Reverse Logistics—returns, repairs, and warranty claims—is a nightmare for most B2B distributors and manufacturers. If your returns strategy appears optimal but continues to fall short of expectations, you’re not alone, so don’t beat yourself up… but do pay attention, because widespread inefficiency means opportunity.
How so? When your entire industry struggles in one key area, you can get ahead by running tighter operations, reducing costs, and building a better customer experience. This is especially important in times when top-line margin pressures are heightened with tariffs, more on that here.
Considering that 93% of distributors and 63% of manufacturers have no dedicated returns infrastructure, optimizing reverse logistics and boosting profit margins represent a hidden goldmine.
Of course, it all starts with understanding the problem, so let’s dive into the 5 reasons why reverse logistics is the worst logistics. Then we’ll show you how to tame the beast and carve out your competitive advantage through a solid reverse logistics strategy.
Reason #1: Employees Have No Incentive to Prioritize Returns
Even if your entire leadership team already understands the benefits that come with optimizing B2B returns, that won’t do you any good if your staff isn’t incentivized to prioritize them.
When it comes to returns, who wants to handle them? Nobody.
- Salespeople are focused on outbound orders: If a sales rep or Customer Service Rep (CSR) gets a request for a quote and a return request at the same time, they’ll jump on the lead and leave the return for another day.
- Warehouse teams are busy fulfilling orders: They’re picking and packing, receiving inventory, and keeping the outbound flow moving. Returns become the lowest priority, and they often get lost in the chaos.
- Carriers and internal fleets are not designed or paid to inefficiently reverse their routes: Instead, returns are pieced together in a patchwork fashion.
Returns are the problem child nobody wants to claim, which means they get deprioritized, duct-taped together, and sometimes even forgotten.
The result? Returns cost 8 to 10 times more to process than the original order. That makes them the most expensive transaction category that a supply chain organization has to process, and it’s one nobody wants to own.
How to fix this problem? What gets measured gets managed. The first step is to measure the parts of the returns process that are actually impacting the P&L. We will go deeper into the areas that can be measured and how the top distributors are measuring returns impact on P&L here.
Once you have tracked these metrics, you can start to make KPI’s to reduce them. Build these KPI’s into performance compensation as a portion of 1 or more senior employee’s plan. Returns and warranties are the most costly transaction, a small spiff to reduce the silent P&L killer is a small price to pay for a major impact.
Reason #2: Your Tech Stack Is Built for Forward Logistics, Not Reverse Logistics
Software companies have done a phenomenal job helping distributors and manufacturers manage forward logistics, with Enterprise Resource Planning (ERP) software and Warehouse Management Systems (WMS’s), order automation, invoice automation, and the list goes on. These technologies are allowing the supply chain to achieve the efficiency and accuracy we only dreamed of decades ago.
These systems are doing exactly what they’re designed to do—but they weren’t created with reverse logistics in mind. They only speak one language, and that’s the language of outbound sales and fulfillment.
Even the best ERP’s and WMS’s lack interdepartmental workflow management, escalation procedures, automated follow-ups, and situational intelligence (with AI guidance) to support reverse logistics.
That leaves the vast majority of organizations processing returns manually. Oftentimes distributors will manage much of the returns process outside of the ERP in shared spreadsheets or ticket management systems to make sure they are keeping track.
To reiterate what we mentioned above, a staggering 93% of distributors and 63% of manufacturers have no dedicated infrastructure for returns. This lack of infrastructure has left your organization running each return as a unique project that requires dedicated coordination throughout the supply chain.
How to fix this problem? The first step to fixing the problem is to stop trying to bend ERP’s and WMS systems into a shape that you will hope can effectively manage the end-to-end returns process. When companies try this, they fix one problem only to break another. This becomes like a game of whack-a-mole.
Step two (2) is to recognize that each return is essentially a ‘project’ and to treat each return as a unique ‘Case’. Case management solutions are great for coordinating multi-department projects but lack significant efficiency savings due to the lack of ERP integration.
Step three (3) is to build ERP automation into your case management solution. This will remove the duplicate entry and swivel chair between case management and the ERP. We dive deeper on the steps here.
Reason #3: Manual Returns Management Is an Operational Fantasy
We all love Standard Operating Procedures (SOPs), and they’ve served logistics professionals well when it comes to operational effectiveness. However, that dream collapses when it comes to reverse logistics because every return has its own story and its own unique requirements. We have seen a single distributor have 60 unique SOPs because remember they are not only adhering to customer expectations but also all of the vendor return requirements.
Problems arise when organizations write SOPs for every possible scenario and expect employees to remember them all. The math of this really becomes:
Number of Return Types x Number of Vendors x Number of Product Categories + a Few Edge Cases.
The numbers quickly get out of hand for any single human to really remember, let alone adhere to. To add insult to injury, these SOP’s span 4 or 5 departments, hoping everyone will internalize those rules.
The cold, harsh truth is that reverse logistics exposes all the weak links in your operations. It highlights cracks in your ERP, hiccups in your warehouse workflows, disconnects with finance reconciliation, and more.
How to fix this problem? Many organizations have adopted the philosophy of ‘you can’t automate a broken process,’ and rightfully so. However, B2B returns is one of the unique problems where you can never actually have a process adopted until you have a dedicated system.
The real suggestion is to pick a partner and map the process into a purpose-built tech platform that learns over time, not from how it is currently done, but how it should be done. If you wait to have the process perfect, you will have to continually make trade-offs in the process.
Reason #4: Visibility Is a Black Hole
When it comes to forward logistics, systems are designed to let you track every stop and every scan, hour-by-hour. When it comes to reverse logistics? Mystery abounds!
Returns, repairs, and warranty claims go into a black hole. A request might go to the warehouse, then to the vendor, then maybe the vendor requires more information that was not gathered at the beginning—and the process begins again. Without systems to track the entire workflow, claims get delayed and even lost.
Delays, mistakes, and lost claims result in costly rework, missed vendor credits, customer AR disputes, disgruntled customers, and lower profits. It also pulls your staff away from important tasks and revenue-generating activities.
How to fix this problem? Once you’ve got the right software in place to handle returns, you can build visibility directly into your processes. This includes assigning ownership for tracking and returns fulfillment, training staff on software and processes, and documenting those processes to ensure success in the years to come (regardless of turnover).
Reason #5: The Financial Sinkhole = Missed Vendor Credits and Revenue Recovery Issues
What’s the biggest reason why reverse logistics is the worst logistics? It’s eating into your profits like a school of hungry piranhas.
Let’s connect the dots:
- Nobody owns returns processes, so chaos is inevitable
- Even the best ERP’s and WMS’s don’t support returns
- Manual returns processes are unscalable
- Visibility is murky at best
What typically happens is that you refund the customer and burn manual labor across 5 departments, all the while missing vendor credits and failing to recover revenue in many cases.
Or worse? Your team forgets to credit the customer, which leads to invoice disputes and customer churn. That’s key because our research shows that 40% of customers aren’t completely satisfied with B2B return policies and processes.
Reverse logistics, as most manufacturers and distributors handle it, is not just inefficient—it’s a silent P&L killer. The good news is that most of your competitors are also doing it wrong, so you can build a major competitive advantage by addressing it strategically.
How to fix this problem? Protecting profits through optimizing returns involves building the right processes, adopting the right technology, training your staff, and ensuring that someone at your organization owns and prioritizes returns, repairs, and warranty claims.
Optimize Reverse Logistics with Continuum
We’ve highlighted the problems, so let’s talk about solutions. By combining all the tips we’ve mentioned above with software designed to manage reverse logistics, you can reduce errors, master visibility, improve the customer experience, and increase profit margins.
Continuum is the world’s only reverse logistics network designed to offer visibility and clear workflows, connecting everyone involved in processing returns (including customers).
We get most companies up and running within 1 month, and the platform integrates seamlessly with all the major ERP’s and WMS’s.
Want to learn more about Continuum? Book a demo today.
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