What Are Reverse Logistics?

Definition & Examples of Reverse Logistics

Employee processing a customer return
•••

recep-bg / Getty Images

Reverse logistics is the process of moving products backward through the supply chain. In other words, reverse logistics involves taking products back from customers and reworking those products (or parts of them) to create a new product that can be sold.

Here's what you need to know about reverse logistics and how it can help your business.

What Are Reverse Logistics?

Reverse logistics is a value-added process that addresses how a company receives items back from customers. The most common scenario in which reverse logistics come into play is when a customer wants to return an item. The process for how a company handles that product is an example of reverse logistics.

How Do Reverse Logistics Work?

Reverse logistics can play out in a lot of different ways depending on the specifics of the business. However, in almost all cases, the process can largely be broken down into two parts: returns management and either remanufacturing or refurbishing.

Returns Management

Returns management deals with the process of physically managing the products that are returned to the company. This includes an element of gatekeeping—determining which returns a company will accept. Once a return is accepted, returns management ensures that it ends up in the correct hands, like a warehouse manager who knows the best way to store it.

Remanufacturing or Refurbishing

Remanufacturing or refurbishing is the aspect of reverse logistics that gets the returned or recycled product ready to hit the shelves again. This aspect of reverse logistics can be simple. When a customer returns a t-shirt before they wear it, it could be as easy as adding a new price tag to the shirt and putting it back out on the floor. It gets more complicated when recycling a product, or receiving a returned product that has been heavily used.

For more complicated returns, the quality department can determine whether the item is suitable for a customer refund. By inspecting the item, the quality inspector can identify whether the item is covered by the returns policy.

However, if the quality department finds that the item can be repaired and resold, then this can create revenue for the company. Items should not be scrapped just because they are returned. Many items are returned because the packaging is damaged and these items can simply be repackaged and placed back into stock.

Cosmetic imperfection on an item may not be able to be corrected, but the item still could be sold at a discount and generate some revenue.​​

Benefits of Reverse Logistics

Recycling

While reverse logistics is most commonly applied to issues of customer returns, companies should also seek ways to apply reverse logistics in a way that recycles the items they sell. Many items that are sold contain toxic components, such as heavy metals, and consumers may not know the best way to dispose of those products. They may also appreciate that a company is upfront about the safest way to dispose of their products, rather than finding out about the toxic components from a waste disposal worker who tells them they cannot throw away the product.

When a customer purchases a major appliance like a washing machine, and it reaches the end of its service life, the customer will often not know how to deal with that item. Your company should review how it deals with this type of situation.

Not only does this improve your reputation among customers, but a strong recycling protocol can also create a revenue stream. There may be certain metals you can retrieve from your products and then sell. You may be able to incorporate aspects of a used item into the manufacturing of a new item.

Customer Satisfaction

Anytime you smooth a process the customer experiences, you are creating more opportunities to increase customer satisfaction. This is especially important with reverse logistics, because if a customer wants to return an item, there is probably something about it they are unhappy with. By simplifying the returns process for the customer, you can improve that customer's experience with your company—or at least avoid making it any worse.

On the other hand, having to pay for return shipping, delayed refunds, and other complications could have the opposite effect and drive customers away.

Strong communication is the easiest way to make the returns process easy on your customers. You could also include a return shipping label with the initial purchase, so they don't have to take any extra steps or pay any extra costs to return products.

Key Takeaways

  • Reverse logistics is the process of taking products back from customers.
  • Reverse logistics includes customer returns, such as when they're unhappy with an item, but they also include recycling opportunities and any other scenario in which items are returned.
  • The two key aspects of reverse logistics are returns management and refurbishing or remanufacturing.