For third-party logistics providers to capture a share of a multitrillion-dollar global market for reverse logistics services, all they have to do is effectively synchronize product cost-recovery efforts, heightened demands of customers and their customers’ customers, and a sharp focus on sustainable operations.
Of course, it’s nowhere near that simple nor familiar. Unlike the straightforward and mature business of forward logistics in which 3PLs are well entrenched, reverse logistics is in its nascent stages and is as nonlinear a business as exists. Technology that for decades has supported transportation and warehousing operations is just now getting started in returns management.
“The automation isn’t as advanced” as it is in forward fulfillment, said Baris Oran, CFO of Greenwich, Connecticut-based GXO Logistics Inc. (NYSE: GXO), one of the more prominent contract logistics firms in the reverse logistics space. GXO ramped up its involvement in the segment last May when it closed on its $1.3 billion acquisition of U.K. firm and reverse logistics specialist Clipper Logistics PLC.
To succeed in reverse logistics, 3PLs must first understand how to build a successful strategy, or what Gaurav Saran, CEO of ReverseLogix, a Burlingame, California-based IT firm whose Returns Management System (RMS) is used by many of the major 3PLs, called a “maturity curve.” They then must embrace the right enterprise-grade technology that provides end-to-end solutions that can direct users in the best way to the right path for processing returns. Until recently, that holistic approach did not exist, Saran said.
Returns management software needs to have a simple user interface so workers can validate returns, capture relevant item data and be directed on how to handle the product, said Joe Desormiers, who recently joined DHL Supply Chain, the world’s largest contract logistics firm, in a new role as senior director, reverse logistics strategy at the company’s Westerville, Ohio-based North American unit.
The technology must be built to maximize worker productivity because labor is typically the largest cost in a returns operation, Desormiers said. It must also integrate effectively with other reverse supply chain activities like returns initiation, repair, re-commerce and hazardous item disposal, he added.
It takes specialized expertise and large scale to support cost-effective and sustainable reverse logistics solutions, Desormiers said. “Returns management can be much more complex than forward fulfillment because there are so many unique and varied return business rules for each customer,” he said. “This complexity is magnified for 3PLs that manage returns for many customers who have different product types and business rules across multiple operations.”
Effective returns management “takes good coordination between the shipper and 3PL to get it right,” said Evan Armstrong, president of Armstrong & Associates Inc., the leading research and consulting firm focused on the 3PL sector. International returns are even more complex due to longer distances and different regulations by country, he said.
The payoff will be worth the cost and effort, reverse logistics experts said. Start with the macro trends, which are very compelling. Returns began rising before the pandemic, and then spiked as online ordering surged. Consumers return products out of buyer’s remorse, or in what has become a more common scenario, they order multiple versions of the same item, keep one and return the rest.
Most returned items are in perfectly good condition, which makes them ripe for resale at what can be a relatively small loss to the retailer or manufacturer. GXO, for example, boasts a 96% resell rate on the fashion e-commerce returns that it handles. The remaining 3% of the merchandise is donated to charity, while 1% heads to landfills, the company said.
Finding second lives for products rather than discarding them is invaluable in maximizing customers’ financial returns and ensuring they are being responsible environmental stewards. Product recovery is “where we have seen the biggest focus in recent years, especially as companies see return rates increasing,” said Desormiers.
3PLs that deploy effective reverse logistics programs are likely to find a massively profitable revenue channel, experts said. Their expertise in managing an intricate model will command higher prices. Customers will find immense value in reducing losses or even profiting off returns, all the while meeting ever more important environmental, social and governance goals.
“It is a higher-margin business because we are creating a higher level of value for customers,” Oran said.
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