Reverse logistics: how best to deal with the material and goods that customers return

Reverse logistics refers to the flow of everything that goes back to your warehouse from customers. It can be returned or claimed goods, packaging or used products. With the growing e-commerce market, reverse logistics is becoming more important than ever – e-shops deal with increasing returns, recycling and automation of the entire process. Read how companies use reverse logistics and how to manage it.

What reverse logistics is for

The goal of reverse logistics is the reuse of products and materials that the customer has already used or at least ordered. Ideally, set up reverse logistics so that it both pays off for you economically and benefits the environment.

Properly set up reverse logistics most often brings the following benefits to companies:

• cost reduction,
• improving cashflow,
• higher customer satisfaction,
• increasing customer loyalty,
• faster and better service,
• strengthening the brand,
• reduction of waste production and better sustainability,
• selling goods before they are returned to the warehouse from the customer.

A reverse logistics chain typically looks like this:

What reverse logistics covers (types of returns)

1. Returned goods – In the case of returned goods, the job of reverse logistics is to process the returned goods as quickly and efficiently as possible so that they can be sold again. However, the aim of reverse logistics is also to minimize the amount of returned goods. This is, for example, the concern of e-shops with fashion, where the goods are returned very often.
2. Refurbishment of goods – Some companies allow customers to return goods that no longer serve their purpose. The company then refurbishes it and resells it, or removes usable parts and recycles the rest. IKEA, for example, has become famous for this, encouraging customers to return used furniture and thus give it a new life. Or, for example, Apple, which offers a discount on a new product when returning an old product.
3. Packaging material – The reuse or ecological recycling of excess packaging pays off for companies. A classic example is Rohlík.cz, which offers ecological bags for multiple uses or processes returnable bottles and packaging.
4. Unsold/unused goods – This can be the return of unsold goods to manufacturers, for example due to poor sales, obsolescence of goods or the discovery of errors during the receipt of goods. Another example is construction companies that move unused material from one building site to another, where they use it.
5. Undelivered goods – Every e-shop must deal with this type of reverse logistics. For example, if the customer does not pick up the goods from the carrier in the end.
6. Exchanges of goods – A situation when customers want to exchange a purchased goods for another one.
7. Borrowings and rentals – If a company also lends the goods, it must also handle the return process through reverse logistics.
8. Repairs and maintenance – In some contractual conditions, customers are entitled to regular maintenance or repair of goods in case of damage.

What correctly set up reverse logistics looks like

In order for the reverse logistics process to run smoothly, you need to streamline the following two steps in particular:

1) The process of returning goods/material

The reverse logistics process begins when the customer decides to return the product or part of it. The first step must therefore include authorization (acceptance of the request to return the goods) and evaluation of the product's condition. As well as planning the shipment of returned goods (with carriers or own collection depending on the type of shipment), refund or replacement of damaged parts. When the customer wants to exchange the product, you can handle it when returning, which is convenient for both you and the customer.

2) Processing of returned goods/material

Once the customer physically hands over the goods to you and you send it off for processing, you have to decide what to do with it next –⁠ for example whether to repair it, recycle it, or return it straight to sale. Ideally, you know this before the goods arrives.

The following methods will help you optimize the reverse logistics process:

1. Use data

Collect data about returned goods, such as the type of goods, reasons for the return or how long the customer has used the product. You can then adjust your business process, product design or logistics processes accordingly.

2. Set up processes with suppliers

Reverse logistics is not just about you, but also about your suppliers and business partners. For example, if you have to send the goods to the manufacturer for repair, look together for a way to speed up the process.

3. Process returned goods in as few places as possible

In other words, centralize. Large companies most often process returned goods in specialized centers in order to be as efficient as possible. Smaller companies set aside a special space in the warehouse for these purposes. It is important that the processing of returned goods does not interfere with normal operations.

4. Evaluate regularly

You can never set up reverse logistics correctly on the first try. Monitor it and look for new ways to reduce costs. Try to compare yourself with the competition and be better (for example, in the percentage of returns, repairs or claims). In the ideal case, for example, the drivers will deliver the goods to the customer and bring back the returned pallets and packaging. This will save you time and money.

5. Automate

Automation is the cornerstone of cost reduction in reverse logistics, especially warehouse management system (WMS)

WMS in reverse logistics

At the WMS-managed warehouse, returns are processed as follows:

• A warehouse worker reads the code on the returned shipment using a reader,
• WMS asks the warehouse worker via the reader whether all items from the original shipment have been returned,
• the warehouse worker stores the goods in the return position and information is automatically sent to the e-shop that the goods are back in stock. The return rack is ideally located next to the receipt, so the warehouse worker does not have to distribute the goods throughout the warehouse. Returned goods have maximum priority in the picking process.

Practically, the warehouse worker only needs one beep and placing the goods in the predetermined shelf. When the next order is placed, the system already knows that the goods are in the return position, and will send the warehouse worker for them as a matter of priority.

The process of returning undelivered goods, packaging material or damaged goods works in a similar way with WMS. WMS always registers the item and gives instructions to the storekeeper where to move it. The managed warehouse tracks the movement of each product and packaging, which improves the overview and simplifies the collection and evaluation of data.

Learn more about how WMS helps to resolve returns in a separate article. If you are struggling with returns and looking for a solution, contact us. Since the returns process is specific and different in every company, we first analyze your processes and then find the optimal use of LOKiA WMS, which will significantly facilitate your work with returns.