Improving Reverse Logistics

By Clement Yew, Director of Business Development Southeast Asia, AutoStore

In today’s interconnected world, businesses work tirelessly to improve their logistics to maximise profits. Sourcing for the best suppliers and manufacturers, finding the ideal storage facility, and distributing to the right retailers help with profiting from the order fulfilment process.
The hard work in forward logistics translates to higher profits reaped by businesses, but many fail to realise one factor in the logistical chain that eats away at these hard-earned profits – returns processing.
Flying mostly under the radar, returns processing accounts for a massive share of the logistics market. About a third of shipped items are returned by consumers worldwide, and businesses with a poor two-way fulfilment strategy suffer huge losses.
Retailers who don’t offer easy or free returns can easily end up losing more than 80 per cent of their online customers. Though costly and time-consuming, returns can be managed with the right fulfilment strategy and equipment. Businesses can create an efficient yet sustainable reverse logistics system and maximise profits from their hard work.

Reverse logistics at a glance

Reverse logistics refers to the process of managing the return and grading of products after the sale. Often overlooked, it is a critical part of any retail operation. The growing inclination towards digitalisation can make it especially challenging for companies that sell products online, as e-commerce poses both an opportunity as well as a threat to many businesses. Higher traffic will be directed towards businesses, but customers will not be able to physically inspect products proper to making their purchase. In turn, this leads to higher return rates, which then calls into question the capability of a business’ reverse logistics system.
Reverse logistics are typically broken down into the “5 Rs”:

Returns: Whether it is due to customer dissatisfaction, product defect or any reason, customers send product back to the retailer for a refund or exchange.

Recalls: Recalls are highly important in reverse logistics and are often instituted when a product defect is discovered that may potentially cause a safety hazard. In such cases, the manufacturer or seller of the product will recall it from the market to correct the defect and ensure consumer safety. Repair: Rather than simply junking failed equipment, sellers might harvest individual parts or components, or refurbish the product altogether and make it available for resale.

Repair: Rather than simply junking failed equipment, sellers might harvest individual parts or components, or refurbish the product altogether and make it available for resale.

Repackaging: Consumers often return items because they are not completely satisfied with their purchase, hence repackaging is an important part of the consumer goods industry as it allows companies to reuse returned products that are deemed safe and reusable.

Recycling: As sustainability becomes increasingly important in our world, recycling and reusing materials is becoming a critical part of preserving our environment. Businesses are now working directly with specialised waste management firms to dispose of their electronics waste responsibly.

Does reverse logistics really eat away at profit margins?

There might be various reasons as to why an item is returned, but the high volume and progress of receiving, inspecting, disposing, remanufacturing, and restocking said products are both time-consuming and costly. According to real estate experts, returns require up to 20 per cent more space and labor capacity than the original order fulfilment process on average, and its rate keeps growing. From a global lens, the value of all the merchandise sent back to retailers in 2021 was a whopping $761 billion, per Narvar’s State of Returns 2022 Report.
Regionally, a survey by the National Retail Federation and Appriss Retail found $816 billion in lost sales for American retailers in 2022 because of returns. In Southeast Asia return rates for e-commerce sales fall between 15 to 20 per cent – a number twice larger than the median return rate for all sales categories. Among these e-commerce sales, the most commonly returned products are apparel and consumer electronics. Twenty per cent of clothing and 10 per cent of consumer electronics are sent back to sellers in Southeast Asia.
Businesses keen to secure sales and not deal with the hassle of reverse logistics might opt to dodge this growing issue entirely. However, this will see it backfire significantly on them. Klarna found that over eight in ten (84 per cent) online shoppers would turn their back on a retailer after a bad returns experience. On the flip side, 95 per cent of customers stated that they were more likely to make repeat purchases from a company if the returns process is easy.
Traditionally, the manual operation of processing returns takes time, is inefficient, and has many processing errors due to the unavoidable human error. The process usually ranges anywhere between a couple of weeks to months, which will undoubtably affect the secondary sales of returns – thus affecting profits.
With that, it is abundantly clear that ignoring the problem is simply non-negotiable in today’s business environment. Reverse logistics is only getting more complicated, costly, and expected as consumer behaviour evolves with time.

Six tips for improving reverse logistics

In line with the 5Rs of reverse logistics, businesses can implement these six tips to address the challenges of reverse logistics:

1. Prevention is the best cure

Businesses should continuously improve product information and images to help their customers make informed purchasing decisions that will prevent returns. Although eliminating returns is impossible, reducing its volume can be achieved by paying close attention to customer complaints and the data collected.

2. Make the returns process easier

Clear instructions and return labels should be provided for ease returns for customers. This allows the items to come back to the right receiving locations with enough context which ensures quicker processing. Encouraging customers to bring returns to physical stores not only helps resolve orders easily, but can generate desirable foot traffic.

3. Implement a lean and agile returns management process

When the returned item arrives back at the facility, businesses should be prepared to grade and return it to inventory as soon as possible. Just like classic retail, many companies resell returned items as regular stock, discounted for unwanted inventory, or as an “open box”. Implementing automated systems and software for receiving, processing, and restocking returns can help to reduce cost and improve accuracy.

4. Outsource returns management to a 3PL

Third-party logistics providers offer a quick solution to solve return woes. Despite this, receiving individual items (“eaches”) can be much more labour intensive than receiving full cases, which could produce more work.

5. Automate the reverse logistics workflow

Automated solutions such as AutoStore are great tools for tackling labour intensive returns. These solutions allow businesses to bring storage straight to the grading process, which decreases buffering and inefficiencies caused from touching the items multiple times. In the case of AutoStore, they are pioneers in cube-based goods-to-person Automated Storage and Retrieval Systems (ASRS), leveraging on a system of robots on elevated grids to deliver items stored in bins to warehouse workers at ports. This ensures robotic accuracy in sorting and grading of returns with a 99.7 per cent warehousing uptime, which decreases the likelihood of mix-ups and maximises efficiency in the entire process.
Specific locations can be designed for individual units and be prioritised for picking. If required, those items can be topped-off to bins of that specific stock keeping unit. This saves huge labour effort by eliminating long walks through the warehouse and time spent sorting. Order accuracy and reduced mispicks often contributed to improved efficiency as well. Most importantly, returned units become immediately available to new buyers, improving the bottom line of businesses.

6. Improving space and manpower efficiency

Returns require up to 20 per cent more space and labour capacity compared to the original order-fulfilment process. With space and labour being at the forefront of the reverse logistics process, space-saving cube storage automated solutions such as AutoStore can help to alleviate both space and labour challenges. In Singapore, Japanese global logistics provider Yusen Logistics doubled storage capacity in its Singapore warehouse after implementing AutoStore. The automation process latched onto the usage of 22 robots, 11 picking stations, and 40,600 bins, resulting in the warehouse’s labour headcount being reduced by 60 per cent, along with doubling its storage volume from 2,000 cubic meters to 3,500 cubic meters.    
Elsewhere, AutoStore tailor made a system for FANUC Pertronics in Japan, increasing its warehouse’s size from 1,120 square meters to 1,450 square meters through the help of automation. The installation helped improve storage efficiency, increase accuracy in parts management and traceability, and significantly reduce picking error rates. Despite their expectation of potentially hiring more workers to cover the doubled production volume, they only made two more hires and it was enough coverage for the increased volume.

The takeaway

All in all, it is important for companies to take proactive steps in addressing reverse logistics. The costs and resources required to manage returns can be substantial, and adopting the right strategies to prevent returns, simplify the process for customers, and improve warehouse receiving, grading, and restocking can help minimise the cost of burden. In turn, this will boost the business’ bottom line. If operational changes are not enough to help, investing in infrastructure like a warehouse robotics system might be a more effective option.
The importance of reverse logistics might go relatively unnoticed, but it cannot be understated. When implemented effectively, businesses will maximise their profitability ratios and garner a better bottom line for their hard work.