The term “reverse logistics” is much talked about in the arena of supply chain these days. Despite that fact, some confusion remains about what it is, and how it differs from reverse logistics.
What Are the Differences Between Forwarding and Reverse Logistics?
In this article, we will define both forward and reverse logistics, talk about their differences and look at the benefits and challenges of each.
What is Forward Logistics?
Forward logistics, at the most basic level, refers to how products move from where they are manufactured to customers.
In other words, it is the process of how raw materials flow first to a manufacturer, then a retailer then ultimately consumers.
This can be accomplished through the supply chain in several different ways.
These include:
- Direct order fulfillment
- Hub services
- Pick-and-pack services
- Shipping
In forward logistics, value is added to the product at each step of its journey through the supply chain.
Customer demand dictates the pace of flow, meaning inventory must be managed at each stage to deal with changing demand.
What is Reverse Logistics?
Reverse logistics, by contrast, are when previously used or returned products are refurbished, retrofitted, or otherwise restored and returned into the supply chain for use by new consumers.
It is a major way for retailers and manufacturers to recapture the value of returned goods.
These are items that start with the end-user that return to either a retailer or manufacturer, either for disposal or re-use. Ways this are accomplished include:
- Returns
- Recalls
- Repair and refurbishment
- Repackaging for restock/resale
- Recycling
Reverse logistics can help a company save money by reducing the percentage of revenue spent on returns.
Also, reverse logistics are becoming increasingly popular due to the perception of its “green” or sustainable nature and because it provides a secondary ROI from every product in the reverse flow supply chain.
Reasons for items entering the reverse logistics supply chain:
- Goods that are damaged or defective
- Products that are outdated or nearly obsolete
- Customer dissatisfaction with the quality
- The product is different than described online
- The item may have arrived late or is no longer needed by a customer
- The merchant may have shipped the wrong item or size
- The product might be the result of accidental over-purchase
- Product may be a recall
How Do They Differ?
As their contradictory names imply, forward and reverse logistics have different strengths and weaknesses.
For example, forecasting item count in forwarding logistics is simple and straightforward, while in reverse logistics, it is more complex.
There is also more uniformity in product quality in forwarding logistics with a lack of uniformity in product quality in reverse logistics.
Packaging is also another point of difference, with forward logistic product packaging being uniform and in order while reverse logistic product packaging is often damaged or in poor condition.
Other areas of difference include destination/routing, pricing, speed, and inventory management.
Reverse logistics also must be convergent, that is sourced from multiple end-use points and returning them to one or more manufacturing or refurbishing firms.
The value of a product moving through the reverse logistics supply chain decreases at each stage, while costs rise due to handling requirements.
Optimized reverse logistics and reduce returns processing costs by around 25% and increase productivity by 10%, according to Financial Express.
Challenges
Because items in the reverse logistics supply chain vary greatly, and their availability is based primarily on the pace of returns, the process can be challenging and complex. Here are a few reasons why:
Tracking Value
Unit values are very variable, depending on the level of useful life left in the item and the value of its component parts.
For example, in the case of refurbished smartphones, one with a damaged screen but fully functioning internal parts will have a higher residual value than one with a functioning screen but non-working internal hardware.
Therefore, it is important for any reverse logistics system to have software that tracks the useable status of items and tracks units on a basis that is valued at less than full cost, but more than zero.
Tracking Warranty and Routing Status:
If you are a third-party logistics provider and your reverse logistics value chain includes items under warranty, sometimes the original equipment manufacturer (OEM) may have a warranty that is of a longer or shorter time period than the one you offer.
Again, this requires a software tracking system that can generate accurate claims for warranty services provided.
How To Optimize System To Reduce Churn
These best practices can help you get the most out of your reverse logistics system:
- Use identification numbers to track product condition
- Indicate refund status and implement policies to replace faulty goods
- Sort returned goods into different post-return categories
- Operate an in-house repair department
- Be prepared to sell individual parts of non-repairable full products as standalone products
- Invest in data analysis. Understanding the reason for return requests can improve your product lifecycle
- Monitor logistics and transportation to reduce shipping costs
Choosing the Right Logistics Partner
Picking the right logistics partner can give your business a competitive edge. Things to consider when choosing a partner requires looking at your inventory profile, returns processing demands, existing supply chain resources, and capacity.
Conclusion
Although some retailers or brands may choose to build their own returns processing system, utilizing a 3PL partner with state-of-the-art software can often help reduce your costs and allow you to focus on your forward retail business.
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