Reverse Logistics Risk Management: What You Need to Know


Reverse logistics is a rapidly growing area, as businesses focus on sustainability, efficiency, and renewable resource management, but the types of risk management strategies necessary in this trading space may differ from other industries.

For example, the complexity of returns management, recyclable material logistics and returning components or products from end users back through the supply chain incorporates multiple moving parts.

How often should a risk management plan be updated in a reverse logistics environment? Appraisals can be crucial to risk aversion, and updates may be required based on multiple events, triggers, or external factors that might potentially contribute toward negative outcomes.

Key Challenges to Consider in Reverse Logistics Risk Planning

One of the most notable risk management factors in reverse logistics is quality control and handling flows of return orders. Where returns can originate from numerous points of origin and be initiated by both individuals and businesses, the organization needs to incorporate risk management protocols to address the following:

  • Verification that returned products are accurate and in a suitable condition
  • Testing, inspecting, and logging the product
  • Organizing repairs, cleaning, reconditioning, or recycling for varied returns
  • Repackaging products destined for resale and returning defective products to manufacturers or quality control teams for investigation
  • Deciding how to handle returned products unsuited for reuse, such as recycling, refurbishing, or waste

Defining how to monitor risk management plan policies is important. Accurate logs and record-keeping are essential to help reverse logistics managers keep a keen eye on recurring issues, return volumes, or quality control failures that require attention. 

Communication and Information Sharing

Reverse logistics involves a considerable volume of variables, and risk management strategies should address how information is shared between departments, planners, stakeholders, and suppliers. If information or data becomes siloed, it can become difficult for managers to retain oversight of operations while mitigating or avoiding potential risks.

A reverse supply chain could involve couriers, transport providers, quality assessors, inventory teams, warehousing providers, multiple enterprises, and end users. Further, there may be multiple touch points between the customer and supplier, with return authorizations actioned via email, automated platforms, or phone calls. Tracking systems should be fully integrated and accessible at all appropriate levels to avoid the risk of missed mitigation opportunities or repeat issues not being flagged.

Financial Risk Factors

Businesses must have detailed policies that dictate how returns are handled, whether related to device recycling, returns, material collections or other services. For example, authorizations might depend on the following:

  • Operational faults or product malfunctions
  • The duration of time since the product was sold
  • Return or exchange policies

Streamlined operations with comprehensive risk mitigation avoid the potential of incorrectly approving returns outside of service agreements or absorbing unnecessary costs where returns are preventable.

Managing Capacity and Demand

While reverse logistics primarily relates to returns processes, other applications include businesses that collect appliances for refurbishment, recycling services and secondary market resale companies. End-of-life goods, such as mobile phones, laptops, and tablets, can also be repurposed through reverse logistics to extract valuable recyclable materials and reduce wastage going to landfills.

In any of these scenarios, scalability is a potential risk, where demand for carbon-reduction and recycling services is at an all-time high, coupled with significant demand for repair and exchange services based on online retail growth. Separate supply chains for reverse logistics and the rest of the business can add to the risk of low visibility or segmentation, where performance assessments are conducted separately rather than cohesively.

About the author

Author: FITT Team

The Forum for International Trade Training (FITT) is the standards, certification and training body dedicated to providing international business training, resources and professional certification to individuals and businesses. Created by business for business, FITT’s international business training solutions are the standard of excellence for global trade professionals around the world.

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