It seems counterintuitive, but if retailers, manufacturers, and shippers hope to improve their bottom line and comply with essential environmental standards, they are going to need to go backwards in order to move forward. What does that mean? It means that a greater focus is going to be required when it comes to optimizing their reverse supply chain.
Reverse supply chains are still something of a shrug-off in the retail industry, as concerns tend to stay wholly focused on the forward supply chain—moving products from manufacturing manufacturers to stores and customers. The reverse supply chain—the processes of the return and recycling of goods—is considered a far less pressing concern, although the status quo in this regard is rapidly changing.
As of today, almost 20% of all goods sold in America are returned, everything from clothing to toasters to end-of-life medical devices. This accounts for over 8-15% taken off of companies’ top-line, totaling to about $100 billion dollars in the U.S. annually. (Per Supply Chain Quarterly)
The processing cost of returns is 2-3 higher than that of its initial outbound shipping and handling, it hurts the overall brand image of the producer (especially if the reason for the returns is due to a recall), and it forces companies to have to deal with ever-evolving regulations regarding the disposal process. This all tends to cause companies to work against the reverse supply chain, which only adds to their detriment, since they should be embracing it.
Reverse supply chain optimization, on the other hand, offers an opportunity for retailers and manufacturers to not only recoup some of the revenue lost by returns (through auctioning, refurbishment, discounted reselling, and donations), but also as a way to hold onto their customers. As previously stated, the returns process usually results in the customer coming away with a negative opinion of the brand and/or retailer, due to what is often a slow and complex process. However, a streamlined, simplified and open return process can result in the customer walking away with a more positive opinion of the brand or retailer. Through a reverse supply chain that uses best practices, brands have a way to deepen their connections with their consumer base and turn a negative into a positive.
Such a focus on reverse supply chains would also keep the process from cutting as deeply into companies’ cost margins by reducing waste and inefficiency. Traditionally, returned items are ignored until the last minute, with their fate often determined by which method is most convenient. This leads to far too many products (that could otherwise be refurbished, repackaged, and resold) ending up in a landfill.
Resolving this issue will require a change in perspective, one that puts a much larger emphasis on dealing with returns as they occur, rather than leaving it for later, as well as logistics management solutions that outline best practices, so that decisions such as what to do with a return are decided quickly, if they are not already in place.
The necessity of reverse supply chain optimization is not simply a matter of looking out for companies’ profits; this is an issue that has a drastic impact on the environment: a good percentage of the items that are returned end up in landfills. Too many landfills are already overcapacity, and the items that end up taking up space there are often ones that can take years, even decades, to decompose. As one retail industry insider put it, “It’s unsustainable to constantly take natural resources and produce a product that’s eventually going to be thrown away.” (Via Retail Drive) Many governments have put regulations in place to address this, but the responsibility is going to be on retailers to make the changes that are drastically needed to halt all the waste.
This issue is not going to slow down any time soon. E-commerce continues to grow at an incredible rate, with more consumers doing their shopping online each year. A rise in e-commerce guarantees a rise in returns, since consumers can only get so much of an idea about the products they purchase online as compared to in a store. For the sake of the environment as well as their own bottom lines, retailers, manufacturers, and shippers must put forth a tighter focus on their reverse supply chain.
After all, when you’re driving somewhere, no matter how focused you are on getting to your destination as quickly and efficiently as possible, you still have to pay attention to what’s in your rearview mirror from time to time.