Analyst Insight: With economic times remaining uncertain, more retailers and manufacturers are investing in reverse logistics systems to help maintain their margins and reduce returns costs. Most enterprise resource planning systems will provide some returns management capabilities. However, a more specialized reverse logistics solution will provide the functionality necessary for running a best practices returns process, ultimately reducing returns costs, improving process control and increasing efficiency.

-Derek Singleton, ERP market analyst at Software Advice

U.S. companies spent more than $100bn processing returns in the last year alone.  An organization's capacity to profit despite these losses is largely based on the efficiency of their reverse logistics management. Reverse logistics software can improve the returns management process and reduce losses. In some cases, organizations may even be able to turn their returns process into a revenue generating activity.

While each industry will face unique reverse logistics challenges in 2011, we think there are three common obstacles most will encounter:

Tracking goods as they travel through the returns process - Poor product visibility in the reverse supply chain creates inefficiencies and allows for costly mistakes like the misplacement of a returned item. The issue becomes more difficult when products are not in their original packaging or when products have a short shelf life and need to be transported quickly (e.g., transporting a DVD title from a poorly performing store to another store that is selling out of the same item).

Companies need some kind of track-and-trace capability to gain better visibility into where a good is in the reverse supply chain process. For starters, companies can use bar-coding and radio frequency identification to tag items before moving back through the supply chain. Enhancing the visibility of inbound returns allows businesses to adjust staffing levels according to inventory fluctuations. This enhanced visibility also helps maximize the value of returned merchandise by creating inventory alerts when products are ready for resale.

Complying with government regulations - Businesses should expect environmental regulation around parts and product disposal to continue to tighten. This trend will be strongest for the recycling and disposal of e-waste, the nation's fastest-growing source of waste. In 2010, seven states added e-waste recycling laws to their books, and more such legislation is coming. With more states passing regulation laws, it will be more important to document compliance with regulations.

Reverse logistics software addresses this issue by automating compliance reports to prove that government regulations were followed. A reverse logistics system captures product data at each stage of the technical process and then produces compliance documentation in a customer report. Automating compliance reports eliminates documentation errors and reduces staffing requirements to produce compliance reports.

Adjusting to increased customer pressure - Customers are beginning to expect businesses to take back products regardless of the reason. Research indicates that customers will stop shopping with retailers and manufacturers if the returns process is a hassle. To avoid losing customers because of an unwillingness to accept returns, reverse logistics operations will have to become more customer oriented.

Reverse logistics software can move businesses toward that end by automating the return process. When a customer returns a product, reverse logistics software can automatically create a customer tracking code. With this code, customers can stay up to date with the returned product's status and location. This significantly reduces call center inquiries about returned merchandise and improves satisfaction. Systems further improve the customer experience by automating the credit process and reducing the time between the return and refund payment.

The Outlook

We expect more companies to implement reverse logistics software in 2011 as they recognize the competitive and strategic value of effective returns management.