KEY POINTS

  • Reverse logistics is a multi-billion dollar problem that cuts into retailers' profits. It involves the return process of goods sold to consumers — and having an ineffective solution to the problem can reduce retailers' profits by between 10% to 20% a year.
  • The rise of e-commerce has increased the need for an effective reverse logistics solution. E-commerce will account for 10% of total retail sales in 2018, up from 7.8% in 2015, according to the US Census Bureau. Shoppers are more prone to returning items purchased online because they aren't sure exactly what they're getting.
  • Retailers can reclaim up to 32% of the total product cost by having an effective reverse logistics function. This includes by reselling the product, recycling it, remanufactuing it, and more.
  • There are four types of returns retailers face: commercial returns, product recalls, repairable returns, and end-of-life returns. Each requires a different reverse logistics cycle to handle it effectively.
  • Retailers should take an omnichannel approach to reverse logistics. However, this will only work if the retailer has all their systems integrated and thus can track online and offline purchases in the same system. 

Introduction

Reverse logistics, or the reverse supply chain, is the process of receiving returned merchandise from retail customers at a point of recovery or disposal. Because it's often seen as a cost-driven administrative function, reverse logistics frequently doesn't get the attention it deserves from retailers. That can be an expensive oversight, however, because reverse logistics can be a strategic function with the potential to create value for companies that master it.

Considering that US consumers returned  $260.5 billion worth of merchandise in 2015, representing 8% of total retail sales, retailers should rethink their focus on outbound logistics (or the transportation of products to a point of sale or directly to the consumer). Globally, returns accounted for $642.6 billion of the $14.5 trillion retail economy. If goods returned by US consumers were a corporation, they would be No. 3 on the Fortune 500 list.

This report looks at the different types of returns retailers face, from recalls to end-of-life disposals. It also analyzes the strategic reasons retailers should focus on either implementing a dedicated reverse logistics function, either internally or via a third-party logistics provider (3PL), or attempt to leverage their existing outbound logistics function to better manage customer returns. Additionally, [...]