The importance of a sound reverse logistics network (and how to build one)

reverse logistics network in India

Amid the festive season, the logistics industry plays a powerful role in meeting the spike up demand for consumer products. However, with this rising volume of online sales and deliveries expected during this time, the incidences of product return are bound to soar alongside too. Such incidences result in the backward flow of products from the end-customer to the seller that creates a reverse logistics network. During peak season, such overpowering backward flow of products 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. According to Abhik Mitra, CEO, Spoton Logistics, 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 fulfilment costs.

Reports suggest that the cost of reverse logistics is almost 1.5 times more than regular forward logistics cost.

Furthermore, the 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, Mitra adds.

As per reports, a reverse logistics supply chain can require up to 20% more space than an outbound supply chain. The additional manpower requirements for specifically looking into returns management is another complexity which tags along during the time.

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 network 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”, Mr Mitra says.

Now, knowing 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.

Mr Mitra says, 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.

For e-commerce purchases, typically, return rates fall between 25% to 30%, as compared to return rates for in-store purchases that are only 9%. Along with the rise of e-commerce sales, the responsibilities of a reverse logistics network has also significantly changed.

Mr Mitra feels one should view reverse logistics as an opportunity, rather than a challenge. He feels that an efficient reverse logistics network 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 make reverse logistics significantly efficient and economical.

Mr Mitra also throws light on the correlation between reverse logistics and profitability. A sound reverse logistics policy, if implemented correctly, can lead to a 25% reduction in the returns processing costs, 10% increase in productivity, and 2-5% increase in net profits along with significant growth in customer satisfaction and retention, he said.

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