Outsourcing reverse logistics

Companies large and small are increasingly turning their reverse logistics over to 3PLs with the processes and volume to get the job done.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 5/2/2008 1:15:00 PM

If you’re old enough to remember when America still traveled by bus, you might also remember Greyhound’s slogan, “Leave the driving to us.”

Something similar is happening with returns as some companies, especially retailers, decide that the best approach to best practices around returns is to leave the driving to third-party logistics providers (3PLs) with an expertise in reverse logistics.

There are good reasons for that, says Tim Konrad, president of reverse logistics for GENCO, a 3PL that handles returns for a number of major retailers.

“A DC’s main job is like a fire hose,” says Konrad. “Everything points out. The focus is on selling product and delivering it to a store or the customer. It is not on giving credit for product that’s been returned.”

In addition, there’s an issue of scale. Too often, reverse logistics represents too small a piece of a DC manager’s responsibility to pay much attention to the problem or develop processes to do it efficiently. “DCs just aren’t designed to do this,” says Konrad.

Finally, DCs are configured to handle uniform cartons or pallets. “Returns don’t come back that way,” says Konrad. “They come back in any way you can think of. You may get a weed whacker with no box, a pair of jeans with a hole in the knee, or a box with one shoe. You have to be prepared to handle all of those situations.”

3PLs can handle returns effectively by establishing their own best practices. They include:

Do it in volume: One retailer, or one store, may not generate enough volume to support an independent returns process. But by working with multiple stores, or multiple retailers, a 3PL generates the volume that allows them to streamline and automate processes.

Establish vendor agreements: 3PLs establish clear business rules about which products can be returned and under what conditions; how customers are going to be credited; and how the product is going to be handled when it is returned.

Implement a software package: The best 3PLs have implemented software programs that allow them to automate those business processes.

Receive, inspect and dispose: The key to effective returns management is the ability to receive and inspect incoming merchandise, and then figure out the most profitable disposition of that product. Because you’re getting a mixed bag of product coming back, that requires a great deal of flexibility. “Ideally, you want to take that product and return it to the same configuration it was in when it left the DC,” says Konrad.

When that happens, the product may be put back on the shelf and sold again. But that’s not always possible. For that reason, a 3PL may return the product to the original vendor, especially if it is a recalled item, sell it in a secondary channel where it will end up in discount stores, donate it to a charity for tax incentives, send it to recycling, or destroy it. 

Reconciliation: Finally, a 3PL establishes a process to reconcile with the customer, either through point of sale information or some other unique identifier.

At the end of the day, says Konrad, “returns are not a core competency for most companies, and it is what a 3PL like us does. That’s the key.”