Understanding Reverse Logistics: Benefits and Best Practices

by Jaidyn Farar

With the number of returns growing rapidly in recent years, reverse logistics is more important than ever. As a business, reverse logistics and returns management affect your fulfillment center operations, shipping strategy, and customer service. From a customer’s perspective, the convenience (or lack thereof) of the reverse logistics process often determines whether they’ll buy from you. 

But let’s take a step back—what exactly is reverse logistics, and how does it work?

What is reverse logistics?

Reverse logistics is a type of logistics that involves moving products from an end customer back to the seller or manufacturer. This is the opposite of traditional logistics, where materials and products flow from suppliers to sellers, who then ship them to customers.

• Traditional logistics: products move from point A to point B
• Reverse logistics: products move from point B to point A

A business might use reverse logistics for several reasons. In many cases, customers return products because they’re not satisfied with them, have buyer’s remorse, or because the product is defective or damaged. 

The central goal of reverse logistics is to regain value from returned goods and eliminate waste where possible. Because of this, many businesses look for opportunities to resell or even recycle products rather than simply throwing them away. 

Reverse logistics is an essential part of your supply chain. Efficient reverse logistics enhances customer satisfaction, recovers value from returned products through refurbishment and resale, and reduces your environmental footprint.

The 5 Rs of reverse logistics

The five Rs of reverse logistics are returns, reselling, repairs, repackaging, and recycling.

1. Returns. Customers may request a return if a product doesn’t work properly or live up to their expectations. Measuring and optimizing returns helps improve customer satisfaction, reduce costs, and improve inventory management.
2. Reselling is the act of selling returned products. By reselling products, you’ll recapture value, reduce waste, and increase revenue from products that might otherwise be thrown away.
3. Repairs and refurbishment are both used to return products to a sellable condition. Repairing is generally a more labor-intensive process used to fix product defects, while refurbishment can include cleaning and updating a product to meet certain quality standards.
4. Repackaging is necessary when a product is still in like-new condition, but its original packaging is damaged. 
5. Recycling is used to recover materials from products at the end of their life cycle. This supports sustainability goals and reduces waste disposal costs.

Types of reverse logistics

Managing reverse logistics effectively begins with understanding the various contexts in which products are shipped back to your business. 

• Returns management. Returns management involves handling products that customers send back. This includes approving returns requests, receiving and inspecting products, and either reincorporating them into stock or disposing of them.
• Undelivered goods. Sometimes, carriers aren’t able to deliver packages. When this happens, carriers return them to businesses. From there, these products may be reshipped or restocked. 
• Unsold goods. Unsold goods are products that retailers have not been able to sell. These products are sent back to the original supplier.
• Remanufacturing and refurbishing. Remanufacturing and refurbishing involve restoring used products, such as electronics and automotive parts, to a like-new condition. This extends a product’s lifecycle and reduces the need for raw materials.
• Repair and maintenance. Products may be returned to the manufacturer for repair or maintenance. Businesses can either resell them or return them to the original customer.
• Rentals and leasing. Some business models rely on renting or leasing. For example, ecommerce stores rent things like jewelry, electronics, and even furniture. When rented products are sent back, the business must inspect and redistribute them. 
• Packaging returns. Businesses sometimes collect shipping materials like pallets, bins, and more from customers so they can be reused or recycled, thereby reducing waste. Additionally, some merchants collect direct product packaging, giving customers instructions for shipping their empty containers back to the business for reuse or recycling (see how Burt’s Bees does itopen_in_new). 
• End-of-life dispositioning. End-of-life dispositioning involves recycling, repurposing, or properly disposing of products that have reached the end of their life. This process aims to minimize environmental impact by reclaiming valuable materials and disposing of hazardous substances responsibly. 

While this article will primarily focus on returns management, the principles can also be applied to other types of reverse logistics. 

Benefits of optimized reverse logistics

Reverse logistics is an important part of your supply chain—one you can’t afford to neglect. When you optimize your process for cost and efficiency, you’ll reap a variety of benefits, including the following: 

Lower processing and restocking costs

Returns have the potential to be expensive for your organization! Not only do you have to refund the customer or send a replacement, but you also have to pay employees to process returns. With optimized reverse logistics, you’ll reduce the time and resources needed, thereby lowering operational costs and improving profitability.

Better inventory management

By efficiently managing the flow of returned goods, you can maintain a more accurate view of inventory levels. Additionally, effective reverse logistics involves adding products to stock and selling them more quickly, which lowers inventory holding costs and makes products available to customers.

Fewer losses

Returned goods don’t always need to be discarded, even if they’re damaged or defective. You can decrease the financial impact of returned or undelivered goods by quickly reintegrating them into inventory (potentially after refurbishing them). 

More sustainable practices

Sustainability is a big deal in the world of logistics, and reverse logistics plays a major part in your organization’s green efforts. Not only does return shipping produce additional CO2, but billions of tonsopen_in_new of returned goods end up in U.S. landfills each year. Optimizing reverse logistics helps businesses recycle, refurbish, and repurpose returned goods, significantly reducing waste and solidifying their reputation as an eco-friendly organization. 

Greater customer satisfaction and retention

Consumers crave an easy and hassle-free way to return products. When you make things simple for them, customers are more likely to remain loyal and continue purchasing from your company, which drives long-term business success. Additionally, returns data provides valuable information on the reason behind returns, allowing you to improve product quality and shipping processes.

How can you access these benefits? First, you’ll need to know the five steps of the reverse logistics process. 

5 steps of the reverse logistics process

Although reverse logistics is sometimes described as the last step in order fulfillment, it’s not a single process. Reverse logistics encompasses many smaller steps. Here, we’ll break things into five main stages. 

1. Return initiation and shipping

The reverse logistics process begins when a customer initiates a return. They might do so for a variety of reasons: the product wasn’t what they expected, the size was wrong, it didn’t work properly, or it got damaged during shipping. Every business gets to decide what conditions qualify for a return—for example, you might decide to only accept returns for products damaged during shipping. 

However, keep in mind that customers value flexible returns processes and consider them when making shopping decisions. Eighty-two percentopen_in_new of consumers report that return policies influence their decision to make a purchase, and 98%open_in_new are more likely to shop again if the returns process is fast and convenient.

Your business will receive return requests, authorize valid requests, and deny invalid ones. You’ll also decide whether customers get a full refund, store credit, or a replacement product. Once you’ve approved a return, you’ll provide a return shipping label and arrange for the customer to ship the product back to your fulfillment center. This will involve choosing a shipping carrier and giving the customer instructions for shipping their package. Remember to make this process as frictionless as possible.

“When I think about consumers and what they want most in the returns process, they want it fast. … They want a frictionless process to send that return back—either going quickly and dropping it off at a local store or even setting it out on [the] front porch for someone to come pick it up.” — Jill Barron, practice lead at Summit Advisory team, Supply Chain and the Consumer Experience 

Once returned goods have reached the fulfillment center, receiving staff prepare to accept these returns by allocating space and resources. Shipments are logged, unpacked, and tagged for identification so that each return is correctly documented and traceable throughout the process.

2. Inspection and sorting

Once returned items are received, they’re thoroughly inspected to assess their condition. Warehouse staff members check for damage and defects, making sure the correct item has been returned and has all its parts and pieces. Then, workers sort the goods based on predefined criteria before deciding whether each item should be resold, refurbished, recycled, disposed of, or donated. 

3. Disposition decision

A disposition decision is made for each returned item. Warehouse staff determine the best course of action based on each item's condition and market value. Options include the following:

• Restocking as new
• Sending for refurbishment or repair
• Recycling for parts or materials
• Disposing of unusable items
• Donating items to charity or local thrift stores

The disposition decision is crucial for optimizing inventory levels and recovering as much value as possible from returned goods. 

4. Refurbishment

Items that can be refurbished or repaired are moved to designated areas within the warehouse, where they undergo necessary repairs, cleaning, and repackaging. This can include replacing defective parts, updating software, and performing quality control tests. 

Refurbishment takes more time than simply discarding a product, but it also allows you to regain some of the value by reselling it at a lower price point. 

5. Resale, disposal, or recycling

Finally, any items in resellable condition, either as new or refurbished, are reintroduced into inventory so customers can purchase them. If products are in good condition but cannot be resold, some organizations donate them to local charities or thrift stores.

Products that can’t be resold but contain valuable materials or components are sent for recycling, where materials are recovered and processed for reuse. Products that are beyond repair and have no recyclable value are disposed of in an environmentally responsible manner. 

How to optimize the reverse logistics process

Online transactions have a 15.2% return rateopen_in_new—a number that’s three times higher than for in-store purchases! With such high levels of returns, some organizations have decreased return windows or started charging restocking fees. But this can have a negative overall impact; 71% of consumersopen_in_new say they’d stop shopping with a company if they had to pay a return fee. 

Clearly, returns are not going away, and if you want to keep customers on your side, stricter policies may not be the answer. 

In order to avoid financial losses from returns, you’ll need to create an efficient reverse logistics process. Doing so involves creating a clear return policy, making data-driven decisions, improving your warehouse processes, and using technology to your advantage.

Create a clear, flexible return policy

Your return policy has a major impact on the reverse logistics process in several ways. First, it helps your internal team manage the return process more effectively. It provides clear standards for returns—for example, by having a defined return window, such as 30 days, you eliminate the need for staff members to deal with returns after that time. 

Just as importantly, a well-crafted return policy helps you attract and retain customers. According to one study, 96% of shoppersopen_in_new research a company’s return policies before making a purchase. If someone needs to make a return, a difficult process often discourages them from shopping again. 

What should your return policy look like? In an EasyPost and FedEx webinaropen_in_new, Lori Boyer and Elizabeth Malone answer that question. They conclude that the best return policies have the following characteristics: 

• Easy to find and understand
• Include free return shipping
• Make it easy to print labels (or provide a no-label option)
• Hassle-free (including no-box options)
• Come with tracking

Data from Statistaopen_in_new backs this up, pointing to customers’ least favorite things about returns: having to repackage items, not having return tracking, and having to wait a long time for refunds.

Use returns data to make improvements

Returns data provides valuable insights into product quality and the shipping experience. This data helps you identify the root causes of returns, such as product defects, shipping issues, or customer dissatisfaction. Returns data can also inform inventory management, helping you forecast demand more accurately and reduce overstocking or stockouts. 

What returns data should you be measuring? First, you need to know what percentage of products are being returned, and how many customers receive a refund versus an exchange. To calculate the following metrics, start by choosing a time period (such as a month or quarter) to measure.

Return rate = (returned orders / total orders) x 100

Refund rate = (refunded orders / total orders) x 100 

Exchange rate = (exchanged orders / total orders) x 100

A high refund rate may indicate that you have major issues with product quality, or that you’re not accurately displaying product details. It can mean that customers are so dissatisfied with their purchase—or the buying experience—that they don’t trust your brand anymore. On the other hand, a high percentage of exchanges means you’re retaining customers. Because of this, exchanges should make up a high portion of your total returns. 

In addition to measuring these three metrics, get specific when analyzing returns data. Which specific items are being returned most? This can be a sign of poor product quality. How many products are returned due to shipping damage, and which carrier was responsible for delivery? Use this information to strategically select reliable carriers.

Establish a dedicated returns center 

While many organizations handle returns in the same logistics centers they use to fulfill orders, others operate dedicated returns centers to streamline the reverse logistics process. These specialized facilities have the necessary tools and technologies to handle returns efficiently, from inspection to refurbishment and restocking. A dedicated returns center allows for better organization, faster processing times, and more effective management of returned inventory. 

Optimize return shipping

Shipping plays a major role in the efficiency and cost of reverse logistics. Everything starts with choosing the right carriers and negotiating good rates. To skip the hassle of negotiation, consider using shipping software like EasyPost to connect with carriers and access discounts. 

To make things easy on customers, provide prepaid return shipping labels. If your industry is prone to high return levels, you might include these labels in packages. Otherwise, provide a digital label the customer can print at home or at a carrier’s physical location.

Automate the process

As in traditional logistics, automation significantly improves the efficiency and accuracy of reverse logistics operations. You can incorporate automation into your reverse logistics processes in various ways:

• Streamline the return process for customers with a return merchandise authorization  (RMA) system.
• Automate the sorting and inspection process with warehouse robotics.
• Maximize inventory accuracy with an inventory management system.
• Collect and analyze returns data with a data analytics platform.
• Generate return shipping labels with multi-carrier shipping software.

“Remember the importance of software and analytics in not only managing returns, but also in the role it can play in the overall supply chain and inside your distribution center. … When we say automation, we're [often] thinking equipment. But software drives a lot of efficiencies and actually does a lot to help us with returns.” — Kim Baudry, market development director at Dematic, Warehouse Automation and Sustainability

Handle reverse logistics the easy way

When done right, the reverse logistics process can be a strong point in your supply chain. Not only do you give customers a great experience (and hopefully keep them coming back to your store), but you also get as much value as you can out of every product. By minimizing waste from returned products as much as possible, you contribute to a healthier environment for everybody. 

Reverse logistics isn’t always easy, but it’s easier when you have the right tools. The EasyPost Shipping API lets you save on return shipping by connecting with reliable carriers and accessing discounted rates. 

Handle reverse logistics the easy way—sign up for EasyPost for free.