‘Sound reverse logistics can help up profit by 5% for businesses, cut returns processing cost by 25%’

AJ Gonzalez | November 18, 2020

Financial Express, Startup India, Abhik Mitra, November 16, 2020 1:24 PM

Logistics for MSMEs: It is the time of the year when the demand for consumer products spikes up, requiring ample support of the logistics network to fulfill the surging number of orders and deliveries. Logistics has been the key enabler of multiple consumer-oriented industries operating across the globe. It starts to play an even more powerful role amid the festive season. However, with this rising volume of online sales and deliveries expected during this time, the incidences of product return too are bound to soar alongside. Typically, this results in the backward flow of products from the end-customer to the seller that creates a reverse logistics supply chain.

This reverse flow of inventory from the point-of-sale to the point-of-origin puts tremendous strain and pressure on the logistics and supply chain network. This turns out to be one of the biggest operational challenges for industry players. Firstly, reverse logistics implies additional logistics or transportation costs involved in the pick-up of the returned goods and transferring them back to the seller or the warehouse. Normally, these costs have been estimated to be higher than the original order fulfillment costs. Reports suggest that reverse logistics cost almost one-a-half times more than regular forward logistics.

Apart from the financial drain, storage of this huge influx of returned items is another key concern. It requires firms to expand their physical warehousing capabilities. At times, it even requires retailers to build up separate warehouses solely for reverse logistics. Reports suggest that a reverse logistics supply chain can require up to 20 per cent more space than an outbound supply chain. Moreover, one cannot ignore the additional manpower requirements for specifically looking into returns management.

Eyeing all these complexities involved in handling return logistics, many firms prefer to outsource the returns management process to third-party logistics companies. Some also choose to build up their own reverse logistics arm to optimize the process. The underlying fact is that supply chains must be well-equipped to handle reverse logistics efficiently, while also ensuring timely replacement of goods. This can enable companies to win their customer confidence and further enhance their brand credibility.

Having said this, it is certain that the demand for reverse logistics is going to peak over the next few months. Supply chains need to be made adequately robust with fairly enhanced capabilities to efficiently manage the increased load. Logistics and distribution managers need to plan for their reverse logistics well in advance and build a flexible and responsive supply chain network that could promptly handle customer order returns during this busy time.

Needless to say, product returns are an inevitable part of the booming industry. Typically, for e-commerce purchases, return rates fall between 25 per cent to 30 per cent, as compared to return rates for in-store purchases that are only 9 per cent. Viewing reverse logistics as an opportunity, rather than a challenge, can promote the growth of the business in the long run. Gaining smarter insights with the help of new and emerging technologies, and applying them throughout the supply chain can also make reverse logistics efficient and economical. A sound reverse logistics policy, if implemented correctly, can lead to a 25 per cent reduction in the returns processing costs, 10 per cent increase in productivity, and 2 per cent – 5 per cent increase in net profits along with significant growth in customer satisfaction and retention.

Abhik Mitra is the CEO of Spoton Logistics. Views expressed are the author’s own.

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