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Reverse logistics is the supply chain activity in moving the goods from consumer or customer to the upstream of supply chain, the objectives of reverse logistics include: Maintenance, Reuse, Refurbish or Recycle of the product.
Reverse logistics helps businesses in efficiently reducing costs, improve asset utilization and help in reduce the waste that reaches landfills. It plays a crucial role in realizing a circular economy, which helps in maximizing the recapture of material and reduces the material that ends up in landfills.
Some key drivers in reverse logistics market are:
With the ongoing growth of e-commerce, the volume of returned inventory continues to rise for logistics managers in a variety of industry sectors. But arguably, it’s U.S. retailers who have felt the greatest impact in recent years with over $400 billion in goods are returned in any given 12-month time frame. e-commerce sales had a much higher return rate than those of brick-and-mortar stores—between 15% and 30%. Look for reverse logistics to be the main reason shippers will continue to search for class B industrial warehouse space in particular.
As of October 2020, in United States in real estate space, 3PLs accounted for 27.1% of the transaction volume for deals of 100,000 sq. ft. or more, compared with 22% for e-commerce occupiers.
Key challenge for fashion apparel industry in e-commerce is that, reverse logistics include product value depreciation and time sensitivity. As the overall return rate continues to grow by 10% annually, a higher amount of inventory is subject to depreciation. Apparel depreciates by 20% to 50% of its value within 8 to 16 weeks, creating urgency to get inventory back into circulation and ready for resale.
Most of the companies are inclined to outsource their returns management to third-party logistics (3PL) providers in order to free up space for forward logistics. This has created a significant amount of opportunity for the 3PLs specializing in the reverse loop, including XPO Logistics, Ryder and NFI.
Social media impulse purchases are another factor to increase the returns as many companies are increasing their returns policy from 28 days to 45 days to attract more customers.
In US big retail players do use algorithms to decide on the returned items, algorithms suggest them if item sells for new, what it sells for on the secondary market and what generation technology an item is or has. Retailers can then decide if they want to sell it new at full price, sell it at a deep discount, resell it to a discounter, recycle it or liquidate it.
This space is rapidly growing with 3PL competing very hard to grab the reverse logistics market with recent acquisition of Pittsburgh-based GENCO, a third-party logistics (3PL) services provider specializing in product lifecycle and reverse logistics by FedEx shows the focus by 3PLs.
It’s no longer possible to think about reverse logistics as a stand-alone capacity. As a standard process, it should be effortlessly integrated into the end-to-end supply chain.
Reverse logistics encompasses many areas across the organisation, including returns management, sales, finance, warehousing, logistics, recycling management, and environmental compliance, and ranges from product returns to refurbishment and repairs to recycling of packaged materials and disposing of end-of-life products. It’s also an important part of the customer experience.
Shippers want efficient reverse logistics to recover value from returned and damaged goods while simultaneously satisfying demands from all stakeholders to reduce environmental impact.
Shippers require a revolutionary approach to reverse logistics that includes analytics, process optimization, and changes to the operating model, and that extends across the entire supply chain so that reverse logistics is included into core operations.
In a word, businesses must figure out how to make the returns process more customer-friendly while also considering the total cost of returns and the impact on the environment.
Improving data will result in more useful insights. With limited data and analytics capabilities, many shippers have made headway in improving reverse logistics by fine-tuning policy and enhancing process efficiency.
However, in order to get full value, they’ll require strong data management and analytics skills to completely change and modernise operations that are now highly manual for most shippers.
Furthermore, acquiring and integrating a diverse range of data types from many business domains is a significant problem. Instead of only analysing expenses, new data analytics can assist uncover consumer fraud, reduce the cost-to-serve of returns, and boost the earnings effect of returns.
While many shippers are still focusing on developing internal analytics capabilities and organisations for their core businesses, inventory management, sales, and pricing, third-party solutions can provide tracking and dispositioning capabilities that help unlock reverse logistics value more quickly.
The operating model should be updated. Many reverse logistics initiatives fail because shippers fail to consider the operational model adjustments required to enable and sustain effective reverse logistics management. Reverse logistics is inherently cross-functional, involving sales, marketing, merchandising, financing, distribution, and customer service, just as forward logistics does.
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