Understanding Reverse Logistics in Supply Chains

March 8

Reverse logistics is a supply chain strategy that can improve profit margins. It involves returned merchandise after a sale, as the product flows back into inventory status. It's one of the four types of logistics, besides those related to supply chain management, distribution, and production. Here are insights on how reverse logistics can benefit your company.

The Flow of Reverse Logistics

Most retailers have a return on goods policy for customers who are dissatisfied with the product, perhaps due to a defect. The system of returning items after the point of sale is what defines reverse logistics. It's a necessary part of customer fulfillment because of the nature of how many consumers base purchasing decisions on online reviews. If your company lacks a customer-friendly return policy, it can lead to a wave of negative comments on forums and local directories.

A manufacturer can repurpose returned items in numerous ways, such as donating to charity or recycling. Both of these strategies help build a better reputation for the brand on sustainability. When items are just trashed, it can have an adverse impact on the environment and the company's image, so they need to figure out how to cut waste. Ultimately, returns create opportunities for closer engagement with customers.

Allowing returns for multiple reasons gives the customer a feeling of less risk-taking when they buy from your company. They may feel more adventurous about buying new items they can test out and return if the products don't live up to their expectations.

Why a Return Policy Should Be in Place

Your return process needs to make economic sense by helping facilitate future sales. Being flexible with your policy shows that you value the opinions of your patrons. The process should help streamline your operations toward greater efficiency and create a more seamless customer experience.

In order for brick-and-mortar stores to compete with online retailers, it's necessary to improve every step of the customer journey. Establishing a clear return policy is crucial in today's competitive e-commerce environment, otherwise customers might explore other choices that are just clicks away.

The steps for returning a product may involve shipment back to the manufacturer or warehouse, product testing for defects, and documenting factory flaws. Additional steps might include restocking, recycling, or repairing the returned product, or in some cases, disposal.

Different Approaches to Maximizing a Return Policy

  • Third-Party Logistics (3PL) - Businesses often form partnerships with third-party logistics firms to handle returns at lower costs. Some 3PLs participate in the reselling of returned items, while others may specialize in inspections or repairs.
  • Aim for an Efficient Policy - The key to a successful return policy is how your company or 3PL utilizes technology and data to analyze the various reasons for returns. A 3PL warehouse specialist may troubleshoot and repair the item, which contributes to data on product quality and preserves the item's retail value.
  • Evaluate Transportation Efficiency - As more consumers turn to e-commerce solutions and online ordering, companies will need to evaluate transportation options and factors such as fuel efficiency and travel speed. Developing strategies such as pickup and delivery in one trip will improve transportation efficiency. Another emerging strategy is to use a centralized return center.
  • Review Vendor Agreements - When setting logistics policies, you should think about your existing agreements with third parties. It's advantageous to know the return policies of the various vendors you work with, which can shape your overall return policy.


The demand for e-commerce is growing due to convenient online shopping experiences that have been improved upon during the pandemic. As this demand increases, it influences supply chains to refine reverse logistics as a way to build customer trust and loyalty. Transportation and logistics firms are already preparing for or participating in this global transformation toward more sustainable business practices.

Johannes Beekman

About the author

After 25 years in engineering, Johannes Beekman founded IoT Marketing with the goal of helping companies bring wide-scale awareness to their inventions. He received a Master of Science in Physics degree from the Eindhoven University of Technology, and a Master in Business Administration degree from the Wharton School of the University of Pennsylvania, and started his career in the semiconductor field. Johannes pioneered two successful wafer fab startups for Philips Electronics; one in Europe and the second one in Asia. And served as Senior Program Manager for Sematech, where he provided solutions for semiconductor industry-wide product improvement and cost reduction challenges. Johannes has also published articles on several trade-focused websites.


3PLs, logistics strategies, return policy, supply chain management

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