What Is Reverse Logistics and How Do You Implement Returns Management in B2B eCommerce?

Reverse logistics often gets overlooked, because many people think of logistics primarily as a forward-moving process, in which goods travel in a customer’s direction rather than vice versa. But what happens when goods need to be returned to the business? In this article, we’ll look at this specific part of the logistics process, which involves an inverted movement of goods, explain the process that’s involved, and discuss the best way to implement an efficient operation.

What Is Reverse Logistics?

Reverse logistics, also known as returns management, is a huge aspect of logistics that describes the movement of products from customers back to businesses and their subsequent reprocessing, which can include product refurbishment, recycling, disposal, and so on. Since reverse logistics is a costly and time-consuming process, businesses frequently partner with third-party logistics providers (3PL) to handle both logistics and recycling.

Buyers return 33% of the products purchased online.

(Source: KPMG)

Since returns are an inevitable part of doing business, it's important to have a reliable reverse logistics system in place to manage returns quickly and efficiently. Such a system typically includes the following phases:

  • Initiation of a customer's return request (via call, email, chat, or ticket)
  • Shipment of the returned product to a fulfillment center.
  • Processing the returned order, shipment of a different product, or issuance of a refund
  • Documentation of the reason for the return
  • Product audit and quality control testing
  • Repair, recycle, or return the item to stock

Key Aspects of Reverse Logistics

In this section, we'll look at the four key aspects of reverse logistics, which will help us better understand how reverse logistics work.

Volume and nature of returns

One of the most important aspects of returns management relates to the volume of returns. If customers return the same products in large volumes, then you obviously have much bigger problems than a few faulty units. By analyzing the returns data and investigating the reasons for the returns, you will understand if any radical steps, such as production overhaul, might be necessary.

Percent of sales

After analyzing the nature and volume of the returns, calculate the percentage of sales lost to product returns. See if there's any way you can incorporate some of those goods into your supply chain via reverse logistics or do anything else that would minimize the loss of revenue. Your 3PL partner might be able to repackage refurbished items and ship them to new customers if the issues reported are trivial or unrelated to the quality of the products.

Condition of returns

Examine how a returned product operates and see if it fails after performing specific functions. Upon close observation, determine if there are patterns of failure that are common for a returned product line, which indicate a wider issue. This is where Quality Assurance (QA) comes in. Your 3PL partner can have QA teams ensure your product is functioning to its required standards and prevent such cases from reoccurring in the future.

Value of returns

Monitoring and managing reverse logistics can potentially save you thousands of dollars in lost revenue and lead to all sorts of improvements, including, first and foremost, improvements in customer experience, satisfaction, and loyalty. That's why it's important to access and analyze the value of returned products and see if any of them can be refurbished, recycled, or in any way provide value for your company.

Why Is Reverse Logistics Important?

According to KPMG, buyers return 33% of the products purchased online, which makes reverse logistics a significant part of an ecommerce business and a decisive aspect in the overall logistics process. With that in mind, efficiently managing reverse logistics is of paramount importance as evaluating and addressing the cause of the returns ensures that issues are swiftly addressed and prevented in the future.

A well-organized returns management system allows your business to reuse as much of the product as possible, which in itself prevents the returns from turning into a total loss. Because reverse logistics involves the same steps as forward logistics – that is, customer support, transportation, inventory management, and so on – they both require similar efficiencies. By facilitating the way products are reincorporated into your supply chain, you'll reduce costs, save money, and please your customers.

Let's outline a few benefits of streamlined reverse logistics below:

  • Efficiently managing your reverse logistics process contributes to significant cost savings. From reducing transportation expenses to reselling or recycling returned items, recouping some of those costs will contribute to better profit margins.
  • The way your business handles returns directly affects the customer experience. By offering several convenient return options, minimizing your customers' wait times, and making refunds easier to obtain, you'll significantly improve customer experience, which, in turn, leads to increased customer satisfaction and loyalty.
  • Streamlined returns management leads to a faster turnaround and can help speed up the process of repairing, refurbishing, and reusing the returned items. This cuts down on the need to purchase more stock.
  • Researching reverse logistics can help you identify better ways to reuse, resell, and recycle returned products that would otherwise end up in a landfill. In addition, sustainability programs improve your brand's image and reputation and increase customer appreciation and loyalty.


Challenges and Solutions

Despite its obvious advantages, reverse logistics is a complicated process that's not without its challenges. In this section, we'll explore the current problems that businesses face with reverse logistics and describe a few solutions to overcome those problems.

Reverse logistics challenges

As mentioned, reverse logistics is a complex process. And according to many logistics experts, things are about to get even worse. The unstable geopolitical situation, hindered international trade, rising fuel prices, and post-pandemic supply chain disruptions don't have easy or instantaneous solutions.

But even before COVID and recent international developments, reverse logistics has been sliding into a treacherous phase, owing largely to impulsive consumer behavior. Overzealous shoppers have gotten into the habit of ordering everything in the dozens, whether in different colors, sizes, or other specifications, then keeping a few things and sending the rest of it back.

Although, thankfully, the situation is inherently different for B2B, the lack of adequate transportation affects both B2B and B2C sectors. According to trucking.org, if current trends continue, the driver shortage could double by 2030. And transportation is only one part of the problem.

Returns are not easy on the back end, either. When the goods are received, businesses need to inspect, repackage, or recycle and then send some of it back to the shelves. That takes labor, which is also in short supply right now.

How reverse logistics impacts the environment

Alarmingly, returned inventory creates more than 5 billion pounds of landfill waste, while transportation emissions contribute to 16 million metric tons of carbon dioxide each year. So, it’s apparent that the increase in reversal logistics is partly responsible for the environmental damage impacting our planet.

Solutions to reverse logistics challenges

To begin with, start by tackling the challenges described above.

To address the number of returns, consider introducing new technology, such as CQP or 3D imaging, to help customers configure or visualize their products. One common return reason, whether in B2C or B2B, is that something was not as described or pictured. High-quality images and better descriptions in your online catalog or web pages will help reduce the number of returns. Fewer returns mean fewer expenses, a healthier planet, and happier customers.

Ensuring a smooth reverse logistics operation requires careful, controlled returns management that includes the collection, transportation, inventory management, quality control, return to availability, and recycling or proper disposal of the item. Such precision can only be achieved through automation. Therefore, it's crucial to have robust technology that integrates and automates essential business functions.

To begin with, it's important to have a reliable warehouse management system (WMS) to manage inbound and outbound logistics and provide real-time analytics. WMS, in turn, needs to be able to smoothly integrate with an enterprise resource planning (ERP) system. This way, an ERP paired with a WMS will allow you to easily track returns, monitor the movement of goods, issue credits, and update customer records through integrated systems.

Similarly, a robust inventory management system allows you to keep tabs on stock and manipulate business operations to stay ahead of changing circumstances and input data.

In the next section, we'll look at one particular technology that addresses returns management in ecommerce.

What Is Inventory Management?


Return Merchandise Authorization (RMA) in B2B eCommerce

A return merchandise authorization (RMA) is a system that manages product returns and covers one of the first parts of the reverse logistics process (that is – getting products back from the customer to the seller).

An RMA allows customers to ask for a refund, repair, or a replacement and enables sellers to resolve those issues within a single reporting system.

Apart from standard functionality, the RMA system can also help you identify areas for improvement and find ways to resolve and minimize inefficiencies.

While the details might differ, an RMA typically includes the following steps:

The customer initiates an RMA request by filling out an RMA form online. Ideally, there would be a list of acceptable reasons, such as a broken or wrong unit, so the customer can easily select an applicable option. Providing options to choose from can help you structure data and identify recurring issues more effectively. With that said, there must be a field for customers to add their own text if they wish to do so. It's also important that your customers state what action they would like the store to take, which could be a refund, replacement, or repair.

The store approves the RMA. Once the store receives a return request, it needs to be approved either automatically or manually. Upon approval, the store needs to provide customers with specific directions about how to send the product back. Some stores prefer to issue a free shipping label with a specific RMA number that customers can attach to the product for its shipment back to the store. This also makes it easier for the store to match the received package with the customer's account.

The store receives and inspects the item. A good RMA system is able to connect the item received with the RMA number automatically and notify the customer about the receipt of the item. In case the RMA number doesn't match the product, it will be further inspected manually to identify any patterns that will reduce the number of returns in the future.

The store settles with the customer. Finally, the store will refund the purchase price, repair it, or send a replacement. The RMA system allows the store to send regular updates to the customer about the status of the return and give them an idea of when to expect their refund or replacement. As soon as the store provides resolution to the customer, the RMA request gets closed, either by the store or the customer.

The bottom line is that reverse logistics is an integral aspect of ecommerce fulfillment. With the proper systems, such as RMA, and effective procedures in place, optimized returns management can significantly improve customer experience and satisfaction, not to mention business operations and revenue.


How Virto Commerce Can Help with Returns Management

Many years of experience in the development of specific technological tools for B2B ecommerce allows Virto Commerce to offer advanced solutions for online stores. Our extensible, composable architecture represents best-in-class features, from smooth integration with critical internal and third-party systems to the development of new, robust ecommerce modules that tackle unique and complex business scenarios. Although Virto Commerce's off-the-shelf solution doesn't include an RMA module, the experts at Virto have plenty of experience building RMA systems for many of their customers. So if you're looking for a custom returns management solution for your B2B ecommerce business, consider Virto Commerce's B2B ecommerce platform. Schedule a demo now and see how Virto can help!

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Marina Vorontsova
Technical author and eCommerce advocate