Why reverse logistics matters

Johannesburg, 09 Apr 2014
Read time 3min 30sec

The average manufacturer spends 9% to 15% of total revenue on returns. Reverse logistics is a hidden cost, but a very real one - it's more than just warranty accruals and logistics, it's the process whereby vendors convert liabilities into viable assets (or at least smaller liabilities).

Forty percent potential cost savings in your backyard?

Editor's note

This press release references research done by former Gartner research director, Geri Spieler (, and Curtis Greve, MD of the Reverse Logistics and Sustainability Council.

Service Parts Logistics (SPL) is a specialist in reverse logistics and warranty management in an African context, as well as Africa's largest IT parts handler. By improving reverse logistics management, SPL has been able to reduce costs of returns by as much as 40% in some instances, and reduce return rates by almost 50%.

What's more, 95% of customers will not buy from a company if they have a bad returns experience. Geri Spieler of Gartner Research notes: "Returns are a huge customer service opportunity that a lot of businesses are missing out on. These companies are just turning a blind eye to returns, and don't want to pay a lot of attention to them." The impact of improving a consumer's reverse logistics experience on top-line revenue is ultimately unclear, but companies with best-in-class reverse logistics capabilities have, on average, a 12% advantage in customer satisfaction, according to US-based experts.

Potential minefield

Reverse logistics is a potential minefield though. Forward logistics companies just aren't equipped to do it well. Whereas forward logistics is easy to plan, and tends to follow a single process (buy-warehouse-ship out), reverse logistics is more complicated and can follow dozens of different paths:

* Firstly, you can't plan for which unit or part is going to be returned, or when.
* Secondly, you don't know what the fault will be, or if there is one at all - the fix might be anything from reselling as new, repackaging, repairing or recycling, and this varies on every unit. It's entirely exception driven.
* Thirdly, all returns are single units, adding to the difficulty in planning and managing the process - it's hard to fill up a truck or plan a route.
* Finally, process visibility is not transparent - it's often unclear how much money is being lost until process improvements take place and it is recovered

What is needed is a focus on returns and the right reverse logistics software.

Outsourcing for success

Outsourcing provides cost benefits and efficiencies; the specific competencies of an outsourced provider can offer companies a competitive edge. By concentrating only on their specific areas of expertise, niche providers can offer more value than those that present a generalised approach.

Niche providers start with a conventional approach, then completely re-imagine every aspect of the solution as though the entire offering was originally conceived and built for each customer. They are uniquely qualified to solve specific challenges while offering flexible solutions. Specialists are just that: experts in their fields. When you have a specific challenge, who would you rather use - the company that deals with that challenge day-in, day-out, or one that occasionally touches on it in and among all the other things it does?

SPL is one such company. Over more than a decade, the company has imagined and built a sophisticated real-time online parts tracking and process automation system (iSuppli), which completely integrates into OEM and retailer systems, providing full visibility on line item level, as well as management reporting level. It helps retailers to track and return parts timeously and claim credits quicker, and helps OEMs to minimise returns by diagnosing faults early and pushing them through the right channels first time.

Curtis Greve, of the Reverse Logistics and Sustainability Council, puts it very succinctly: "What other investment can potentially improve customer satisfaction by 12%, and improve profits by up to 5% of total sales?"

Editorial contacts
Service Parts Logistics Chris Cox (011) 795 4661
See also