Reverse Logistics: the logistics hidden costs that need to be managed

E-commerce is a growing global phenomenon, and the Covid-19 pandemich as further accelerated the rush to online shopping, so much so that many consumers, even after health restrictions have ended, stopped shopping in physical shops anyway.

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For retailers, this is an opportunity to expand their business on an international level with no need for excessive investment, while for customers, there are several conveniences that an online purchase brings. However, the boom in e-commerce has also led to the arising of another impacting phenomenon: Reverse Logistics, i.e. product returns for which logistics costs can often be up to twice as high as delivery costs, thus affecting a company's revenue margins.

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While on the one hand, sellers are pushed to use the '"return policy" as a promotional form (most consumers are only willing to buy online if the return is free of charge), on the other hand, customers often overdo it, so much so that the figure of the “serial returner" was born, i.e. the person who buys more products than he wants to keep or more versions of the same product to evaluate them once he receives them at home and then returns them all but one.

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Reverse Logistics could therefore cause a dangerous boomerang effect for retailers, since returns are more difficult and costly to handle than deliveries, which are based on many small orders each with their own time frame, and in most cases the product cannot be resold at full price or even becomes unsaleable, also causing an environmental problem.

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It is essential for companies to plan effective return management to minimise product returns and predict costs, which is why they are already developing various strategies:

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• Returns forecasting: in Supply Chain Management, using machine learning algorithms, it is becoming increasingly easy to forecast customer returns by calculating probabilities of product return after a certain number of days. This allows companies to also estimate the Reverse logistics costs to anticipate and balance them without having an excessively negative impact on the company's economy.
• Use of Business Intelligence and analytics software: to decide what to do with returned products to ensure the highest possible economic payback, or to analyse customer behaviour and customise offers by minimising returns
• Ensuring the best quality purchase through advanced technology: an increasing number of companies are using digital tools to help customers choose a product so that they are satisfied with their purchase and have no need to return the item. In addition, through the support of analysis and CRM tools, consumers are recommended products that are more like those already purchased.
• Online purchase but in-store return policy: a technique frequently used by retailers who do not have physical shops but rely on other pick-up points, to discourage mass returns.

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In order to put all these strategies into practice, data collection and analysis become a company's key allies. This is why Leviahub has developed ad hoc Business Intelligence solutions to transform information into actionable insights and allow quick and informed decisions to be made at all times. Discover them all now

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