policy and have a system in place to process returns, schedule shipments, approve refunds, re-categorize returns, manage inventory fluctuations, and more.

Remanufacturing and Refurbishment: When products are returned, remanufacturing and refurbishment are two ways to restore their value. For example, if a product is returned due to a defect or flaw, businesses can repair the product with parts from other products or with inventory materials—ultimately reselling it as a modified product.

Packaging Management: This process focuses on efficient packaging and waste reduction. When a returned product cannot be reused, remanufactured, or refurbished, its packaging can be used again for new products.

Handling Unsold Products: Most businesses have agreements in place with their manufacturers or distributors to handle unsold products. Regardless of why products don’t sell (e.g., outdated merchandise, lack of demand, price concerns, etc.), businesses can cut down on costs and reduce inventory overages by returning the items to the manufacturer or distributor for a credit or refund.

Managing Failures, Rentals, and Maintenance: When a delivery fails, businesses—if staffed and equipped appropriately—can determine why the issue happened, fix the problem, and resend the item to the customer. When a business rents equipment, it is responsible for managing its initial rental agreement and then sub-renting the equipment to its own customers. Businesses may also enter into product agreements, under which they manage repairs and maintenance; when the agreement comes to an end, the businesses can either recycle or re-rent the equipment to new customers.

The 7 Rs of Reverse Logistics

Successfully managing reverse logistics is crucial, and it begins with understanding and effectively executing the 7 Rs:

1. Return: Having a process in place to smoothly place returned items back into the supply chain
2. Refurbish: Inspecting, cleaning, and fixing a product and confirming whether it can be repackaged and sold as a used, competitively priced product
3. Reuse: Reusing the components and packaging of returned (unfixable) products for other items, reducing waste and boosting sustainability
4. Repurpose: Using each part of a returned product in new, innovative ways—contributing to environmental sustainability
5. Resell: Reselling products that have no defects and were returned due to customer preference
6. Recycle: Breaking down and properly recycling unfixable products and their components
7. Responsibly dispose: Disposing of non-recyclable products in a responsible way—by donating items or following environmental regulations

ERP Systems and Reverse Logistics

Reverse logistics can be complicated, but it doesn’t have to be. With the right ERP solution and integrated supply chain management applications, businesses can optimize reverse logistics processes.

Modern ERP systems deliver centralized business management solutions that connect companies end-to-end: collecting, synchronizing, and delivering data to and from every department in real time. An ERP solution offers complete visibility to all team members—based on appropriate access permissions—while also equipping them with the tools they need to automate workflows, facilitate company-wide collaboration and communication, and analyze data.

With a single, sophisticated business management solution, businesses have the technology they need to navigate the forward and reverse logistics of supply chain management. And choosing the right ERP system begins with ensuring that it has these key features:

• Data management
• Warehouse management
• Inventory management
• Order/supply/sourcing management
• Transportation management
• Collaboration tools
• Business intelligence and risk management tools

Conclusion

Managing reverse logistics effectively with an eye towards customer satisfaction and boosting the bottom line begins with the proper technology—technology like Acumatica. Acumatica rests on a flexible, customizable platform and empowers businesses with the integrated, industry-specific applications they need to manage supply chains, warehouses, orders, and inventories from one place—whether their teams are in the office, working remotely, or on the road.

Acumatica’s ERP software helps small and midsized businesses accept returns, issue refunds, track inventory, transport products, and manage customer data. Built-in documentation and reports ensure that every team member is informed about the volume of products returned, the associated costs, the condition of returned products, and more. And Acumatica’s fully integrated financial, inventory, and customer management applications mean businesses have the updated, accurate, and real-time information they need to make informed decisions.

To learn more about how Acumatica’s customer-centric, innovative cloud ERP solution can help your business implement efficient and sustainable reverse logistics processes, contact our experts today.