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What to do about reverse logistics?

Reverse logistics is a hot topic as suppliers and retailers seek to become more consumer-centric. MHD talks to Ben Franzi of Australia Post and Jason Bush of Toll Group on this crucial element in supply chain management.

At the outset, it seems pretty straightforward. In a typical interaction, a consumer will reverse their logistics when they return a fashion item to an online store because it’s the wrong size. From consumer to retailer, the item is moved back from end- to starting-point.

It’s a process that the logistics industry is seeing increasingly more these days. It might need to be done to return faulty products such as fashion apparel or consumer electronics. Or it could be part of a product stewardship scheme, to recycle electronic parts or coffee pods. It might be returning a pharmaceutical product that cannot be reused.

One thing is certain, that reverse logistics is a challenge that is here to stay. Ben Franzi, General Manager, Parcels and Express Services Australia Post, says that as e-commerce increases, so will reverse logistics. He tells MHD that the uptick in reverse logistics is roughly commensurate with the overall growth rate for e-commerce that has taken place due to the pandemic. More e-commerce is happening, so more returns are happening.

Ben Franzi – General Manager, Parcels and Express Services Australia Post.

REVERSE LOGISTICS 101

The question now is how can retailers best manage this complex process. 

“Reverse logistics depends a lot on how a retailer wants to run it,” says Ben. “There are some retailers who will outsource their reverse logistics operations if they’re complex and require multiple steps – such as might be the case with a large fashion house that employs people to carefully assess goods to determine whether they’re re-sellable – but others are relatively less complex. 

Ben notes that companies in Australia have done a relatively good job at making the process consumer friendly.

“A straightforward example would be if I have a pair of pants and I want to return them. What I’ll do is go onto an electronic portal, raise a ‘return’ note, get a generated label that’s associated with that stock movement, whether it be for a courier pick up or a drop off at – for instance – an Australia Post store or red post box. In some cases, I might be given a QR code that I take into the store and they generate the return label for me.”

The complication, Ben points out, is what happens with that product once it is returned to the retailer. “Whether it be a logistics function that retailers operate themselves, or an outsourced logistics function, there will be an inspections process,” Ben says. “After that comes the reintroduction to stock: where it is repacked, re-labelled, re-priced, and then perhaps repackaged into whatever inventory is being readied for re-sell. But coming off this there are two other streams: if something needs to be destroyed or something has to be recycled. So, there is the element of re-sell, but also the elements of destroy and recycle.”

He says that lately there have been a lot of retailers who won’t even properly engage the reverse logistics process but will simply send the consumer a brand-new item because the cost of the returns process is comparatively more expensive. “It’s a balance between the commercial values and what they’re trying to achieve through their own chain,” Ben says.

Some items might be disposed of or destroyed if it’s not worth the retailers’ money to wear the cost of returning the item. “It’s a retail-by-retail preference,” Ben says. “But anywhere retailers think they can get a re-sell where they’ll make more than the cost of the return, then they’ll want a return.”

As the national postal service, Australia Post naturally plays a big part in facilitating the return of items from business to consumer and back again. “We’re probably the major logistics provider dealing with consumer returns,” Ben says. “We have about an 80 per cent market share in consumer movements and that mirrors back to a similar level for reverse logistics. Possibly more in the latter case because of our store and postal box coverage, which means ease of accessibility for consumers returning items. With Australia Post, consumers have about 20,000 options available to them if they want to return items.”

RETAILERS AND WAREHOUSING

Jason Bush, Global Head of Warehousing for Toll Group, says that there are basically two sectors in reverse logistics: simple product returns, and what he refers to as the more “hardcore” end, involving specialist recycling, potential raw material recovery and destruction. He says that as a general rule, Toll will deal with the large-scale returns process, whereas the processes at the end of a product’s life cycle will usually be handled by specialist third parties. 

Jason says that the recycling and destruction end has been a significant factor since the early 2000s, with specialist companies catering to niche reverse logistics services. As for product returns from retailers, he says it’s a mixed bag as to the efficiency of their processes. “Some retailers have always been good at it, but there are some who have some way to go.”

Jason says large retailers will often use Toll for their reverse logistics process because Toll already manage clients’ e-commerce distribution straight out of its large warehouses. 

“The vast majority of large retailers have e-commerce come out of large distribution centres such as ours, due to the economies of scale involved,” he says. “If you try and do your e-commerce out of your regular stores – the retail space in these stores is hundreds and hundreds of dollars per square metre more than in a warehouse – and it’s not an efficient use of in-store labour and prime retail space.” 

Toll has the space and technology to do such work more efficiently and at far greater scale.

 “Toll can do it through automation, through robotics; packaging that is custom-cut and made through robotics – so that’s the reason it’s done out of DCs such as ours,” Jason says. “Some of the major apparel brands might have 30,000 different products on sale, but their retail stores may only have space for 400 or so. So, if it’s coming out of a DC then your choice as a consumer is 20 to 30 times bigger than if you went into a retail store. This makes perfect sense for fashion and technology, where their retail outlets will be displaying their current season or their current tech, but they won’t have old product in stock at their stores for consumers to buy.”

The rise in e-commerce and its rapid uptake during COVID-19 has driven consumer demand for faster delivery times, Jason says. While Australia’s small population and massive geography limit the same-day delivery potential possible in places like New York City or Korea, Toll has been working to expedite the despatch and delivery process. 

“We’ve put a lot of processes in place to speed up e-commerce,” he says. “Around five years ago you’d probably be at seven to 10 business days from order to receipt of a product. Now we have facilities that can have that product out same-day or early the next day, depending on transit times. If you’re in Sydney and the warehouse is in Sydney, you can have the product within 36 hours. Or even between Sydney and Melbourne.”

Jason Bush – Global Head of Warehousing for Toll Group.

ROOM FOR IMPROVEMENT 

Jason agrees with Australia Post’s Ben Franzi that on the whole Australia stacks up pretty well with its reverse logistics processes when judged on the international stage. However, there are some areas where we have to play catch-up, he says. 

“When we’re talking about end of product life cycle returns management – recycling, recovery of rare earth minerals and the like – we’re very behind compared to Europe,” Jason says. “Europe had their environmental crises in the 1980s with acid rain and similar concerns. So, they put significant controls in place in terms of technology destruction and what can be put in landfills. That was driven at a government level maybe 25 to 30 years ago.” 

By contrast, he says Australia is only now at the point where laws stipulate that tech and electrical goods can’t be thrown into landfill. 

“By virtue of the fact that our regulatory system is just starting to evolve, we’re well behind. There are small companies that can do it, but at the moment there’s not enough demand to fund them on Europe-like scales,” Jason says. 

“One potential method by which proper recycling and destruction can be promoted is by mandating that the costs of the destruction or recycling actually be pre-factored into the sale price, such that those kinds of externalities are accounted for at the point of sale – well before the day of destruction or recycling actually arrives.”

For more information on Toll Group, click here

For more information on Australia Post, click here

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