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Recommerce: What is Reverse Logistics? And Why it Matters

October 13, 2022

The shipping and logistics process doesn’t end when an item arrives with the end customer. These days, the boom in ecommerce means that returns are becoming increasingly important, with many customers now viewing them as a given. This raises plenty of challenges — with recycling, refurbishing, and recycling all becoming standard activities for companies. Consumer spending habits and the way consumers spend their money have taken a dramatic shift over the last 5 or so years. While Gen Z is the driving force in this shift, also known as Recommerce the pandemic has reenforced this consumer shopping trend even further into reality. We know Gen Z was raised with smart phones, social media and online shopping; according to the National Retail Federation, 26% of Gen Z use Social Media to make purchases. Next, Ebay reporting that nearly 80% of their consumers purchasing secondhand goods are Gen Z. So, what does this mean for retailers? Gen Z has an estimated spending power of $323 billion according to CGS, and 15% of their purchases are on secondhand sites.

Any online retailer that wants to remain competitive can’t afford to ignore reverse logistics any longer but pulling it off without compromising revenue requires optimizing your processes carefully. Here’s what you need to know. What is reverse logistics? Since logistics is all about the process of getting items from A to B, it makes sense that reverse logistics is about taking things from B back toward A. Or, perhaps not all the way back to A, but somewhere along the process (such as the retailer rather than the manufacturer) to give it a second lease of life. This can take various forms, including:

  • Reselling items that consumers didn’t want

  • Refurbishing or “upcycling” items (often for clothes)

  • Repairing or replacing broken items (often for technology)

  • Taking raw materials out of items to use them to make something else

  • Recycling or disposing of items

Although reverse logistics mostly concerns selling products to customers, it sometimes refers to items that never leave the warehouse (i.e., surplus inventory being resold or taken elsewhere). It can also apply to rentals and leasing, such as when equipment reaches the end of its contract, and a company decides whether to recycle or repair and resell it.

Examples of reverse logistics

Amazon now has Amazon Warehouse, which allows customers to save money by purchasing products that have already been bought by someone else and returned. In some cases, items are classed as “like new” because a customer simply bought them and changed their mind (resulting in a small discount for the next consumer). In others, the item may have been used and damaged somewhat before the customer returned it, resulting in a worse condition and a greater discount.

Another example is Levi Strauss, which goes further than Amazon by repurposing old jeans and using the materials to create new jeans it can sell. This allows the brand to profit from items that would have been thrown away previously, and it also appeals to customers who want to watch their carbon footprint.

A lesson in optimization

But what does any of this mean for you as a business owner? On the surface, most would agree that reverse logistics sounds like a great idea that can yield various benefits for consumers, society, and businesses alike. Consumers save money, the environment is improved, and companies get an additional revenue source.

But pulling it off requires a whole new set of processes. Using the simple example of the Amazon customer who ordered an item and changed their mind, Amazon then has to collect that item to ship it back to the warehouse, have a process in place to verify its condition, and then figure out what to do with it. In some cases, there may be various options it needs to evaluate, such as reselling vs recycling vs throwing away.

Then there’s the question of whether the costs of returning an item may be greater than any value that can be reclaimed by getting it back. Most customers expect to be able to return items, yet this can severely impact a retailer’s revenue.

Some ecommerce stores (including Amazon) have decided to let customers keep the products in scenarios where the items are too low value to be worth the cost of recalling them. But again, retailers need a system to figure out how to make this decision.

All in all, there’s a delicate balance between keeping customers happy, protecting revenue, and making the most out of resources. Processes are key to all of this.

To move forward, choose reverse

If you’re a retailer or ecommerce store, neglecting reverse logistics could put you at risk of alienating your customers and falling behind your competitors. If you’re unsure of how to adapt and protect your revenue, it may be helpful to bring a consultant on board to help you rethink your processes and do things as efficiently as possible.

At Cornerstone Paradigm Consulting, we’re a business operations consulting firm focused on boosting operations by breaking down business processes and figuring out how to improve them. If you’d like to find out if we can help you to take the right approach to reverse logistics, contact us to find out more.