The Supply Side: Blockchain implications on reverse logistics

As online retail continues to grow so does the need for better reverse logistics to handle customer returns. A recent report from Cerasis found the costs of reverse logistics exceed $750 billion per year, with up to 30% of all products ordered online being returned.

The return process varies widely across retailers, but overall product returns are burdensome to consumers who are forced to pay the shipping costs, or for the retailer who is picking up the charges, only to then try and charge the supplier.

The report from Cerasis, a transportation and logistics firm, looks at how applying blockchain technology to reverse logistics might reduce costs and better streamline the customer experience. Reverse logistics can cut into retailers’ profits by as much as 20%, according to Cerasis. The report states retailers can reclaim up to 32% of the total product cost by having an effective reverse logistics function which allows for possible reselling the item, recycling it or remanufacturing it.

“The road to better reverse logistics is not always clear, and supply chain leaders need to understand a few best practices for implemented combined blockchain and reverse logistics strategies,” the report stated.

For optimum benefit, Cerasis notes retailers with brick-and-mortar stores need to take an omnichannel approach to reverse logistics allowing, for example, customers to return online orders to physical stores. But for that to work, retailers have to first ensure their systems are integrated and can track online and offline purchases in the same system. When that’s a possibility, retailers can cross-sell items stocked in store to the customer who is returning the item. J.C. Penney reports more than 90% of its online order returns are made in physical stores, and most of those making a return end up purchasing an additional item while they are in the store.

The report states integrating supply chain systems into a single platform can provide a combined approach to managing product lifecycles from procurement through reclamation, recycling and disposal. While the benefits of blockchain technology are still being explored within the supply chain, there are several direct applications Cerasis believes will be worthwhile.

Blockchain allows for better tracing and transparency of a product’s full lifecycle from the manufacturer’s sourcing of component materials to final disposal. When this traceable chain of custody is certain, it can make for faster product recalls, which is one application Walmart has tested for the past couple of years. As explained in a Technavio Report, blockchain technology can enhance the flow from information in reverse logistics, helping manufacturers understand the full cycle of their products, even after disposal.

Other blockchain applications include monitoring products at the end of their lifespan through devices connected to the internet of things, and in the spare parts supply chain, which are part of reverse logistics. Blockchain technology can be used to reduce over- and under-ordering, as well as ensure compatibility of spare parts with items being repaired.

Reverse logistics with blockchain applications can also ensure products such as smartphones and other electronics are disposed of without compromising risks to the former users who may still have personal information on those devices. Recycling and refurbishing electronic products are a growing segment of retail and when blockchain transparency is used to track products through their life cycles the stored personal information can be safeguarded and removed without compromise.

Retailers using blockchain applications to track returns and initial orders will likely increase consumer trust, even when the customers are business-to-business purchasers, the report stated. Blockchain also helps eliminate fraud and counterfeit products which are more likely to occur with online purchases.

The report also suggests retailers use blockchain technology in managing returns to make those efforts visible to consumers. Since 67% of shoppers check return policies before making a purchase, this will aid in selling more product and creating hassle-free returns policies.

Blockchain can enhance returns management by providing a means of tracking returns and also identifying issues contributing to the higher-than usual returns rates.

Blockchain technology will require more investment from retailers and suppliers in the near future, but cost savings which could be achieved through blockchain efficiencies in reverse logistics could be used to offer free shipping or increase conversion rates of site visitors, the report stated. Roughly 79% of online shoppers want free shipping, and 92% will make repeat purchases if returns are easy, according to the National Retail Federation.

“Shippers and supply chain leaders have an opportunity to recapture lost costs through more effective reverse logistics and comprehensive, easy returns management,” the Cerasis report noted. “It’s not just about saving money in returns; it’s about positive customer experiences and interactions. Combining blockchain and reverse logistics will generate a hassle-free way of connecting existing supply chains to reverse logistics and keeping costs down for consumers.”
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Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.