Why you should focus on reverse logistics
By Archita Datta Majumdar

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Though it's not a new concept, the importance of reverse logistics is being more keenly felt in the last decade. Fluctuating economies and stiff global competition have made profit margins change while demanding more of service and quality than ever before. In such situations, dealing with returned, recycled and damaged goods is an entire area of business by itself. It can no longer be dealt as an afterthought by the sales, merchandising or procurement teams to match their monthly figures.

INDUSTRY PULSE

Do you have a reverse logistics team in place?
  • 1. Yes
  • 2. No

The concept of product lifecycle is not just a raw material-to-sales journey anymore, but one that has a definite adjunct called reverse logistics. There needs to be a focused team to track the whole reverse cycle as well — from return to channeling, tagging, repairing, repackaging and reselling. All of these are important functions that will add to the bottom line in the long run and need careful handling. With the help of advanced reverse supply chain processes, it is now quite possible to turn these into profit centers, instead of remaining as costs centers and liabilities only.

Why has it taken so long for the industry to wake up to the importance of reverse logistics when it is becoming increasingly evident that we cannot do without a dedicated department or team for it? When businesses are formed, they are based on the concept of sales and profits. The question of return and wastage figures only in the periphery of the business psyche. Most are concerned more about the demand for their products and the channels of their supply. What was not seen so clearly before is that, if handled well, returned goods can be turned into profitable merchandise and resold with the help of expert reverse logistics systems.

Like every other concept in business, it is important to garner as much as knowledge as possible on reverse logistics. Managing the point of return is one of the first lessons to be learned. Careful handling and transportation of the returned goods through secure channels would mean they are not subjected to further damage. Industries are investing in automated processes for handling repairs and refurbishments, which can turn the product into a new one again and then repackage it to be resold. Since companies have faced losses through returns, it is natural they would want to recover some of their losses through these goods.

According to industry data, it is estimated that about 20 percent of goods sold are returned to the manufacturers in the U.S. alone. To understand the true impact, one has to just look at the loss figures, which are close to $100 billion per year. A product involves a whole lot of investment from design, raw materials, manufacturing, packaging, shipment and even marketing. One single return can undermine all these efforts — unless you learn how to turn the loss into profit by applying the reverse logistics solutions and manage your bottom-line well.

A study of the goods returned is an important area for businesses as well. Reverse logistics is also associated with a survey of goods, their return trends and complaints along with the relevant demographic data. Why is this important? Because at the end of the day you don't want to have your returned goods piling up higher no matter how well you are handling the reverse supply chain. The idea is to lessen the percentage of returns and increase the profit margin. Managing and lessening this percentage is also important for the overall brand image, because a product that is frequently returned and put up for resale tends to get more negative feedback. It colors customer perception about the service and quality and ultimately hampers the original sales drastically.

Archita Datta Majumdar has been writing for various industries for more than 14 years. She has contributed articles to The Economic Times, the leading financial daily of India, and she loves research, business analysis and knowledge management, which paves the way for a steep learning curve.