Why optimising reverse logistics is need of the hour for small businesses selling online

Updated: Sep 24, 2019 6:25 PM

Logistics for MSMEs: Though the adoption of technology in reverse logistics is at a preliminary stage, its use is bound to grow in times to come.

Reverse logistics is unpredictable in nature and hence it puts tremendous pressure on warehouse management.
  • By Kushal Nahata

Logistics for MSMEs: My colleague Lisa is very fond of online shopping. Almost every week, around seven-eight parcels from different e-commerce providers, used to arrive at her desk. Upon inquiring about her frequent shopping habits, we came to know that she was used to ordering different sizes of all products that she liked online, try the fits of all and keep only the best ones with herself while returning the rest. Well, this isn’t Lisa’s story alone. With more and more online brands offering free returns, customers have started to order more products online, knowing well that they could return the products due to any reason. 

According to market estimates, 30 per cent of products sold on e-commerce platforms are actually returned. As per another report, about 86 percent of consumers say that a brand’s returns policy influences their buying decision online. 

Reverse logistics isn’t as simple as it sounds. The moment a customer returns a product, he/she triggers a series of complex and expensive processes for something that has lost its value. Ownership of the returned product adds to the complexities. Once returned who owns the product? Well, most of the time the onus is on the retailer, but it’s very common to find returned items laying down in warehouses for an indefinite amount of time. Having said that, today there are resellers who are selling returned items as refurbished products. That’s a different story altogether. 

Reverse logistics is unpredictable in nature and hence it puts tremendous pressure on warehouse management. It complicates warehousing by making standard handling processes difficult to implement. This, in turn, results in rising per-item processing costs. The problem with reverse logistics is that the cost incurred cannot be attributed to one fixed cost centre, it spreads across the entire supply chain. In the US, revenue that’s impacted by returns is estimated between $52 billion and $104 billion. One way to shrink costs is to get proper control and visibility of the logistics processes that occur during executing returns. 

Optimizing Reverse Logistics

Third-party logistics providers play a key role in reverse logistics. It helps retailers particularly small businesses streamline operations. For a 3PL provider it is an additional revenue-making opportunity, whereas, for the retailer, it is an additional cost that is difficult to escape. Look at this – it takes businesses approximately two weeks or more to add a returned product back to their inventory. Then, these products capture at least 20 per cent more space than the regular shipments. And if the product remains in the warehouse for long and is not resold immediately, it naturally depreciates or goes out of date soon. Reports suggest that about £5 billion of returned items actually land up in the trash, which is an undesirable situation for all retailers. Also, not to forget the additional costs involved in return packing and shipping. 

When it comes to managing these logistics providers, a supply chain platform powered by technologies like machine learning, IoT, and predictive analytics plays a key role. Once a request for return is raised such a platform automatically create pickup jobs and allocates executives to complete the task. Leveraging an advanced supply chain and logistics platform, these executives can quickly take a picture of the returned product and send it to the concerned stakeholders or retailers to gauge the intensity of the problem or damage. Powered by radio-frequency identification and IoT technologies such a platform can help retailers track every movement of the returned goods. Machine learning and big data analytics can help retailers understand patterns in a customer’s buying behaviour to minimize the chances of returns.  By ensuring these efficiencies businesses can significantly optimize reverse logistics costs.

Though the adoption of technology in reverse logistics is at a preliminary stage, its use is bound to grow in times to come. It is the need of the hour, considering the rapidly increasing returns rate in e-commerce. Going forward, retailers who would lack a proactive, tech-based reverse logistics arrangement could fail to differentiate themselves in the market, build a strong customer base and experience growth. It would be right to say that reverse logistics can be well optimized with the use of technology and change the way the retail industry operates at present.

(Kushal Nahata is the CEO & Co-founder at FarEye. Views expressed are the author’s own.)

  • First published on www.financialexpress.com on 23 September 2019

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