What Is Reverse Logistics and Why Is it Important?

Understanding the Complexities of the Reverse Logistics Ecommerce Process

What Is Reverse Logistics
What Is Reverse Logistics. mstay / DigitalVision Vectors / Getty Images

An article about reverse logistics for ecommerce businesses turned out to be so popular that I am motivated to answer the basic question: what is reverse logistics?

Reverse logistics is the collection of all processes that come into play for goods that move in the reverse direction, i.e., from the customer to the business. Here are the most important processes that are covered under reverse logistics.

Customer Support

This could be in the form of a call center, support by email, or an online chat. Often it is a combination of all of these methods. The ecommerce business needs to make itself available for a conversation with the customer, who may want to return or repair the goods purchased. No customer should be made to feel like they are a pain simply because they want to return goods.

Physical Movement of Goods

There are a wide variety of methods by which an ecommerce business can receive the goods from the customer. The customer could be required to mail in the goods or drop them off at designated locations. Some merchants will organize for a pickup of the goods from the customer's location.

Warehousing

The physical goods that are collected need to be tagged, tracked, and stored. This is the purpose of the warehousing process. A warehouse is typically a large storage space on the outskirts of major towns or cities.

In addition to storage space, large warehouses have many devices and automated processes to tag and track the stored goods.

Triage

Triage means sorting of goods based on their condition or quality. Some of the goods need to be repaired and sent back. Others have to be sold off as used / defective goods.

Still others need to be sold as scrap. For making this decision, reverse logistics includes the important step of triage.

Repair

Repairs are an important process in the reverse logistics supply chain -- either for returning to the repaired goods to the customer or for reselling the returned goods. Cost effective repairs can enable the reverse logistics center to actually become a profit center. In fact, the business model of several third-party reverse logistics providers depends upon selling refurbished products at high markups. Some go so far as to actually provide warranties on the refurbished goods.

After Sales Support

Assume that the returned goods are refurbished and sold to a new customer. Now the reverse logistics provider has become the new seller. All aspects of after-sales support, such as: servicing the product and supporting it with an annual maintenance contract (AMC) are required even in the case of goods sold second-hand.

Using a Third-Party Reverse Logistics Provider

Just like the logistics of an ecommerce merchant can be outsourced to a third party logistics provider, there are specialist third party providers of reverse logistics too. These are organizations that specialize in receiving goods from customers, refurbishing them, and selling them at steep discounts.

Ecommerce Industry Insights

  • Interestingly, the markups that reverse logistics providers use often tend to be higher than the original markup by the ecommerce merchant. This isn't really the anomaly it seems, as the ecommerce merchants could get saddled with returned goods. Once these goods start piling up, the ecommerce merchant would not be able to continue its usual business owing to the monies blocked in these goods.
  • Reverse logistics are often more time sensitive than getting the goods to the customer in the first place. This is because of the risk of obsolescence, or usability, of the returned goods. This is one of the many factors that motivate ecommerce providers to outsource their reverse logistics setup.
  • A significant part of reverse logistics involves trashing the goods collected from customers. Waste has always been a contentious issue with ever changing legislation. As a result, a specialist reverse logistics provider is usually in a better position to dispose of a product in a manner that is compliant with regulation.