Reverse logistics is playing a more prominent role in the retail supply chain as the rate of returns continues to increase. Retailers are trying to recoup as much value as possible from returned, damaged, out-of-date and recalled goods because of the significant impact on their bottom line. On average, a retailer's reverse logistics costs are equal to 8 percent of total retail sales, according to the National Retail Federation. Furthermore, with the growth of e-commerce the rate of returns will continue to increase.

Retailers, however, can put processes in place to reduce costs and minimize loss. Here are some reverse logistics practices that are being employed in today's retail supply chains:

Product evaluation: Retailers can reduce costs by limiting the volume sent back through their DC network. This can be done by carefully distinguishing between products that are truly defective and ones that can be re-introduced to the store’s inventory. While this may place a slightly greater burden on the store itself, the savings in transportation and handling to the overall organization may outweigh these local costs. Recent surveys have found that 72 percent of returns were “No Fault Found,” up from 50 percent a few years ago and this has enabled retailers to take a more proactive approach to returns inventory positioning.

E-commerce auctions: Retailers are shifting away from traditional disposition options (return to vendor, bulk liquidation, recycling/disposal) to one where direct selling of liquidation product on e-commerce auction platforms is becoming increasingly important. Selling all liquidation in bulk may no longer be the preferred method; retailers are quickly realizing they can generate better returns by eliminating the “middle man” in the process by going direct to the ultimate buyers of these goods.

Off-shore solutions: Due to saturation of returned and obsolete product in the secondary U.S. market, some retailers are considering off-shore solutions (Latin America, Africa, Indian subcontinent, etc.) despite certain challenges associated with exporting returned product. The large volume of returns has driven down secondary market pricing in the U.S. and therefore exporting to developing economies opens up new opportunities to sell these items. Many of these countries have seen an increased demand for “status electronics,” such as smart phones, tablets, etc., and as such, these products offer the most upside for retailers who are considering an export model.

Consolidation: Consolidating RTV returns through centralized or regional locations can be an effective way to minimize transportation cost and reduce risk associated with LTL handling. Retailers can also set up refurbishing locations on a regional basis to drive down transportation costs as a whole.

Take possession of OEM returns: Retailers look to gain more and more control of the original equipment manufacturers’ returns as a way to leverage transportation and handling costs and generate revenue from secondary market sales. This is particularly true for products that have a high secondary market value, such as electronics, appliances and apparel. As fewer products are returned to manufacturers, both the retailer and the OEM can benefit from the cost savings. The OEM no longer pays for returned goods handling and transportation, and the retailer can refurbish and re-sell the product through various liquidation channels.

The Outlook

By accurately accessing the true cost of returns and finding new methods to effectively manage the reverse logistics process, retailers can improve their profitability and enhance customer relationships.