How Does Reverse Logistics Improve Supply Chain Efficiency

By Editorial Team | Published On August 11, 2021 | Last Updated On September 3, 2021

Reverse logistics is a critical part of the supply chain ecosystem and plays a significant role in boosting overall efficiency. Read ahead for insights.

Introduction

In a world recovering from the unprecedented impact of the COVID-19 pandemic, the logistics and supply chain ecosystem has played a significant part in rebuilding the economies of scale. Moreover, the logistics and supply chain sector has maintained a superb fluency in pandemic-ravaged parts of the world, where extensive lockdowns and quarantine measures have become a norm.

In the era where social distancing and stay-at-home directives comprise the new normal, having a seamless supply chain ecosystem that enables doorstep shipping of products is invaluable. It enables the world to thrive and combat the roadblocks imposed due to the pandemic.

Critical Supply Chain Statistics and Importance - An Overview

The highly interconnected global economy that organizes several businesses worldwide needs smooth coordination to function successfully. Supply chain management is a complex commercial system of resources, organization, information, and people that form a dynamic structure of demand and supply between a variety of economic agents- the manufacturers, suppliers, end consumers, etc. This entire system has encountered a windfall since the expansion of international trade.

According to the market and consumer data giants, Statista, the global supply chain management market was roughly worth USD 15.85 billion in 2019. Over the last decade, it has increased twice the size. The market is expected to reach USD 37.4 billion by 2027. This points to exponential growth, at a CAGR of 11.2%.

Reverse Logistics Solutions - The What and Why

When we are talking about the supply chain ecosystem at large, the presence of an efficient logistics component is quintessential. We primarily think about moving products from the manufacturer or the warehouse to the reach of the end-products.

However, that is only half the story. Although not much talk or discussion goes behind the reverse logistics solutions, it guarantees a smooth flow of products in reverse and completes an aftermarket process.

What is reverse logistics? How can they impact the supply chain network? How can an organization leverage reverse logistics to encounter a healthy financial bottom line?

Reverse Logistics - A Detailed Insight

For a non-specialist, reverse logistics solutions are the direction of product flow from the end-user to the manufacturer. Products are returned by end-users every day, which moves the product flow in the reverse direction.

However, reverse logistics is something that has a more holistic definition. It includes thorough monitoring of products after they have reached the end consumer. Several processes and probabilities constitute the reverse logistics system.

  • The potential reuse of returned goods and products
  • The effective disposal of returned goods while minimizing environmental impact
  • The use of expired products to create value, probably by reintegrating them into secondary markets, etc.

The Importance of Returning Delivered or Sold Products

Supply chains across the world often stop measuring their success once the products are shipped and delivered to the end customer on time. Although this usually is enough to provide customer feedback and ratings at the onset, it is not complete accountability of customer satisfaction or profit.

These sold or delivered products will qualify as reverse logistics when

  • The customer receives an incomplete order
  • The customer feels that the received items don’t match the product description that influenced the purchase
  • The customer changes his mind about the purchase

Again, the products could return to the manufacturer or the warehouse, which happens via a multitude of phases, including

  • Physical shipping of the returned goods
  • Quality testing of the returned goods to identify the problems/flaws with them
  • Quality testing the returned product to simulate the error
  • Documentation of problems related to the returned products
  • Disassembly, repair, and recycle of returned items
  • Procedures, resources, and time required to restock the products

Some Key Statistics Involving Reverse Logistics

With the spike in eCommerce, return orders and deliveries have also witnessed a sharp rise. The return of e-sales is roughly around 30%. The first week of 2017 saw approximately 5.8 million packages returned to the manufacturers in the United States itself. While the return delivery costs were USD 350 billion in the US alone in 2017, they reached approximately USD 550 billion in 2020.

The global reverse logistics market, valued at USD 415.2 billion in 2017, is expected to reach USD 603.9 billion by 2025. Most customers prefer an easy and convenient reverse logistics procedure. If it does not meet their requirements of convenience and ease, nearly 85% of e-shoppers look to change retailers. On the other hand, when it meets their needs, almost 95% of e-shoppers make repeat purchases from retailers.

How is Reverse Logistics Impacting the Supply Chain Efficiency Positively

As implied by the previous set of statistics, reverse logistics is critical, and organizations that look to implement an efficient reverse logistics system reap maximum benefits. Their entire supply chain network encounters positive results, and the organization gains a healthier bottom line.

Cost Reductions

Effective reverse logistics involves planning and making the return order right while improving the entire directional flow of returned items. Therefore, there is a successful cost reduction related to QA, administration, tech support, transportation, and shipping.

Superfluous Service and a Higher ROI

Reverse logistics involves the faster return/reimbursement of goods, thereby boosting the entire service provided by the supply chain network. As a result, the capital involved in the inventory reduces and calls for a better ROI.

Increased Customer Satisfaction and Retention

An effective reverse logistics system enforces the belief of the customer in the organization. If it deals with blunders and errors and addresses the customer’s grievances quickly, it can keep its customer base intact and highly loyal to the brand. In a way, the supply chain network of the organization gets a thumbs up.

Loss Reduction and Unforeseen Asset Production

A highly credible reverse logistics system enables an organization to make unplanned profits. It does not have to lose investment over a failed product. This can be done by fixing and restocking the unit, repurposing it in a secondary market, or scrapping it for valuable components.

Minimized Environmental Impact and Rise in Sustainability

Since reverse logistics prevents an item from getting trashed and effectively reintegrated or disposed of, the burden on the resources decreases, and the inventory keeps running. Such advanced supply chain solutions enable an organization to implement environmentally sustainable strategies.

Endnote

With a better forward and reverse logistics system in place, the entire supply chain transparency increases. Thus, a business can install KPIs across a product lifecycle, track them effectively and improve their operations for an improved bottom line.