How reverse logistics can help your SME

Reverse logistics might not be a phrase that trips off the tongues of the management team of the average British, small and medium enterprises (SME) retailer, but it’s a growing area of concern, especially with the influence of Black Friday and other American shopping trends that increasingly impact the UK marketplace.

What is reverse logistics?

Most of us are familiar with traditional logistics ie the process of planning and controlling a cost-effective movement of raw materials, manufacturing processes, finished goods and information to the consumer. Reverse logistics is defined as the process of planning, controlling and managing the cost-effective flow of collecting, storing and recycling or redistributing a returned item.

While most organisations have a well-developed process for forward logistics, the reverse process, because it is customer led, tends to general much less information, to be planned for with much less accuracy and to be viewed entirely as an unavoidable cost to the business rather than as an area of business activity in its own right.

How returns have changed the logistics industry

Traditionally, customers returned between 8-9% of the goods purchased in a year, with peak return periods happening at Christmas and again after the New Year sales. Today, returns are reckoned to run nearer 12% and while there’s a peak after Christmas, the New Year sales syndrome has been massively suppressed with a tendency for returns to cycle throughout the year. The Amazon effect has influenced the returns process too, although much more in the USA than the UK (as yet) with ‘open box deals’ becoming mainstream.

This puts greater strain on SMEs in particular because they can no longer:

  1. Plan to take on extra staff for key returns periods
  2. Budget for extra logistics costs for the periods of major returns activity
  3. Avoid the buy anywhere, return anywhere demands made by omni-channel marketing.

Omni-channel and SMEs

Multi-channel marketing has amazing advantages for the SME sector which can often be more nimble than large businesses in recognising and meeting customer needs. However, it also has a big effect on the returns part of retailing. One British clothing retailer claims to have a 30% return rate across all markets, with the rate of online returns running at twice that of bricks and mortar retailing.

Flexible returning means that customers expect to be able to choose when and how to return items through all or any of the following systems: postal, courier, click and collect outlets, traditional stores.

SMEs can struggle to create equivalent processes for each of these return systems, causing substantial differences in the customer experience.

Other business consequences of increasing returns

Compliance – returned goods fall under a range of legal constraints which add to the cost of doing business. Returned food-stuffs and medicines can be a substantial cost centre, as can other goods like lingerie, cosmetics and other forms of consumable.

Developing a reverse logistics strategy for profit and success

Clearly defined strategies for the returns process can not only reduce costs by improving efficiency but also help manage risk and restore or increase the value of return items.

  • Reducing costs – a reverse logistics system allows any company to better manage its exposure to returns risk, by planning a returns system that incorporates both the cost of returns and explores returning value to the company for items that would otherwise be discarded, for example by warehousing returns items and offering them through mechanisms such as kilo sales.
  • Environmental benefits – customers respond positively to organisations that demonstrate environmental responsibility so having a clear reverse logistics policy that can be communicated to the public can benefit your company. It can also reduce costs if you are in the business of adding value to product, because it allows you to retrofit or reengineer returned items to make them profitable.
  • Inventory management – few things frustrate customers more than goods being out of stock. A reverse logistics process allows many small retailers to offer a good proportion of returned goods as inventory for resale.
  • Inventory feedback – returned products are more than just rejected items, they are the repository of large amounts of customer information. For example they may be oddly sized, have manufacturing issues, not match the online description etc. All these issues can be addressed to improve product appeal if an effective reverse logistics process is in place to capture information as well as returned items. Effective feedback can also ensure you improve your traditional supply chain, removing inefficient manufacturers and refining information flows to ensure you work smoothly with others.
  • Customer satisfaction – shoppers leave reviews and disappointed shoppers are three times as likely to leave a review as happy ones. This can have a disproportionate effect on your online reputation, so anything you can do to avoid negative feedback will benefit your business reputation and make you a popular retailer compared to others who aren’t managing their returns processes so well.

The four types of return

There are four different reverse logistics processes:

  1. retail returns – wrong size, wrong colour, not as described, didn’t like fit…
  2. product recalls – dangerous, misdescribed goods or those not meeting Trading Standards requirements can lead to recall processes
  3. repairable returns – damaged items from clothing missing buttons to electrical goods with dry solder joints
  4. end of life returns – particularly for white goods or furniture retailers, the increasing expectation that they will remove and dispose of the product being replaced can be a substantial cost centre.

Beginning your reverse logistics journey

Working with a 3PL provider can help you implement powerful reverse logistics processes. Recapturing value or ensuring effective disposal of returned items can substantially increase business profits as well as capturing information that reduces avoidable returns.

Flexible warehousing offers the ability to reduce the processing cost of returns and can actually revalue returned items into different potential markets.

New opportunities for returns management from ‘open box deals’ through to kilo sales and warehouse open days are starting to emerge in the UK and are likely to impact the world of online retail in the next three to five years.

We can supply you with secure warehouse storage for your reverse logistics management throughout the UK, to  ensure you have an efficient return procedure outlet in place. Simply contact us today on 0800 1707 555 to find out the most suitable location, facilities and warehouse services available for your businesses requirements.


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