The High Costs of Reverse Logistics With Little Transportation Spend Visibility

Supply chain visibility is a complex topic with a profound value proposition. Visibility into everyday operations gives shippers a view of what's working as designed and where opportunities for improvement exist. Visibility is critical in an age of disruption where traditional just-in-time fulfillment models fall short and when shippers need complete transparency. One area of logistics, reverse logistics, is particularly susceptible to failures within visibility. Since e-commerce is typically associated with above-average returns rates, with an above-average peak season in full swing, shippers need to know a few things about the high costs of poor visibility in the reverse supply chain.

What Contributes to Higher Reverse Logistics Costs?

Customer satisfaction is the biggest driver of changing returns policies. According to Supply & Demand Chain Executive, 75% of customers expect shippers to actively improve the returns process. Furthermore, the overwhelming impact of returns is "as important as payment and delivery in the e-commerce shopping process."

Such factors have pushed shippers to rethink their returns management processes, using technology and automation to better understand the backward flow of goods in the supply chain. Ultimately, poor visibility comes from an inability to see and track returns in the supply chain. Therefore, any return originating from outside of a brick-and-mortar store needs to have automation and technology front-and-center of the whole experience.

Poor returns management could lead to massive losses, possible health risks to your employees, cross-contamination of goods, unexpected overstock due to returns, and limited actionability in managing returns.

For example, health and beauty products must go through a rigorous handling process to ensure items that have been used, which could contain a person's bacteria from their body, are not mixed with new products. The most obvious use would be makeup products as well.

Before the pandemic, shippers paid roughly $10 per return as a broad value, but with rising costs of all-things-related-to-shipping, returns costs will only grow more severe. And that means that those operating on thin profit margins will face greater uncertainty. Also, remember that pre-pandemic e-commerce returns rates were close to 30%, so shippers could conceivably see profitability dwindle 40% or more, assuming each shipment's profits were near $100.

While $100 in shipment value might seem standard, consider how a $10 processing charge might stack up across thousands of items valued at $20. The costs can and do quickly contribute to poor profitability, and those total shipping returns costs can soon lead to a spiraling of transportation spending. However, shippers can turn to transportation spend visibility to gain control and stay strategic when it comes to handling customer returns.

How Shippers Can Improve Reverse Transportation Spend Visibility

Opportunities to improve reverse logistics come from using the right technology and a robust reverse supply chain strategy. According to TotalRetail, "Powered industrial carts help increase efficiency during the return process and allow the employee to have their barcode scanner, laptop, label printer and more at the ready, saving time and wasted motion. Bulky items returned don't always lend themselves to easy maneuvering, so having a powered industrial cart allows employees to efficiently return items to shelves without the risk of personal injury or damaging the item." However, technology for the sake of technology doesn't add value on its own. That's why shippers are seeking to unify their supply chains across all systems to create a single source of truth to manage both the forward and reverse flow of goods, following these steps along the way:

1. Collect data to track your reverse logistics costs.
2. Normalize data to make accurate, apples-to-apples comparisons.
3. Analyze data to derive actionable insights into failures versus opportunities in reverse logistics.
4. Prepare for returns more efficiently with clear, concise processes for handling incoming returns.
5. Build a data-driven, well-documented process for handling traffic distribution, intake, and product verification.
6. Automate the returns shipping and handling process with technology.
7. Know when and where to consolidate incoming parcels by sending returns to a central location or distribution center for processing.
8. Avoid an all-parcel approach to the full reverse supply chain, using LTL and FT where possible.

While these processes mainly focus on actionable steps to keep reverse costs in check, shippers should take a few other steps to improve customers' experiences. After all, happier customers are less likely to return goods due to poor experiences.

For instance, consider these simple steps to making customers happier in the returns process:

1. Extend return windows.
2. Integrate your TMS with customer-facing systems to handle the RMA process.
3. Renegotiate rates with carriers for returns-originated shipments.
4. Automate the RMA and labeling process, correcting anomalies that commonly occur along the way, especially inaccurate customer addresses.
5. Track the returns' data down to the SKU level and across other granularities.
6. Create a dynamic inbound routing guide for managing reverse shipments.
7. Encourage customers to ship in the right-size packaging or material, helping your company save costs along the way.

Together, these two lists will help your company rethink your reverse supply chain to account for increased returns frequency. It's equally important to realize that not all returns originate by mail. Thus, shippers need to account for multiple origin sources, including returns lockers, returns in brick-and-mortar stores, and even possible returns from Amazon. Why? The answer is simple; a complete view of all incoming packaging helps shippers maintain inventory and plan replenishment/restocking better.

Invest in the Right Technology and Partnership by Choosing Intelligent Audit

Reverse logistics must not be an afterthought. Shippers need to invest in a top-quality data analytics solution to understand their reverse costs. Data-driven management in the reverse supply chain is equally important and should be every shipper's strategy. Connect with Intelligent Audit today to put that capability into action and get the data your team needs to gain control over reverse logistics costs now.