Product returns—those sneaky, furtive entities which quietly work their way up your company’s supply chain, scuttling—often unnoticed— from one backwater to the next and stealthily eating away at your bottom line. Without a dedicated management focus, reverse logistics can impact supply chain costs substantially. Even worse, it can do so without anyone ever noticing or feeling accountable.
Many of the costs associated with reverse logistics are hidden, making this a bountiful hunting ground for supply chain cost reductions, for those who dare to go looking. If your company already has a solid grip on returns process, this post may read like a sermon to the converted. If not, I hope it will offer some encouragement to switch focus for a while and look at those products which move against the normal flow of your supply chain.
Hidden Opportunities for Supply Chain Cost Reductions
Of course hidden costs, if you can find them, mean hidden opportunities. In the management of returns, costs you can look for and aim to eliminate or reduce include the following:
- Labour costs associated with customer relations (where there is a return, there may be an unhappy customer who must be appeased)
- Customer service labor costs (identifying warranty eligibility, determining what return and credit rules apply in each individual case)
- Transaction costs
- Transport and shipping costs
- Warehouse and storage costs
If you can identify the costs which lie hidden in these elements of reverse logistics, and take steps to minimise them, the savings may make a meaningful contribution to overall supply chain cost reduction.
Much depends upon the nature of your supply chain operation of course. Some industries experience more returns than others. The impact of returns too, can differ from one industry or organisation to another. That’s why the most important first step in improving reverse logistics management is to dig down and understand the true costs of product returns in your operation.
The Causes of Excessive Costs in Reverse Logistics
Unlike the forward flow of products through your supply chain, management and streamlining of the reverse process is seldom seen as a priority. That’s typically for the following reasons:
- Unlike customer orders, there is usually no deadline for returns to arrive at their destination
- Products are moving against the normal flow, making for challenging process integration
- For many organisations, it’s very difficult to forecast and plan for return volume
- Returns are typically seen as an inevitable cost and a low priority for management action
These characteristics conspire to hide the costs of returns, making it difficult to see exactly where and when they impact budgets, which are geared towards a one-way flow of goods and materials.
Improving Reverse Logistics Management
Some companies that successfully manage reverse logistics have implemented automated process management. Others have formed dedicated reverse logistics functions, employing a team of people who do nothing else but manage the return of unwanted, damaged or recalled products. Another possibility, if your organisation handles a high volume of returns, is to outsource reverse logistics to a 3PL partner.
Whatever approach you take though, the important thing is to create a clear dividing line between the processes for outbound orders and those for returns. That’s the bit which many companies miss and as a result, struggle to get visibility of costs attributable to product return.
Minimising Returns for Supply Chain Cost Reductions
Of course, the best solution of all is to eliminate or dramatically reduce the number of returns your company has to handle. In order to do that, you’ll still need to improve traceability as a first step.
Once you have visibility of return volumes and reasons for return, you can put the necessary effort into understanding root causes and finding ways to diminish their impact. This may require the development of initiatives to improve manufacturing, storage, transportation, and/or customer service in relation to outbound product supply.
Putting It All Together
For most supply chain organizations, improving reverse logistics and reducing its cost will require steps to prevent or minimise returns, taken in conjunction with measures to streamline the reverse supply chain. As with most cost reduction efforts, you’ll probably have to spend initially, in order to save.
If reverse logistics was easy, every company would excel in its management and execution and I wouldn’t be writing about the issues. Few things worth doing are easy though, so why not at least take a look for the hidden costs in your product-return processes? You might find there are some decent savings to be had—enough perhaps, to do more than just look.
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