BlogsThe Impact Of 'Returns' On Supply Chain Management and How To Deal With It

December 9, 2021by Shashiraja
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Return management is also known as ‘reverse logistics.’ It is a type of supply chain management of returned products to the organization. Reverse logistics is needed in returns of an item from the end customer during refurbishing, final disposal, and resale or recycling. The reverse logistics process begins at the end customer and moves backward through the supply chain to the manufacturer.

Adverse effects of reverse logistics

With the advancement in e-commerce and technology, consumers demand returns of products at no extra charge, and they expect the returns procedure to be convenient and easy. Unfortunately, in the competitive market, companies have to handle all the challenges, complexity, and extra work on returns of products at an additional cost. Some of the most common impacts of reverse logistics include:

  • Low inventory but more products: Sometimes, retailers may think that inventories are low if the returns are not factored in, or products have not made their way back to the inventories. This may lead to a situation of false low inventory, and the company may end up ordering more products than needed.
  • Build-up of products in the warehouse: Company warehouses experience backlogs of returned packages, especially after the holiday or peak season. If this build-up issue isn’t solved immediately, it adversely affects demand, planning, and inventory optimization. In addition, customers expect immediate refunds after shipping their returns in the demanding world, and the supply chain has to accommodate this demand. The return cycle begins as soon as the return label is scanned and the credit process for the customer is initiated. The returned product then sits idly for a longer time and creates a disconnect in management and planning.
  • Need for specific distribution centers: Distribution centers may ship out copious numbers of products, but it may not be functional to handle any processes associated with returns. This demands a need for specialized distribution centers. Therefore, companies must strategically identify such centers so that the overall supply chain remains unaffected.
  • Need for advanced analytics: Today, customers order multiple of the same item in numerous variations, for instance, shoes in various colors and sizes, and then return those versions of products they don’t want. Hence, forecasting returns is more challenging than forecasting sales. However, with novel tools and technologies backed with data and advanced analytics, forecasting processes can be more straightforward. It gives better insights into the gathered historical data and helps organizations identify patterns on which products are returned from multiple orders.

Strategies for improving reverse logistics

Here are some strategies which a company can use to leverage reverse logistics to gain benefits:

  • Keep returns separate from the rest of the logistics for quick sorting: A warehouse is the best place to build a firm foundation of reverse logistics. It is best to keep returned products in one confined area and then sort them into various categories like restocking, return to supplier, discard, etc. The sorting process must be started as soon as returns come in. By implementing this strategy, a company can keep an organized warehouse and ensure all the products are routed correctly.
  • Improve stocking mechanism – stock asap and get them online: Clear visibility of transactions, ordering, storing, and stocking for long-term company growth is critical. A prominent stocking mechanism is considered as one of the core components of the supply chain system. To improve reverse logistics, the process of restocking the products as soon as they are returned and getting them online is essential. Along with quick restocking, monitoring of returns is essential. Mark them as “priority” or “restock” regularly. Get these products scanned and stocked back onto the online portal or shelves as quickly as possible. It ensures sufficient inventory, updated ordering systems, better customer experience, and resale.
  • Bring in analytics and plan ahead: Building a robust novel technology with advanced tools and analytics is the key to success in the current market. It enhances the company’s capabilities and streamlines complex supply chain processes that elevate performance. Specific technological tools and data science can be used to plan reverse logistics ahead of time. Advanced technologies like artificial intelligence (AI), machine learning (ML), etc., can help interconnect and exchange data in real-time, which can further aid in forecasting returns, exchange, or distribution patterns by analyzing data.
  • Sell refurbished items: Reverse logistics is about product value, mitigating losses, and reselling refurbished or original items. Otherwise, money is lost. The refurbished items can be listed for discounted or lower prices. Low prices attract consumers who can’t or won’t pay the total cost for the same product.

Handling reverse logistics is a challenging undertaking. However, reverse logistics can produce exceptional results with modern tools and technologies. With data, analytics, and monitoring, a company can focus on customer satisfaction, minimize losses, and increase customer retention. Talk to our experts to know more.

About DforD

Data for Decisions Technology Solutions Pvt. Ltd. is a cloud platform integrated with the supply chain ecosystem to provide Transparency, Efficiency, Counterfeit Detection and Reporting for Manufacturers, Distributors, Retailers and Consumers. It is simple and user friendly to adopt and use.

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