Reverse Logistics: A Key Component of Effective Supply Chain Management

According to the National Retail Federation (NRF), 2024 is set to see a significant rise in merchandise returns, with an estimated 16.9% of all retail sales being sent back. This staggering figure translates to around $890 billion worth of returns.

Returns are becoming increasingly more common as more consumers opt to shop online rather than do their buying in physical stores - and it's a phenomenon that retailers must address. While in a perfect world, all sales are final or all end users are satisfied and companies don't have to worry about returns, that's not reality. Therefore, it falls on the retailers to take the necessary steps to streamline the return process and better handle reverse logistics.

In this blog article, we'll explain what reverse logistics is and the role it plays in the supply chain as well as the steps that retailers can take to optimize the process both for the benefit of their customers and their bottom line. Read on to learn more:

Reverse Logistics 101: What You Need to Know

Reverse logistics refers to the process where a product is returned by the end user to the manufacturer or distributor. This can happen for various reasons: the product might be the wrong size, defective, damaged during delivery, or simply fail to meet the customer’s expectations. In some cases, customers may return items because they realize they no longer need them.

The rise of eCommerce has significantly increased the volume of returns. Unlike traditional brick-and-mortar shopping, where customers can try or inspect products before purchasing, online shopping often involves a leap of faith. Consequently, retailers are now prioritizing the returns process, investing in making it as seamless and customer friendly as the buying experience.

One standout example is Amazon. Previously, customers had to visit Amazon distribution centers or independently ship their returns. Today, Amazon has simplified this process by offering convenient drop-off options at locations such as Amazon stores, Kohl’s department stores, and other designated spots—all free of charge. This streamlined approach not only reduces friction for customers but also fosters loyalty. In fact, research indicates that 98% of consumers are more likely to shop with a retailer again if their returns process is hassle-free.

While creating a smooth return process for consumers is vital, it’s only part of the equation. Retailers also face the challenge of efficiently managing returned items once they reach their distribution centers. From inspecting and restocking to recycling or refurbishing, optimizing these operations is crucial to maintaining profitability and sustainability.

In the next section, we’ll explore how warehouses and distributors can improve their reverse logistics processes, turning returns from a challenge into an opportunity.

How to Optimize Reverse Logistics

So how can you optimize reverse logistics at the distribution center level? Automation is the solution. A disruptive force of change, automation is changing the game - for the better - in many industries, and it is no exception for Returns Management. While automation in the distribution center environment is largely focused on picking, packing and shipping items to end users following purchase, efforts should also be made to better accommodate items that are returned to the various return centers that companies and brands operate. A combination of software tools and materials handling automation need to be deployed to enhance the returns process.

One way to do this is by implementing a Returns Management System and integrating it with your Warehouse Management Software (WMS) that considers reverse logistics. Building out different scenarios into the RMS or WMS can help address various types of returns. RMS/WMS can also help with re-barcoding returned items so they can go back into stock for resale faster improving returns inventory management practices.

This solution can be further elevated with artificial intelligence (AI). The big benefit of AI is the ability to learn historical data and get data driven insights which can help leadership make decisions smarter and faster. AI is being integrated into just about everything these days and incorporating it into RMS/WMS software can also serve as a payoff for retailers.  The capability to utilize software and automation to manage returns will become a real competitive advantage.  There's unlimited potential to incorporate automation into your reverse logistics, much in the same way it's becoming increasingly incorporated into distribution centers for order fulfillment. Automated Storage and Retrieval Systems (AS/RS), package sorters, unit sorters, and AMR(s) can be designed an integrated in much the same way on the reverse logistics process. Once a return is triaged and identified it can be routed through the automated materials handling system to improve the once mostly manual and costly returns process.

A well-designed returns process incorporating the sophistication of a returns management system integrated with an automated material handling solution is the recipe for managing returns faster to improve your bottom line.

Work with a Qualified Logistics Partner Today

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It can be overwhelming to know where to start when it comes to optimizing reverse logistics and implementing many of the solutions that can help streamline the returns process. That's why it can be valuable to work with a qualified partner. A partner can assess your operations and make recommendations on how to improve the process and what solutions your operations could benefit from implementing.

Optimizing reverse logistics can give a huge competitive advantage to the brands and retailers that get it right. And while a big part of reverse logistics is making the return process easy and convenient for consumers, internal optimization is greatly important as well and e-retailers should take the necessary means to optimize the process in their various warehouses and distribution centers to better forecast unpredictabilities and turn around returned goods faster.                                                               

About Daifuku Intralogistics America

Daifuku Intralogistics America is a global leader in intralogistics and automation solutions. With decades of experience, the company specializes in designing, manufacturing, and delivering advanced material handling systems that optimize efficiency, enhance safety, and drive productivity in warehouses and distribution centers.