Luckily the term ‘reverse logistics’ is actually a lot more confusing than the actual process. Otherwise known as returns management, reverse logistics refers to everything that can or does happen to a product that is returned to a store or OEM or – worse still – is never sold in the first place.
On average, returns comprise 8% of total sales. What happens to these items is of paramount importance to the retailer: if the returns process is smooth, the customer is happy and the retailer has maximised profit. If the process is sloppy, both long- and short-term profits will take a knock, as the item may well have to be replaced at the retailer’s expense, and the customer will most likely shop elsewhere in the future.
As American returns management guru Curtis Greve has discovered during his decades in the business, “Improving reverse logistics can help a company increase revenue up to 5% of total sales.” With figures like these, it’s no wonder South African businesses are finally getting excited about returns management.
Reverse logistics can be defined as “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.”
This process is most effectively taken care of by a third-party logistics provider (3PL) who specialises in returns management, as the expertise required are so different to those utilised in conventional, or logistics. Whereas conventional logistics entails mass delivery of pallets of neatly stacked boxes, returns management requires case-by-case management of irregular and erratic deliveries. It’s not about big trucks driving long distances as quickly as possibly, but rather about regular pick-ups and deliveries of small disparate consignments and as such requires regular communication with multiple stakeholders.
How it works in practice
This is all very well in theory, but how does it work on the ground? We decided to ask Craig Plowden, the MD of leading South African returns management provider Revlogs, to shed some light on the process.
“As soon as an item is returned it is logged on our database. The following day we collect it from the retailer or consumer and one of four things will happen to it.
- In most cases the item is taken to Revlogs’ in-house repairs division Revteq (or a third-party repair centre) to be fixed. Once the repairs are completed the item will be returned to the client by Revlogs.
- If the problem was a factory fault, the item will be returned to the OEM
- In some cases we buy damaged product and salvage value from it at their own expense.
- If the product has no value to anyone it is dumped – in accordance with environmental regulations, of course.”
Years in the business have given Craig and his team some interesting insights. “Obviously our primary service is to increase efficiency and reduce costs, thereby maximising profit for our clients. But an interesting side benefit is the reports we are able to provide using our database which provide vital information to our clients. Our reports can enable clients to answer the following questions, to name but a few:
1. Why was the product returned?
2. How long did the repair take?
3. Which products have inherent manufacturing issues and what are these issues?
4. Are all of my service providers adhering to their SLAs?
A bit of history
Returns management was born during the heady days of the 1980s and 90s and its development was spearheaded by massive American firms. Some of the first to recognise the power of returns management were businesses with extraordinarily high returns rates, such as mail-order retailers and magazine publishers. Another group which was early to catch on was automotive parts retailers. The benefits to such an industry are manifold due to the high-value of most of their products, and the fact that these products can easily be repaired and resold. These days almost every business in America uses a returns management 3PL.
Western Europe was quick to follow suit with its own 3PLs who interpreted the industry in a distinctly European manner. Because space is in such short supply in Europe and also because the EU has such tight environmental regulations regarding product disposal, European involvement served to rapidly increase the rate of innovation in what was already an ever-changing field.
The other major player to adopt reverse logistics in the early days was Japan, although the South African industry has drawn more heavily on the USA and Europe as its benchmarks. Finally, in the early 2000s, third-party returns management caught on in emerging markets. Brazil and Eastern Europe led from the front, with China and India hot on their heels.
The South African market
Typically, South Africa was slow on the uptake, but in the last five years the concept has finally started to take root in the consciousness of local stakeholders, and now the terms ‘reverse logistics’ and ‘returns management’ are the buzzwords on many retailers’ and manufacturers’ lips.
With seven national and international retailers and OEMs on its books, Revlogs is the undisputed pioneer in the field and they have the largest slice of the local market. Craig Plowden is very optimistic about the future of the industry in our country: “An effective returns management system will reduce overheads and increase profits,” he explained. “Given the tight margins all businesses are operating under these days, employing the services of a 3PL such as ourselves is no longer a luxury – it’s a vital tool to help you outperform your competitors and exceed your own expectations.”