The Importance of Reverse Logistics in a High-Tariff World

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Within the current business environment of rapidly increasing tariffs, crafting a sophisticated process for handling returns becomes critically important. When evaluating the new and often significantly higher costs of manufacturing and importing merchandise under the new tariff regimes, creating and fine-tuning processes for restoring returned merchandise back to sellable stock suddenly becomes increasingly more valuable relative to the production and import costs for new inventory.

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Getting this right goes beyond merely restoring returned merchandise to sellable stock; savvy retailers must also understand when and how to engage in refurbishment activities - judiciously determining guidelines for the right cost and the right time for refurbishment. For example, very costly refurbishments for certain items may not always make sense, nor does refurbishing items that have plenty of stock ahead of refurbishing items for which there is little to no inventory remaining.

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A smart 3PL partner with the right technology can help capture the gains of an efficient reverse logistics operation by providing the guidance and tools needed to effectively execute on a plan for returns and refurbishments.

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The Old Way

The "old way" of processing customer returns is pretty simple: a customer decides she wants to return an item and then contacts the retailer to return the item and obtain a refund. Smarter retailers will implement a robust process for issuing a Return Merchandise Authorization (RMA) and a way to communicate that RMA to their warehouse or 3PL.

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A 3PL with a well-developed reverse logistics operation will also be able to refurbish your returned merchandise, and the smart ones can additionally provide notes and reasons as to why the items were returned so the retailer can take action to lower the return rate in the future - prompting changes such as better product descriptions on the website, better sizing information, or changes to the manufacturing process or product itself.

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When processing returns and refurbishing items, the 3PL will likely follow a strict first-in, first-out (FIFO) process and spend up to a fixed amount of time attempting to refurbish an item. These are generally fairly sound practices: you do not want to delay getting a customer's return processed, and it is typically always better to return an item to sellable stock, so long as there are some limits on how much it costs to refurbish each item.

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The New Way

But what if a better, more efficient way existed?

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Instead of processing returns on a purely FIFO basis, prioritization would be given to out-of-stock items. Returns with out-of-stock items would be moved to the front of the returns processing line so they could be added back into sellable stock immediately.

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And more importantly, the decision to incur costs for item refurbishment would only be made when there was an expected payoff. For example, in the case of high-priced items with little stock and high demand, you would spend more time and energy trying to recover those items. Low-cost items, on the other hand, as well as items with surplus stock, would be lower priority in this respect, with little to no time spent on refurbishment. By intelligently choosing how much time and money to invest in refurbishment, retailers would maximize their profitability.

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And critically, by utilizing smart systems to control these costs, retailers could readily adapt their strategies as the markets and costs continue to fluctuate.

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This "new way" is in fact the Mochila way. By developing and sharing our unique proprietary fulfillment software at Mochila, we've been able to build and operate this kind of intelligent reverse logistics system as described above, and we are excited to be able to offer these types of value-add, cost-saving services to our clients.

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‍Want to learn more about how Mochila can improve your returns processes? Schedule a call with us today.

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