Edition 110, September 2020

How Digitizing Reverse Supply Chains Became Non-Negotiable

By Vijay Natarajan, MPO

Customer loyalty has never been more vital. Yet, there remains a stark disconnect between what customers value and what capabilities businesses invest in. While businesses treat the reverse supply chain as an afterthought, customers consistently cite a free and seamless returns experience as integral to loyalty. In this historic moment, characterized by rising returns and increased demand for transparency, speed, and reliability, businesses have a unique opportunity to leverage this neglected sector for competitive differentiation.

In this historic moment, returns are rapidly increasing - and not just in real numbers, but as a proportion of sales. In the U.S. alone, Statista estimates return deliveries will cost $550 billion by 2020, 75.2% more than four years prior — and that figure doesn’t include restocking expenses or inventory losses.

According to a UPS report, a great deal of companies spend between 9% - 15% of total revenue on returns. Yet, traditionally, reverse supply chains have been an after-thought for many organizations and have therefore remained mostly manual and disjointed with mainstream supply chain. With online orders and returns surging during the pandemic, some leaders, like Dell, IBM, and Walmart (as evidenced at the 2020 Reverse Logistics Association Las Vegas Conference) are significantly emphasizing initiatives to bolster their reverse supply chains with advanced technologies that improve operational efficiencies and recover revenues and market share.

The truth of the matter is that businesses can no longer afford to treat the returns sector as an after-thought. Afterall, it’s no surprise that customers surveyed on satisfaction regularly report that they expect the same level of brand experience when returning products as they do during the initial purchase – and that the quality of that returns experience heavily informs whether or not they will remain loyal to the brand. In fact, a study by Dropoff of U.S. consumers on shopping and delivery expectations found that a whopping 69% of consumers receiving late deliveries wouldn’t purchase from that retailer again.

What’s at stake with digitizing reverse logistics and handling this long-neglected area with intelligent automation goes far beyond efficiency and profitability – it’s what will ultimately set brands apart and define their resilience and longevity.

How are reverse logistics priorities evolving?

Generally speaking, digitization has been a growing priority for some time now, as businesses seek new and innovative ways to streamline operations, boost efficiency, and diversify their products and services. IDG’s 2018 Digital Business research found that 89% of organizations have plans to adopt a digital-first business strategy and in March of this year, a PwC survey of financial leaders indicated that 34% of CFOs reported supply chain issues escalating to one of their top three concerns after the pandemic hit, citing a necessity to make operational changes.

Reverse logistics is perhaps one of the most urgent areas in need of operational scrutiny and digital transformation, as the pandemic continues to uncover its greatest inefficiencies. As an overlooked sector of the supply chain, turning digital efforts toward reverse flows will ultimately prove extraordinary valuable in the long run rather than a temporary necessity.

Current situation aside, businesses have long been asking how returns could drive profitability. The focus of returns profitability has traditionally centered on measuring and analyzing the gross recovery value as a key metric. However, shifting attention to net recovery value reveals significant insights. For example, reselling a returned and “like-new” Bluetooth device via the B2C channel is typically considered profitable. Reverse logistics practitioners in secondary markets realize that the net recovery value of an item provides the true picture of an item’s resalable value; for instance, in our Bluetooth example, net recovery value analysis would likely reveal that selling that Bluetooth via the B2B channel would yield higher profitability.

Profitability also requires effectively categorizing return processes, carefully planning resources, and establishing consistent product flows once the return arrives. Each of these efforts are instrumental in planning and executing a solid returns logistics strategy, but require understanding return patterns, which have been largely complicated by return policy extensions during the pandemic, as well as consumer exposure to a greater variety of return options.

Beyond revenue, topics of social responsibility have gained prominence in recent years. As more companies examine the environmental impact of returns, especially for electronic products and components, tracking their proper disposition will be paramount to achieving green initiative goals.

The bottom line is, whether we’re talking about the drive to make returns more manageable, profitable, or sustainable, each require capturing accurate data and then being able to transform that big data into insight that businesses can act on to continuously improve on each of these efforts.

Key steps to take when digitizing

Supply chain digitization for returns management is a must. Knowing where to begin and how to best make the case internally can be rather daunting. Here are a few factors to consider as you begin your journey.

Map Out the Process Flow – When determining your digitization strategy, factor in the process flows and all their associated dependencies and complexities. Consider all the tools you use to communicate and collaborate internally and externally, such as informal spreadsheets, emails, and undocumented communications, which tend to contribute most to process inefficiency. To launch a successful project, you’ll need to articulate to key stakeholders and leadership how certain supply chain software, such as a Control Tower or Returns Management System, will contribute to greater speed, accuracy, and strategic insight.

Ensure Corporate/Executive Alignment – Digitization efforts may already be underway at the corporate level. Don’t delay presenting your vision, communicating the benefits and necessities, and aligning with the digital roadmap, or else you risk the project being pushed off. Larger organizations should focus on explaining how tightly integrated a digital returns supply chain is with the overall business. Doing so will help accelerate the internal alignment process.

Select a lasting Reverse Logistics Platform – Focus your selection on key criteria, such as platform capabilities, implementation speed, and openness to multiple data sources. To see real results in profitability and customer satisfaction, the platform should support multi- and omni-channel return flows throughout the full lifecycle of return orders and offer dynamic cost controls. An easily configurable platform will help you launch your initiative faster and derive value sooner, and harnessing real-time data on retail and manufacturing returns, as well as incorporating 3rd party technology providers, like IoT, will enable greater innovation.

Most importantly, don’t underestimate the value of a good partnership with the software company you choose. A good partner doesn’t just deliver a product; they invest time in understanding your business, providing thought leadership, and doing what it takes to ensure a successful initiative.

Business Releases – The saying “Don’t try to boil the ocean” has never been more relevant. Executives are usually hesitant to invest in lengthy projects that don’t yield immediate value. More frequent wins are readily embraced over long drawn out projects. When selecting a provider and solution, talk about how you can digitize specific returns processes in bite-sized chunks called “business releases” to deliver wins in a phased manner. For example, the first business release may focus on the B2B return channel, whereas the second can then bolster the B2C return channel, and so on.

The Short- and Long-Term Benefits of Digitizing Returns Management

The digitization of returns processes drives both short-term and long-lasting benefits. Typically, returns logistics focuses on resolving a customer issue, and sometimes that means getting a business back up and running with a critical replacement part. In the latter case especially, a returns organization must be able to capture underlying data and run root-cause analyses of the defective parts. As Thomas Maher, SVP, Dell Global Service Parts put it: “My job is to help Dell build better products by providing the data that we bring into a data lake.”

In the short term, digitization makes returns more manageable, profitable, and sustainable, as companies can expect the following benefits:

  • Reduction in Excess and Obsolescence Inventory – Full visibility into product returns means greater inventory accountability.
  • Reduction in Cash Conversion Cycle Time – Automating returns processing (including alerts and notifications at every milestone) enables products to be liquidated sooner or repaired or refurbished faster, shaving off days from the processing speed.
  • Improved Productivity – Systematic updates to the process helps personnel with value added activities, such as business network improvements via better negotiations with return service providers.

In the long term, the business benefits are far more strategic, positioning organizations to compete more effectively in a global environment. Customer demands encompass returns, and loyalty can be fickle, resulting in a brand switch if needs are not adequately satisfied.

Today, it’s no longer enough to master supply chain orchestration for outbound flows. Reverse flows are just as complicated and involve similar art and nuance to be able to adapt to market shifts and demands, including mergers, acquisitions, and partnerships as new sales channels open up.

It’s no question that a consistent and reliable brand experience drives loyalty, and that customer loyalty, in turn, allows businesses to maintain or lower their customer acquisition costs. Yet, a major part of that brand experience rests in how returns are managed. If reverse flows are not approached with the same technical proficiency, speed, and accuracy as outbound flows, businesses cannot expect to maintain that same level of excellence throughout an equally significant area of the customer journey.

The time is now to begin taking action and changing the way we think and talk about returns management. Customers certainly don’t see it as an afterthought, but as an essential component of their overall brand experience. Building loyalty depends on a business’ willingness to embrace reverse management as a valuable and fundamental component of the overall supply chain ecosystem – capable of incredible opportunities for driving profitability, sustainability, and customer satisfaction.


Vijay Natarajan
Vijay Natarajan is Vice President, Solutions at MPO. He parlays his deep and broad supply chain experience into helping companies overcome real-world challenges by aligning effective business processes with the right solutions.