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 Backward Supply Chain: How to do it Right

Posted: March 13, 2020 by Ly Phan

Backward Supply Chain: How to do it Right

A common perception of supply chains is that it moves in one direction - from the manufacturer to the customer. However, particularly given the rise of ecommerce, products are increasingly being returned and forming a backward supply chain. The challenge for distribution centers and retailers is how to manage returning inventory.

Product returns poses a number of unique challenges for businesses, including:

  1. Unpredictability: Customers return products for a variety of reasons, including poor quality, finding a better deal elsewhere, or simply a change of mind. These factors feed into the unpredictability of product returns, and distribution centers need to be prepared for all possible eventualities.
  2. Logistics: Backward supply chain is also known as “reverse logistics,” which neatly sums up the challenge for retail businesses. Managers and owners need to ensure there is a smooth process for product returns, with poor experiences potentially driving away customers.
  3. Scale: The rise of ecommerce has provided plenty of opportunity and growth for retail businesses, but it has also witnessed a significant increase in product returns. The sheer number of products being sent back, up to 53% for online purchases, pose a challenge for many businesses. Not only owners need to consider the logistics, but also the cost to their bottom line.

Overcoming these challenges requires a mix of creative, proactive thinking and technology. For small-to-medium sized businesses, this is accentuated by budgetary constraints on IT investments and the high cost of adopting new technology.

SmartTurn’s powerful, yet affordable, inventory management software enables small-to-medium businesses to harness data and use it to deliver a competitive edge. By gaining insight and analyzing the data, managers, and owners will be able to identify the strengths and weaknesses in the current processes. 

 

Handling Backward Supply Chains

While unpredictability and scale can be difficult to manage due to the costs involved and nature of supply chains, logistics is a factor that all businesses can manage. By being organized and having the right resources in place will lead to a slick and smooth series of processes, delivering an efficient operation. The emphasis should be on making sure the products that come back end up in the right place, every time.

 

Reduce Returns

The first step any retail business should take is to find ways to minimize product returns. There are a few proactive measures companies can take to reduce the number of products coming back:

  1. Quality: In this digital era, customers expect high-quality products at competitive prices. The responsibility of retail businesses is to ensure those expectations are realized, or even exceeded. Careful handling is essential to avoid any damage or wear throughout the supply chain. 
  2. Pricing: The high level of competition means retailers often need to keep prices as low as possible. With consumers now being able to search for the best deals online, it’s not uncommon for shoppers to send back items in favor of a better deal elsewhere. However, it’s essential to keep an eye on the profit margins and not engage in a “race to the bottom.”
  3. Accurate Delivery: Another rising factor in online retail is speedy delivery times, known as the Amazon effect. Customers expect many everyday items such as apparel and groceries to be in their homes within a day of order. For certain products, this may not be possible, but even in these cases, companies should let shoppers know when to expect delivery. 

This approach will not eliminate product returns, but a combination of these measures will help to minimize the flow and keep the volume at a manageable level.

 

Put Reverse Logistics at the Core of Operations

Whether you are a manufacturer, warehouse, or retailer, reverse logistics is an inevitable component of the supply chain. Understanding that the supply chain can move in both directions is an essential part of a successful business. The key is to design and implement a set of processes that allow for a smooth passage for returning inventory.

First, companies need to make it easy for customers to return products with ease. Taking steps to include return address labels on packages and having a refund policy in place is not only good customer service but also allows businesses to streamline the process.

By using return address labels, the products will be sent back to the right place, allowing businesses to have specialist teams to handle such items. With a carefully designed layout, workers will be able to assess the condition of the products and place them in the right areas. For instance, teams need to separate the goods that are still in top retail condition from those that have signs of damage or wear.

The process of handling returns should also be automated by using reverse logistics technology, such as RFID or barcode tags, to track and monitor inventory throughout the supply chain easily. Using scanners, workers will be able to quickly identify the status of each product, whether they are yet to be assessed, in need of repair, or ready for resale. Automating these processes will improve efficiency and reduce the risk of sub-standard products reaching customers.

 

Consider Reverse Inventory in Business Plans

The other aspect of managing the backward supply chain is to ensure your business plan factors in product returns. Dealing with returning inventory will take up resources and put pressure on profit margins, but with a considered plan in place, those losses can be minimized.

By using inventory management software, companies will be able to analyze data and identify trends. For instance, if a particular product is generating an unusually high rate of returns, then managers will be able to incorporate this information into the wider business plan. Some businesses use their returns policies as a marketing tool. 

Zappos, a leading online retailer, has a return policy on shoes for 365 days. In providing this option, the brand simultaneously offers a generous service to its customers and simplifies processes at their warehouses. The terms and conditions of the returns include the need to keep the security tag, original packaging, and must be unworn. 

With SmartTurn, warehouses can use its WMS to help:

  1. Track returning inventory: WMS is able to track inventory throughout the supply chain, including those that come back. Identifying them easily is a critical part of effectively managing reverse logistics.
  2. Resale of returned products: By using technology, workers will be able to quickly place returned products back to the point of sale. 

With this balanced approach, businesses can simplify the returns process for both themselves and the customer. In doing so, companies will be able to implement lean, efficient operations that minimize loss of profits.

 

Turn Reverse Logistics into an Opportunity

For both retailers and manufacturers, product returns are here to stay. As this post shows, it is possible to reduce the volume of returns through understanding and meeting customer expectations, but the trend will not be eliminated any time soon. In fact, multiple surveys have shown that they are on the increase. So, it pays to embrace the backward supply chain and build it into your business.

By building the infrastructure to manage product returns, it will become an integrated part of the business. Specialist teams will be able to use technology to assess items quickly, place them in the right areas, and, if possible, get them to the point of sale within hours of receiving them. Customers who return the products will also be able to get their refunds efficiently, increasing satisfaction.

Accepting the inevitability of reverse logistics will put your business in an excellent position to deal with returning products. Building it into the business plan and having the processes in place will enable you to minimize losses and capitalize on a marketing opportunity.

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