Developing a reverse logistics strategy

Creating a smooth and cost-effective returns process has always been a vital part of running any successful ecommerce business. And with 13% of global holiday 2022 online orders getting returned (up more than 60% from 2021)¹, there’s precious little room for error. With that in mind, this guide looks at how to go about creating your reverse logistics strategy – and why getting it right could be the gateway to increasing sales and driving customer loyalty.

Let’s jump right in, with expert advice from Google’s Devices & Services Reverse Logistics Team.

The most successful reverse logistics strategies typically meet five key objectives. In this section, we'll run you through each one, and explore some ways to achieve them.

Controlling costs

While returns represent a tiny percentage of most e-commerce operations, processing them can be highly manual – making associated labour costs disproportionately high. To keep a lid on costs, start by getting a clear overview of the entire end-to-end product returns process. Which are the most labour-intensive parts? What could be automated? Apart from labour, what other overhead costs are there? For example, repairs, refurbishment, or even funding extra equipment during seasonal peaks or times of market expansion.

Minimizing turnaround time

The quicker your returns process, the more time your staff can focus on tasks that drive profit and add customer value. Right now, how long does each step in your process take? Which bits, if any, could be outsourced? How does your turnaround time compare to competitors?

Driving customer lifetime value

No matter how quick and painless you’ve made your returns process, most customers would rather avoid the whole thing altogether. That said, there are steps you can take to make the experience a wholly positive one. For example, offering customers a self-service option for triggering a return or replacement; or giving them visibility at every stage. You could also implement KPIs to monitor customer sentiment at key moments in the process, so you’re always improving.

Promoting sustainability

With sustainability an important purchase consideration for 8 in 10 consumers, finding ways to lessen the environmental impact of your returns process could be a worthwhile exercise. For example, try quantifying the carbon footprint of each return and finding ways to be greener. Could you repair or refurbish returned products rather than sending a full replacement? Can parts of returned products be repurposed or extracted for value?

Generating additional revenue streams

Return levels have soared in the wake of COVID-19, with fast fashion and other verticals hit especially hard. But a returned product doesn't always mean a lost sale or customer. When developing your reverse logistics strategy, seek opportunities to drive additional attachment and create loyalty. For example, what trade-in or upgrade programs could you offer to retain customers? Could you build-in extra value by offering extended warranties as part of a membership program? Is there a secondhand or open-box market for your products?

Now that you've defined your objectives and explored ways to achieve them, it’s time to think about how to actually structure your reverse logistics strategy. Broadly speaking, there are two approaches to this: 'Centralized' and 'Hub & Spoke'.

Let's break those down, and see which one's right for your e-commerce operation.

Centralized

With a centralized reverse logistics structure, all your product returns come back to a single location for processing. It’s often the starting point for most retailers because everything is handled under one roof, so returns can be processed with a single touch, and resold. There are downsides though. For example, if there’s a problem or technical fault in your returns hub, all your customers are impacted. Plus, if your hub is a long way from your customers, you’ll pay more for shipping – and the whole returns process will take longer.

Hub & spoke

With this structure, product returns are sent to local depots or warehouses (‘spokes’) close to the customer, where they are consolidated and sent to a central hub for processing. Retail stores often make excellent spokes for returned products, as customers can simply drop them in when they’re passing. They’re also a useful way for international retailers to manage returns quickly and for less cost – and provide added flexibility during peak seasons. In addition, they perform a similar function to a large central hub, which can help reduce outbound costs. In some cases, spokes become ‘mini fulfilment centres’ – turning returned goods into new inventory.

On the flipside though, you’ll have to incur additional shipping costs between your spokes and the main central hub. Labour costs will also be higher, because returns are handled by multiple employees in different locations.

Every e-commerce business is different, so you’ll need to build a reverse logistics solution that’s right for you. What matters is finding a strategy that not only meets your current objectives and vision – but can also adapt as your business grows. Think carefully about finding the right balance of cost, turnaround time and, ultimately, what approach will deliver the best customer experience. Use this guide to get started, and remember to revisit your approach at timely intervals to ensure it continues to be the right one for you.