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moreTHIS ARTICLE IS WRITTEN BY GIDION LONT AND CHIA-I CHU. GIDION ([email protected]) AND CHIA-I ([email protected]) ARE CONSULTANTS FOCUSSING ON ESG AND VALUE CHAINS WITHIN RSM BUSINESS CONSULTING SERVICES OF RSM NETHERLANDS.
RETURN GOODS IN E-COMMERCE
Earlier, we compared the ESG-performance of e-commerce to the brick-and-mortar shops and concluded that return goods and the therewith required reverse logistics are a major (ESG) risk to e-commerce businesses especially. Reverse logistics can be narrowly defined as the process of moving goods from customers back to sellers or manufacturers. With the rise of e-commerce and increasing consumer expectations, the amount of return goods has exploded. Since consumers/buyers are unable to fit or try products while shopping online, three out of four consumers now demand free product returns. This has resulted in return rates of 20-30% of all online purchases with spikes of up to 50% for apparel products, while return rates at brick & mortar shops are relatively low at 8-10%. Since e-commerce is expected to account for 25% of all retail sales globally in 2026, challenges related to return goods are expected to increase.
Although most returned items are unused, they do need to be processed, repackaged or repaired in order to be sellable again. Since high costs can be involved in these processes, various companies have selected the cheaper option of destroying, burning or landfilling returned products. Because of the increasing importance of sustainability in society, various companies in the apparel industry have been accused and scrutinized for having applied these unsustainable methods. Reputational risks will only increase as ESG-transparency regulations such as the Corporate Sustainability Reporting Directive (CSRD) are implemented. In addition, Belgian, French and German regulations to prohibit the destruction of returned and unused goods are currently being implemented and the European Union (EU) is expected to follow suit by developing similar EU-wide regulations. It is probable that processing unused products for resale will soon become standard practice across the EU.
THE ROLE OF REVERSE LOGISTICS IN A CIRCULAR ECONOMY
The application and value of reverse logistics is not limited to unused e-commerce goods. It is expected that reverse logistics will play a major role in the circular economy. Product-as-a-Service (PaaS) is a good example of a business model that is perfectly suited for the circular economy. With this business model, B2B or B2C customers do not own products but pay for using products, for example by renting them. The producer stays the owner and is responsible for its correct functioning and replacement during and after the product’s lifetime. Replaced products can be reused, repaired, refurbished or recycled by the supplier. To illustrate, consumers can now rent washing machines for a fixed yearly fee including maintenance and replacement by their supplier. And this transition to a more circular economy is on its way. The EU published the ambitious goal of achieving a circular economy in 2050. In addition, a study by Gartner showed that almost three out of four supply chain leaders plan to invest in the circular economy[1]. A circular economy is an economic system in which the value of resources is retained by keeping products, components and materials in a closed loop. To reuse products and resources, all returned or disposed used and unused materials must be collected and transported to the right facility where they can be either reused, refurbished or recycled effectively. Since this model requires the collection, transport and correct processing of used products and materials, reverse logistics are required for this economic model to function.
Since the EU already wants to reduce raw materials usage by 50% in 2030, various regulations and obligations are being introduced to facilitate the transition to a circular economy. Since not all products are suited for this new economic model, the EU is working on product requirements regarding reusability and recyclability of products. As part of the Circular Economy Action Plan, Extended Producer Responsibility (EPR) schemes have already been introduced for the packaging, plastics, textiles, electronics and batteries industries, holding producers responsible for the end-of-life phase of their products. By incentivizing the use of PaaS and implementing a universal Right to Repair for EU consumers, the EU is also promoting business models and consumer rights in a way that is aligned with the circular economy. In order to adjust to these regulatory obligations, reverse logistics will become vital.
BENEFITS OF EFFECTIVE REVERSE LOGISTICS
Implementing effective reverse logistics can offer various competitive benefits. Effective reverse logistics processes are key to preserving the highest product value quality possible, which can have large consequences for the value that can be retained. To illustrate, recycling a smartphone with a cracked screen into pieces of metal destroys a large part of its value, while this value could be retained by selecting it for refurbishment with a new screen. By optimising reverse logistics processes, the optimal product processing option can be selected and executed. Besides creating financial value, return logistics can contribute to corporate ESG-performance. Companies are increasingly held accountable for their negative impacts, and ESG-performance affects financial performance and corporate reputation. Effective reverse logistics can prevent resources from being wasted, decreasing the need for newly produced products, therefore improving sustainability performance. Finally, return logistics are often quite inefficient. Due to errors, returned goods are often transported to the wrong facility or are examined multiple times before being physically processed. Streamlining the reverse logistics process can therefore significantly reduce costs.
WHAT DOES EFFECTIVE REVERSE LOGISTICS REQUIRE FROM YOUR ORGANIZATION (30%)
Below, we have listed several best practices to improve the effectiveness of reverse logistics:
Reducing the need for reverse logistics by minimizing product returns. Optimizing web shops and product information enables consumers to select the right product. Options vary from offering size recommendations to virtual fitting rooms and using Artificial Intelligence to predict returns before consumers order them.
Consider various perspectives to optimise the reverse supply chain. Reverse logistics typically includes return shipping, administrative processing (accepting and registering), product processing (repairing, refurbishing, recycling, and warehousing), customer service and resale. It is important to consider various perspectives while designing the reverse supply chain. For example, is it more efficient to repair products in local hubs in the countries of the buyers, or to centralize repairs in the country of the supplier?
Manage expectations by communicating the returns policy clearly. If consumers are not satisfied with the returns policy, they want to know in advance. Therefore, it is important to inform consumers by publishing clear and simple product returns policies and to make the return process as simple as possible.
Automate and implement the right technology to suite your needs. Automation and product tracking are just as important in reverse logistics as it is in managing traditional supply chains. There are numerous of solutions that can set shipping rules, code products to send to their destination, track product recovery, manage refurbishments, provide analytics and automate other processes. Although applications of emerging technologies are in the early stages, reverse logistics is expected to be further optimized by applying asset tracking, artificial intelligence and blockchain technologies.
To conclude, the process of reverse logistics is much more than moving goods from the customer back to the seller or manufacturer. It is a way of retaining and creating value by processing new and used products and materials in a way vital to a sustainable economy and tomorrow’s business environment.