Running in reverse: The future of returns

by John O'Kelly

Managing returns has traditionally been treated as an afterthought, but with the rise in e-commerce sales, returns are sure to be substantial. If not handled properly, mistakes can lead to poor customer experience and revenue loss.

Many businesses are now placing a greater emphasis on managing returns, calling it “reverse logistics”. Many reverse logistics initiatives have come a long way in a short period of time. Here’s what those look like and what to expect from the future of reverse logistics.

What is reverse logistics?

If logistics describes how products move through the supply chain from manufacturer, to warehouses, to consumers, reverse logistics details how things move in the opposite direction. In other words, it deals with products going from the customer back to the supplier for various reasons:

  1. Broken or damaged products
  2. Mistakes made in order fulfillment
  3. Customers changing their mind
  4. Product recalls
  5. Trade-in or recycling programs

The reverse logistics process works by authorizing a product return, assessing product condition upon receipt, reclaiming any product value (adding it back to inventory, reselling it at a discount, etc.), and approving any customer refunds.

Why reverse logistics should be a priority

With the rise of online sales, reverse logistics has become a necessity for businesses. In fact, the average e-commerce return rate ranges between 20 and 30 percent. According to Statista, returns of online merchandise in the U.S. alone amounted to nearly US$213 billion in 2022. That’s a decrease of about two percent from the prior year when e-commerce sales peaked at $218 billion. With an improved reverse logistics system, companies can spend less time handling returns, which reduces additional storage and distribution costs.

Netsuite suggests that an optimized reverse logistics system can also create greater supply chain visibility, leading to further benefits such as greater customer satisfaction, faster and better services, improved brand sentiment, waste reduction, and more.

It’s tough to discuss online sales without also addressing returns. E-commerce giants like Amazon have set the bar high by offering free, no-hassle returns to customers. This “Amazon Effect” means that many consumers are searching for similar experiences. In fact, over three-quarters of consumers will decline to do business with an online seller that doesn’t have a reasonable return policy.

In addition to delivering a positive customer experience, prioritizing reverse logistics just makes good business sense. When a company can efficiently repurpose returned goods, this can save what would otherwise be lost revenue. Also, a well-run reverse logistics process delivers valuable insights companies can use later to improve business.

Looking into the future of reverse logistics

According to Grandview Research, the reverse logistics market was worth about $840.7 billion in 2021. This figure is expected to expand by a compound annual growth rate (CAGR) of about 12.4 percent from 2022 to 2028.

Rising awareness of the benefits of reverse logistics will continue to fuel growth and innovation within companies. Many of the innovations that improve supply chain and warehouse efficiencies are also being applied to reverse logistics. Here are a few things expected to transform reverse logistics in the coming years.

1. Using RFID solutions

Without a robust reverse logistics plan in place, businesses would be unable to keep up with the volume of e-commerce returns. Fortunately, the same technology solutions that improve efficiency in the forward supply chain can also help maximize processes and efficiency in reverse logistics.

Radio frequency identification (RFID) tags can communicate comprehensive data, such as product descriptions, dates, necessary temperature, and more. Using RFID can simplify the reverse logistics process and save costs. It also provides a better customer experience as consumers want to track their purchases and returns conveniently and in real time.

2. Leveraging blockchain technology

Blockchain technology has the potential to revolutionize reverse logistics. It’s a decentralized digital ledger that records transactions with high accuracy. It is a transparent and secure means of tracking the movement of returned products, better enabling businesses to manage returns and recycling or disposal processes.

Many businesses have yet to embrace blockchain, but that could change as the benefits of this technology become clearer. These include:

  • Improved traceabilityUsing blockchain, businesses can create digital record histories for each product and show their movement through the supply chain.
  • Increased efficiencyBy using blockchain technology to automate certain parts of the reverse logistics process, companies can reduce the time and cost of managing returns.
  • Enhanced asset utilization Blockchain technology can enable the reuse of returned products, which reduces waste and boosts asset utilization.
  • Better transparency Because blockchain technology creates a decentralized, transparent transaction record, it makes it easier to track the movement of products as they move through the reverse logistics process.

3. Focusing on data-driven forecasting

Making the most of technologies like RFID and blockchain requires embracing digital technology solutions at various points in the supply chain. A warehouse management system can help a business automate its processes and inject more visibility throughout the supply chain.

Improved transparency allows businesses to adapt quickly to changes and optimize costs. If a large percentage of certain products are being returned due to defects or some other issue, this is something the business can address. Using an inventory management system to its full capabilities can save hours of labour and reduce inventory carrying costs.

4. Embracing sustainability

Today and in the future, more merchants will focus on sustainability to differentiate their businesses and be better environmental stewards. When choosing which products to buy, 80 percent of customers will weigh sustainability in their decision-making, and one-third are willing to pay more for sustainable products. Shoppers, particularly Gen Z and younger generations, are supporting these types of brands.

In addition to focusing on how products are made and fulfilled, your business should also look at sustainable reverse logistics. Analyze the return processes to see how it can be more environmentally friendly. Can you reuse packaging with returns? Instead of sending items to the landfill, can they be sold at a discount? If they are unusable, see if they can be recycled or repurposed.

Instead of simply focusing on getting products into customers’ hands, businesses must also figure out how to efficiently handle returns. As reverse logistics takes a more critical role within an organization, customers are more satisfied, and businesses can achieve better overall results.

John O’Kelly is founder and CEO of Newcastle Systems.