What Are Reverse Logistics?

Reverse logistics is more than just accepting a customer return

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At a company that does not operate reverse logistics - any item that has been returned from a customer may be received into the warehouse and stored until it is examined by the quality department or scrapped.  This could be hours days or months.

Not only does this scenario use precious warehouse space, but it fails to address the potential benefits of repairing items for customers or refurbishing returns for potential resale. Both of these options can turn the loss due to the cost of disposal into a profit for your company as well as improving customer satisfaction.

The value added processes that are performed on customer returns, as well as the whole returns process, have been described by the term “Reverse Logistics”.

This process covers the method by which:

  • items are returned from the customer and...
  • the processing of the returns by servicing and...
  • the returning to the customer...
  • the putting the material back into stock or...
  • the refurbishing the items for resale 

The returns process has now become an important part of the processing that takes place in the warehouse.

Helping The Customer

When a customer receives an item from your company that he or she is unhappy with and then has to return the item, satisfaction with your company would have decreased.

If your company then has a poor returns process whereby there are hurdles in returning the item such as paying for shipping, or restrictive freight carriers, delays in issuing a refund, etc., you could lose the customer’s business in the future.

The first step of a best practice implementing a reverse logistics solution would be to supply the customer with a return label when the item is shipped that includes the customer’s order number in barcode form so that you can inform the customer as to when the item is received in the warehouse.

The receipt could also trigger a replacement or credit memo to be processed. Communication is crucial in keeping the customer happy.

Warehouse Operations

Customer returns can arrive at the warehouse without prior knowledge or authorization. This can cause capacity issues with warehouse resources as warehouse managers try to plan their resources based on the inbound and outbound deliveries in the system.

When returns arrive they can take a long time to process as information has to be found about the item and this wastes resources.

By having a package with a barcode label, the warehouse does not have to spend any time investigating the details on the return. The item can then be placed in a location specifically for returns processing.

Refund, Restock, Refurbish

When the returned item is inspected, 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, if not then a refund should not be processed.

Many companies automatically refund the customer despite a different item being returned. If the quality department inspects the item and finds it to be sub-standard, then a replacement or refund can be issued to the customer.

However, if the quality department finds that the item can be repaired and resold 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 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 as a second and generate revenue.​​


A facet of the reverse logistics process is that companies should offer end of life recycling for items they sell. When a customer purchases an appliance such as 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.

Many items that are sold contain toxic components, such as heavy metals and as consumers become more environmentally knowledgeable.

They are more concerned about the effects of dumping items on landfills and companies are beginning to offer a recycling program where consumers can send items back when their service life has ended.

A benefit of this for your company is that the recycling of items can lead to a small revenue stream, especially in recycling certain metals. Although this may not be a major source of revenue it may offset the cost of disposing of toxic items and the customer goodwill would be significant.

Article updated by Logistics and Supply Chain Expert, Gary Marion.