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The Power of Reverse Logistics

Do product returns matter more than the purchase?

Managing reverse logistics has been a hot topic for the past couple of years as POS systems have gotten smarter, margins have shrunk, and delivery has taken on new forms. But according to studies, how brands handle returns can be just as influential on their reputation as their forward logistics.

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For those of you who may be new to the concept of reverse logistics, it is best defined as the process of moving products from their typical final destination (think store shelf, or customer doorstep) back to where it came from (a brand or distribution center). In the case of reverse logistics, orders move backwards in the supply chain flow for reasons of damage, proper disposal, recall, an issue with the product, or simply buyer’s regret.

Today, reverse logistics presents one of the biggest operational challenges e-commerce companies are facing due to the sheer volume and cost of processing returns. The percentage of returned products from an e-commerce site is much higher than one would guess, ranging anywhere between 3-50% of total orders across all industries, and eating up on average 5% of total company revenue. An organization’s Return Policy will often dictate the different Reverse Logistic strategies employed.

Free Shipping! Free Returns! Same Day Delivery!

Returns play a significant role for e-commerce businesses because it has a real impact on the bottom line. Reverse Logistics is a constant balancing act between cutting into your profits and making sure you meet customer expectations. The key here is to keep in mind customer expectations and not always deliver on customer wants when developing your reverse logistics strategy.

For example, if you ask any customer if they want free shipping, free returns, and same day delivery, of course they would say they want all three. The reality is very few companies can afford to stay in business by promising all three of these. Sure, it would be great, but in the current economy, not a reality.

When you allow these same customers to choose their shipping method and the costs associated with them, you see the truth come out—most orders are chosen to arrive within 7-10 days, and customers pay the associated shipping costs. With this variable in place, you have some wiggle room to play with in regards to returns and can run promotions on free returns for a limited time, or develop a concrete business rule around returns of a certain magnitude.

Understanding the way shipping, handling and delivery costs are broken out for your business, and the profits associated with it is key to keep in mind when making the decision to meet or exceed customer expectations.

Customers have come to expect reverse logistics to be just as streamlined as forward logistics. With brand perception, sustainability requirements, and profitability on the line, it’s more important than ever to make sure your business’ forward and reverse processes work together. 

With global e-commerce sales set to grow 25% through 2017, mastering reverse logistics will be a requirement for any successful e-business. E-commerce brands will have to improve their forward and reverse processes in-house, or partner with fulfillment groups that already have perfected the process.

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