Reverse logistics becoming crucial to business

Posted Aug 28, 2017 by Karen Graham
Reverse logistics used to be an after-thought in the supply chain system. Past research has concentrated on how to avoid returns but with the advent of online shopping, product returns have skyrocketed. Now the focus is on how to handle returns.
Discount stores like BJ s in Richmond  Virginia resell returned merchandise.
Discount stores like BJ's in Richmond, Virginia resell returned merchandise.
Ken Hammond - USDA On-Line Photography Center
Reverse logistics is the name given to the "process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Re-manufacturing and refurbishing activities also may be included in the definition of reverse logistics."
Generally, with any business, there is a logistics system that follows a product, controlling the efficient flow of raw materials from the point of origin to the point of consumption for the purpose of conforming to customer requirements. Reverse logistics encompasses everything in the logistics system, except in reverse.
Reverse logistics also includes some things many people might not think about, like recycling programs, hazardous materials programs, asset recovery and obsolete equipment disposal. One example of this type of reverse logistics is the return of empty computer printing cartridges.
Reverse logistics also can be labor-intensive, much more so than the manufacturing process. When an article, either a tool, appliance or piece of clothing, is returned, a hands-on approach is needed. Returned merchandise may not be in its original packaging, and tags may or may not be included. Every returned package must be manually opened, inspected, sorted, repackaged and relabeled for resale.
Online sales behind the need for logistics importance?
The National Retail Federation predicts that online sales will total between $427 billion and $443 billion by the end of 2017, a figure that is three times higher than the overall industry. But a very big problem has come to light — one third of all merchandise purchased online is being returned.
In the United Kingdom, retailers are having the same problem, with staggering costs of £5.75 billion per year for returns across the retail sector being seen. Retailers say around 5-20 percent of products are being returned and in some areas, the return rate is as high as 50 percent.
Amazon is upping the ante in the free shipping battle with Walmart.
Amazon is upping the ante in the free shipping battle with Walmart.
Leon Neal, AFP/File
The big retailers, like Amazon and Walmart, have created a situation where 50 percent of smaller retailers with online stores, in an effort to compete and keep pace, now offer free shipping on returns. Gone are the restocking fees that used to run between 20 to 25 percent.
Now, with returns up 50 to 80 percent over previous years, companies are really struggling, trying to figure out the best way to process returns in a cost efficient and timely manner. And this has resulted in companies taking a new look at sortation and distribution systems because returns have never been a big problem until now.
Automation for managing returns in a warehouse
The same technologies employed by companies to reduce labor costs and increase efficiencies that enhance their ROI or Return on Investments can be used to decrease labor costs and increase efficiencies in handling returns. The ROI is not necessarily an indicator of a company's profits. Instead, it is a measure that evaluates the company's efficiency by dividing net profit by net worth.
Lowe s Home Improvement Center #487 with a Lowe s rental truck on display outside at 1801 Fordham Bo...
Lowe's Home Improvement Center #487 with a Lowe's rental truck on display outside at 1801 Fordham Boulevard in Chapel Hill, North Carolina.
Ildar Sagdejev (CC BY-SA 4.0)
Looking inside a returns distribution center, 80 percent of the labor involves moving an item from one point to another. Experts estimate that with a high-speed sortation system, like cross-belt and loop sorters can reduce manpower by 30 to 40 percent when 10,000 to 15,000 items are being processed per hour.
And in a returns center where 100,000 items are being processed every hour, this would require about 500 to 600 full-time employees. But in areas where these facilities are located, the employment rate is high enough that finding workers is a problem. So this is another reason for using automation.
Returns are fueling new businesses
Imagine, if you will, someone returning a battery-powered drill to Lowes or Amazon. You might think that this one item is no big deal in the bigger picture of returns. You would be wrong. Amazon, alone, processes hundreds of tractor-trailer loads of returns every week.
Some of the items returned by online shoppers ends up at flea markets.
Some of the items returned by online shoppers ends up at flea markets.
Irwin Jacobs, founder of Jacobs Trading in Hopkins, Minnesota just opened a business that specializes in returned goods, something called "opportunistic buying." Dock 1 Bargains has a huge assortment of furniture, hardware, TVs, patio sets, and appliances. including an assembled, 19-inch two-burner Member's Mark gas grill going for $140, compared to $200 new and unassembled from
Anyone who fancies himself an entrepreneur can get in on the action, no experience required. All you need to do is buy a pallet of goods from a website like, a local auction house or a reverse logistics company to get in the business. Most large companies sell their returned goods at 15 to 35 cents on the dollar rather than have them end up in a landfill or try to make repairs.