August seems like a strange time to publish an article about reverse logistics, but like they said in Game of Thrones (or New Girl depending on what you watch), “Winter is coming.”
Brad Parrish, VP of Engineering at FedEx, likes numbers. Some of you may recall Parrish’s presentation at SMC3’s Connections18. You know, the one with the giant numbers about the United States retail market (a cool $4.7T) and E-commerce (a slightly less cool $340.4B). Well, those numbers must be staggering now. E-commerce is booming during the COVID-19 Pandemic. Items are selling out at record speeds. Businesses are pivoting from brick and mortar distribution to direct to consumer operations. This sudden influx has condensed a growth rate that would have taken 4-6 years into 4-6 months (Don’t believe it? Ask Forbes.). It also draws attention to another number in Parrish’s talk. $642.6B. That’s the valuation of the U.S. reverse logistics market in 2018.
Nearly 30% of items purchased online will be returned through complex reverse logistics channels. The strain this places on a supply chain, not to mention the resources needed to process combined returns, can really slow down the flow of goods. Imagine a company that sells small items (eg. essential oils) and uses a reverse logistics service to handle returns. By the time returns arrive and are sorted they will be unusable for quite some time, assuming they are returned in a usable condition. A company with several regional distribution facilities might be able to circumvent slowdowns by funneling items to the nearest distribution center, but this approach can be costly as it requires a close partnership with a 3PL. With the already large volume of online retail on the rise, reverse logistics increases are sure to show up. And with consumer expectations on the rise, streamlining your reverse logistics can put stress on an already overloaded supply chain.
But streamlining isn’t as simple as it sounds. Inherent in the term ‘reverse logistics’ is the notion that returned items move backward as single parcels through the supply chain, but without the visibility and communication that consumers receive. This makes it largely impossible to forecast anything, really. When will your inventory be back in stock? Will the item be in good enough condition to resell? What if it’s cheaper to just send the customer the new item without them returning the old one? Typical reverse logistics processes don’t give you that kind of visibility.
Sourcing returns out to a reverse logistics provider won’t exactly provide an increased level of visibility either. Sure, your stock may be replenished more efficiently, but you’ll still have to engage unpacking and processing the inventory. You’d still lack the visibility needed to say, move a shipment of sweaters from a Florida distributor to one in the midwest when Florida’s short winter ends. Not only that, but a third-party solution also can’t be as tightly integrated with your existing systems to tell you if the return process is even cost-efficient.
This is why it’s essential to integrate reverse logistics in the transportation management system. The data visibility needed to keep a supply chain active and prevent inventory backlog is impossible outside of this model. You can avoid diversifying data sources with an outside reverse logistics provider and gain item-level visibility within your returns department, all without ever leaving the TMS. Winter is coming. Will you be ready?