The Importance of Reverse Logistics

What are reverse logistics? How do they affect your supply chain? What can you do to leverage reverse logistics and improve your bottom line?

Read more to find out how the return of goods can actually create potential profit for your company. Learn how to measure and assess your company’s reverse logistics system. Find out some of the benefits that come with a good reverse logistics workflow.

What Are Reverse Logistics?

Reverse logistics refer to monitoring the life-cycle of your products after they arrive at the end consumer. This could include how your product could potentially be reused, how it should be properly disposed of after use, and any other way where your expired product can create value.

The reverse logistics that directly impact supply chains the most are the return of products from the end consumer back to the manufacturer. For the rest of the article, we’ll explain more about this process, and ways you can use it to your advantage.

The Return of Goods Sold

Most supply chains will stop measuring the success of their goods once the product is shipped and is delivered on time. While this is can be an accurate measurement of customer satisfaction and profit, it doesn’t account for all cases.

What if your customer receives an incomplete order? What if they feel the item they ordered doesn’t match the product description? Or what if the customer just changes their mind about their purchase? In all three of these likely scenarios, the return of your product qualifies as reverse logistics.

Think about the different phases a product return goes through at your company. These could include:

The physical shipping of the returned product.

Quality testing the returned product to replicate the error or identify the flaw.

Documenting any problems with the returned item.

The disassembling, repairing, recycling, or restocking of the returned item.

Managing the reverse travel of your product back into the supply chain can help you avoid making the same mistake twice and allow you to reutilize as many components of your product as possible.

Monitoring the Flow of Reverse Logistics in Your Supply Chain

There are four key supply chain analytics that can help you understand the flow of returned products entering your supply chain. They are as follows:

1. Volume. Are the same items being returned over and over? Is this happening in large volumes? Answer yes to either of these questions and you’ve probably got a larger problem than just a few faulty units. You may need to consider a recall or an overhaul of your production process.

2. Percent of Sales. What percentage of your sales are lost to product returns? And how many of these products can be reincorporated into your supply chain via reverse logistics? According to a study by the Aberdeen Group, the average manufacturing company will spend 9% – 15% of total revenue on the returns process. What can you do to minimize these losses of revenue? How can you turn a profit on a loose?

3. Condition the Product is Returned In. Is the product failing after a specific operation? Can you determine any patterns of failure among the returned product? This is where quality assurance (QA) and error reproduction are important. You want to figure out what went wrong so you can adapt and correct the problem before it happens again.

4. Financial Value. Without monitoring and managing your reverse logistics, your company could be losing millions of dollars in potential value. Consider failed electronics that are returned to their manufacturer. According to “Recovering Lost Profits by Improving Reverse Logistics,” electronics sold in secondary-markets “represent an estimated $15 billion (sold) in the United States.” These electronic companies manage to turn product failure into new profits by utilizing reverse logistics.

The Benefits of an Efficient Reverse Logistics Systems

While many companies consider the return process to be a necessary evil that shouldn’t be noticed, companies that implement an effective reverse logistics workflow can reap several benefits.

Some of these benefits are:

Reduced costs. By planning ahead for returns and making the return order right, you can reduce related costs (administration, shipping, transportation, tech support, QA, etc.)

Faster service. This refers to the original shipping of goods and the return / reimbursement of goods. Quickly refunding or replacing goods can help restore a customer’s faith in a brand.

Customer retention. Dealing with errors is just as important as making sales. If a customer had a bad experience with your product, you have to make it right. Fulfilment blunders can create educational opportunities. Learn how to keep your customers happy and engaged with your company – even after you’ve made a mistake.

Reduced losses and unplanned profits. Recover the loss of investment in your failed product by fixing and restocking the unit, scrapping it for parts, or repurposing it in a secondary market. With a good reverse logistics program in place, you don’t have to leave money on the table. Take a product that would otherwise just cost your company money and turn it into an unforeseen asset.

Essential Warehouse Components

Over the past 30 years, the role and meaning of the warehouse has changed significantly. Greater emphasis is now being placed on customer satisfaction, retention, and the need to modernise the warehousing operation.

Many companies have started viewing their warehousing operations not as a direct expense but as a significant profit centre. With the right management, this will significantly contribute to the welfare of their business.

Innovative technologies have started improving warehouse management system applications. Some applications are voice technology, pick-to-light, automated storage and retrieval systems, and pick-and-go-order selection. There are more widely used applications like radio frequency identification, automated material handling equipment, and bar-coding.

When people consider optimising warehousing operations, a significant percentage of them have the tendency to make decisions towards upgrading of existing equipment and applications. They tend to overlook a number of essential components that will affect the operations of any warehouse, if appropriate and frequent attention is not accessible.

Six major neglected components:

Training and procedures,

Rules and regulations,

Tools,

Housekeeping and safety,

Identification, and

Paper work.

1. Training and Procedures

It is relatively inexpensive yet it will have a significant impact and greater return on investment in your warehouse operation. To do so, the warehouse manager must insist on the proper implementation of procedure manual creation and frequent training. Warehouse operations that lack up-to-date manuals and training plans are likely to suffer from low productivity, potential safety issues, and lack of control.

The only way forward is to document all warehousing activities into easy-to-follow procedures and implement a compatible training programme that will match the department’s operational needs.

This is important for business development and progression of employees.

2. Rules and Regulations

Managers should communicate with their staff on how they should be doing their jobs. They must be prepared to exhibit to staff the correct way of completing jobs in the working environment. Never assume that staff can handle the assigned task. Managers must double-check to ensure that they can correctly deliver it.

Extra support has to be given to new staff, as they need time to familiarise themselves with the new environment and company policies. An easy way to enhance the understanding of rules and regulations is to create posters and place them clearly on visible locations within operating areas.

3. Tools

Managers must ensure that their employees have the right tools readily available to perform their tasks. This will definitely have a significant impact on business. According to the writer, not only are the right tools important but quality tools are just as essential.

Tools are recorded into three main sectors:

Warehouse tools (Forklifts, racks, dock levellers, and black boards),

Cleaning supplies (Brooms, dustpans, and dust bins), and

Safety items (Face masks, hand gloves, earplugs, and hard hats).

Proper maintenance schedule for all equipment is important for productivity and safety.

4. Housekeeping and Safety

Good housekeeping practices will result in improvements in safety, productivity, and morale. Implementing specific cleaning schedules will ensure a clean and safe working environment.

Floors must be kept clean—swept at least once a day, spills must be cleared quickly, and debris should be picked up immediately. Aisles, exits, and doorways must be kept clear at all times and clearly marked. Employees must be aware of all exits from buildings and stores in case of an emergency. Outlets, plugs, cords, circuit breakers, and light bulbs should always be in good working order.

Fumigation

Quarterly fumigation should be observed at all times and must be conducted by registered applicators. The goal of fumigation is to maintain a toxic concentration of gas to kill the target pest population. Upon completion, a certificate stating all types of chemicals used should be issued to the company and kept for safe-keeping. These certificates must be ready for inspection by authorities.

Pallets

All stock keeping units must be placed on pallets or racks. Staff should never stack products directly on the warehouse floor—to avoid product damage from potential spillages or leaks from the roof.

Stacking and Storage

Products can be stacked in a warehouse with the use of cartons, crates, flat sheets, and coils. The shape of a stack depends on the storage space available. Stacks can be arranged in a column, square, pyramid, or triangular forms. The aim is to prevent cross contamination.  For example, detergents must be stored away from foodstuff and sweets. Electronic appliances must be stored away from cartons of hard soaps because of moisture issues.

First-In-First-Out (FIFO)

Proper application of the FIFO method will ensure optimum movement and accurate handling of all goods in any warehouse. It will safeguard businesses from ending up with expired products.

Damages

All damaged and rejected goods must be isolated and kept in a separate location within the warehouse area. Staff must ensure proper documentation of such goods and keep them separated from the rest. 

Medical Fitness Test for Store Handlers

A medical fitness certificate issued by a recognised hospital or clinic must be obtained for all warehouse staff. This will certify them as being fit to handle any food or pharmaceutical products in their stores.

5. Identification

The warehouse manager has to ensure clear identification of all stored products and locations in the warehouse. This will assist the order picking, as well as the loading and unloading of goods, and ensure accurate progression.

Use clearly readable labels on pallets or bulk stacks of cartons,

Mark floors to designate floor storage assigned areas,

Use signs to identify aisles,

Use clearly marked storage space to place all material handling equipment when not in use, and

All depot-inbound stock keeping units must have identification tags.

6. Paper Work

Create easy ways for required documents such as customer invoices, delivery notes, and orders to be stored electronically and manually. Maintain a proper filling system in each store to ensure accuracy. This will ensure continuity at all times.

In reality, the six components represent important but neglected components in any warehouse. Go ahead, give them a try, and talk to your people about what it is required and make all necessary changes to ensure an efficient and effective warehousing environment.

Warehouse & Distribution KPI’s

A logistics KPI or metric is a performance measurement that is used by logistics managers to track, visualize and optimize all relevant logistic processes in an efficient and transparent way. Among others, these measurements refer to transportation, warehouse and supply chain aspects.

“you cannot improve what you do not measure”

Here is the complete list of the most important logistics KPIs and metrics.

Shipping Time: Spot potential issues in your order fulfilment process

Order Accuracy: Monitor the degree of incidents

Delivery Time: Track your average delivery time in detail

Transportation Costs: Analyse all costs from the order placement to delivery

Warehousing Costs: Optimize the expenses of your warehouse

Number of Shipments: Understand how many orders are shipped

Inventory Accuracy: Avoid problems because of inaccurate inventory

Inventory Turnover: Track how many times your entire inventory is sold

Inventory to Sales Ratio: Identify a potential overstock