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Outsourcing reverse logistics to a 3PL: Benefits and what to look for

Illustration of a shipping box with arrows pointing at a globe with a warehouse marked on it.

Once seen as a drain on an e-commerce brand’s profitability, returns are coming into the spotlight as an integral part of the customer experience.

According to Narvar, 95% of online shoppers say would buy from a brand again if they had a positive return experience. Despite this, almost three-quarters of consumers (74%) responding to a Doddle survey think that the return experience requires improvement.

From slow refunds, difficulty requesting returns, to shipping merchandise back to the warehouse before receiving a replacement, these common points of friction in the reverse logistics process have a negative impact on customer satisfaction.

When you’re managing reverse logistics in-house, it can be challenging to keep pace with high and sometimes unrealistic expectations for free, seamless returns. This is where outsourcing reverse logistics to a full-service 3PL holds the key to achieving efficient, cost-effective return management.

What is reverse logistics?

Reverse logistics refers to the end-to-end process of managing, transporting, and reconditioning returned products. It involves the movement of goods from the customer back to the retailer or supplier in exchange for a refund or alternative product.

Reverse logistics programs are an important aspect of e-commerce fulfillment and supply chains. It enables brands to manage returns efficiently and minimize the impact of returns on operational efficiency and profitability.

What does the reverse logistics process involve?

The reverse logistics workflow in e-commerce begins when a customer requests a return or exchange, either via an online portal or by contacting a customer service person. What happens next will depend on a brand’s own reverse logistics process, but usually resembles the following:

  • The retailer processes the return request and provides the customer with instructions on how to return the product. If return shipping is included, then a return shipping label will also be provided.
  • Once the product is received, it’s inspected and a decision is made on whether to restock the item, recondition, or dispose of it.
  • If the customer has requested an exchange, warehouse staff will need to process the returned item and fulfill the exchange request.

Because effective reverse logistics helps companies to reduce return processing costs, improve customer satisfaction, and maintain brand reputation, many brands choose to outsource reverse logistics to a third-party logistics provider to reduce pressure on their in-house team.

Why is good reverse logistics integral to customer satisfaction?

The ideal solution for businesses would be for returns to take place as little as possible. But with the expectation and demand for hassle-free returns, eliminating returns through harsh return policies is going to backfire on a brand.

The expansion of online shopping has caused return management to evolve from merely a logistics matter into a core customer service. When shoppers cannot test or try products before purchasing, they expect a brand will be there to assist them if a purchase isn’t right for their needs.

But returns management isn’t just about the availability of returns; it’s also about how quickly a brand can make returns happen. Long wait times for refunds or replacement products add friction to the post-purchase experience and damage your brand’s reputation, making streamlined reverse logistics essential to building customer loyalty.

Challenges of managing reverse logistics in-house

In-house reverse logistics can seem like a good way to keep tabs on return volumes. However, reverse logistics has very different operational demands for managing outbound orders:

Customer expectations for seamless returns

Today’s e-commerce shoppers have high expectations for a hassle-free return experience. Not only do they want returns to be free; they also want speedy resolutions to returns, exchanges, and refunds so they can continue their shopping journey unhindered. If your in-house reverse logistics process is struggling to keep pace with these expectations, dissatisfied customers are unlikely to purchase from your brand in the future.

Accessing the right infrastructure

According to CBRE, Reverse logistics requires an average of up to 20% more warehouse space than forward logistics, with an extra 400 million square feet of additional space required to accommodate growing return volumes over the next five years.

Why? Because unlike preparing an online order for shipping and delivery, the reverse flow of a returned item will differ depending on whether it can be immediately restocked, requires reconditioning or repackaging, or is sent for proper disposal. Each of these outcomes require its own workflow to streamline operations and reduce processing costs as much as possible. But getting access to the necessary space can be a major challenge without logistics outsourcing.

The cost of reconditioning returned merchandise

Reverse logistics is rarely as simple as receiving returned merchandise and simply putting it back on the shelf. Even when a customer has obeyed your e-commerce return policy, there are still steps you need to take to get items ready for resale. This includes repackaging, relabeling, folding/pressing, repairs, re-kitting, and more. Managing all of these value-added services independently requires a significant labor force in your supply chain to avoid missing resale opportunities and building up excess inventory.

Keeping inventory levels up to date

When SKUs are flying in and out of your fulfillment center, it’s very difficult for businesses to keep their inventory levels accurate. If you don’t have a real-time inventory management system, items can be wrongly classified as sold out because returned units are not yet showing in the system. This leads to missed sales and lost opportunities for customer retention.

How a 3PL can streamline reverse logistics processes

Reverse logistics outsourcing may not feel like an intuitive move to shore up your supply chain. But the cost of return processing alone offers a compelling reason for why in-house reverse logistics could be burning a hole in your pocket.

According to Optoro, the return processing needed to get an item back on the shelf costs retailers around 66% of an item’s sale price. Even if an item is able to be resold quickly, it’s almost impossible to recoup all of these costs.

Why? Because businesses cannot avoid the workflow of receiving, inspecting, reconditioning, and restocking which is necessary for the quality control of returned merchandise. If you’re not going to pass these costs onto your customers, you need a better way to keep costs down.

Outsourced reverse logistics allows you to leverage a 3PL’s economy of scale to process returns quickly and efficiently, transforming it from a cost center into a revenue-saving mechanism. Instead of your time being taken up managing return workflows, you can leave that to the experts and focus on building your brand.

How to vet a 3PL for reverse logistics

How are their fees charged?

To outsource reverse logistics, you need a good understanding of what this is going to cost you. 3PLs use different pricing structures depending on their services, which affects how they charge clients for reverse logistics processes.

For example, some 3PLs may charge for return processing per unit, while others will create custom-tailored pricing based on your return volumes. Depending on how many returns you process and which reverse logistics services you require, one approach will be more cost effective for your business than another.

What return software integrations do they offer?

If your 3PL is operating on its own little island, this keeps you at a distance from technology solutions that could help your band to get a better handle on reverse logistics.

An effective flow in the warehouse is important, but so is being able to offer your customer a seamless return experience on the front end. Partnering with a reverse logistics provider that offers native integrations with return management software has a significant impact on your ability to streamline return workflows.

Ryder E-commerce by Whiplash has pre-built integrations with three of the top return management solutions – Happy Returns, Returnly, and Loop – enabling us to meet business needs for automation and rules-based return workflows:

β€œA great yardstick for measuring the success of an integration is how often you need to get involved in troubleshooting a problem. We recently had a minor issue crop up with the Whiplash/Loop integration. The two technical teams got in touch and had it resolved within just 48 hours. Not only does this integration minimize admin for our customers, it achieves the same for us as well.” Steven Feczko, Senior Director of Operations at Hedley & Bennett.

Can they give you real-time visibility over return processing?

Processing returns quickly is only one dimension of effective reverse logistics. If you don’t have visibility over the status of returns at your 3PL, this is going to make it much more difficult to monitor efficiency and identify where the most time is being lost.

It’s also a big disadvantage for your customer service efforts. Return processing can cause a lot of anxiety for consumers, so not being able to give precise updates can put doubt on your ability to resolve return requests in a timely manner.

Can they offer cheap shipping?

If your brand is covering the cost of return shipping in some or all cases, this adds significantly to your overall fulfillment costs. But with some 79% of consumers saying that return shipping is important to the e-commerce experience, more companies are under pressure to foot the bill at the cost to their profit margins.

Outsourcing reverse logistics to a 3PL that can offer you wholesale carrier rates helps you to keep control of your shipping costs. while offering customers the very best return experience. This is the sort of competitive differentiator that helps your brand to stand out in a crowded e-commerce marketplace.

Reverse logistics is a frequently overlooked stage of e-commerce fulfillment, but has a huge influence on the quality of the post-purchase experience. Poor returns management will likely result in customers choosing to shop elsewhere in the future, which is a recipe for high customer churn and stagnating growth.

By choosing to outsource reverse logistics to an experienced 3PL, you can be confident that you are offering customers a superior return experience that retains revenue and encourages them to return to your brand time and time again.

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