Reverse supply chain management

By James Smith

“Moving backward through the supply chain is more difficult and complex because there isn’t a priority, and products are moving against the normal flow,” states Dr Dale Rogers, professor of supply chain management for the University of Nevada (Inboundlogistics.com, 2018).

Dr Rogers continues: “Companies don’t see where returns hit their budget because their systems and processes are designed to support the forward flow of goods. Also, technology in general doesn’t support returns. No ERP systems or diagnostic and analytic tools support backward-moving inventory.”

Reverse supply chain refers to the movement of goods from customer to vendor. This is the reverse of the traditional supply chain movement of goods from vendor to customer. Reverse logistics is the process of planning, implementing and controlling the efficient and effective inbound flow and storage of secondary goods and related information for the purpose of recovering value or proper disposal (Cognizant.com, 2018).

Reverse logistics refer to monitoring the life-cycle of your products after they arrive at the end consumer. This could include how the product could potentially be reused, how it should be properly disposed of after use, and any other way where the expired product can create value (Systems, 2018).

Why do customers return product?
There can be many reasons why customers return products, some of which are given below.

Incorrect items
The customer orders the item and the incorrect item is shipped or is sent to the wrong customer. The outcome of this is that the customer is frustrated. Sports Direct do not pay for the reverse shipping costs but offer a full return or exchange programme for any items returned within 14 days. This process, however, does not reflect costs of repackaging, restocking, labour and customer contact.

Damaged item
The item arrives damaged, as above, frustrating for the customer and the retailer as it will have to return to its own supplier as part of this process.

Not as described – from the customer’s perspective
The customer is not happy with the description, this will be monitored online and offline, with the retailer attempting to spot trends across product ranges to reduce description/sizing/type errors.

No longer wanted
This is to be expected within any business and the long return times of distance selling make this much more difficult to manage.

In all the above cases
As the Kinaxis blog points out (Niroomand, 2018), the retailer has to organise shipping of the returned product and send it through various processes, such as testing, dismantling, repairing, recycling or disposal. All these processes require the product travel in reverse through their supply chain network.

Factors of note within the reverse supply chain

Distance Selling Regulations as per the Government website
By law and as per the (GOV.UK) website, the customer does not need to provide a reason for the return of the product. Furthermore, the seller must tell the customer about their rights to cancel. If they do not then the customer can cancel at any time in the next 12 months. If the seller informs their customer about the right to cancel during these 12 months, the customer has 14 days to cancel from when informed.

After an order is placed
The organisation should provide a copy of the contract on paper, by email or another format the customer can save for future reference and provide the copy of the contract no later than when the goods are delivered.

The invoice/returns slip should clearly state the reason that the customer is returning the items and whether the customer would like a refund or an exchange. The items should be returned in a resalable condition, however, the items need not need to be in their original packaging and it is up to the customer to provide proof of postage.

As per the table on the right (Ofcom Annual Monitoring Update on the Postal Market, 2016) the highest threat to commercial security within the despatch chain and the reversal chain are lost packages. Therefore, ensuring the customer takes responsibility for receipt and postage (returns) will lower costs.

Royal Mail reported complaints for 2015-16

Customer faith
Having a faster return service with as many obstructions removed as possible can help to restore customer loyalty and faith in the product and the organisation.

Customer retention – dealing with errors is just as important as making sales. If a customer has a bad experience with your product, the company must make it right. Fulfilment blunders can create educational opportunities. Learn how to keep the customers happy and engaged with your company.

Reduced costs by planning for returns and making the return order process smooth and successful, the company can reduce related costs (administration, shipping, transportation and technical support).

Faster service. This refers to the original shipping of goods and the return/reimbursement of goods. Quickly refunding or replacing goods can help restore a customer’s faith in a brand.

Recovering loss in the reverse supply chain
Planning and ensuring an efficient return system will go some way to mitigate the losses in the reverse supply chain, but having plans to recycle, reuse and quickly restock will also reduce the costs involved.

Storage – storing of returned items must be taken into consideration, not only physical space but staff, repackaging, restocking and returning to shelf.

End of life reuse – some items will be at end of life. A method of reuse or recycle to save costs will be an efficient way to reduce costs. This could be part of a sale or return contract with the organisation’s own suppliers if the contract allows or a donation to a third party.