Vendor Managed Return (VMR), a VMI concept on reverse logistics handling

At BrandLoyalty, one of our unique selling points is our commitment to accepting all surplus stock from clients following promotional or program periods. This high service level has posed challenges for us over time, with high volumes of returns, varying return conditions, and costly return handling costs. Despite these challenges, we've been putting effort into finding a suitable solution, and I'd like to share some of the alternatives we've investigated.

The Challenges of Reverse Logistics

When it comes to reverse logistics, many businesses face a complex and multi-layered process that involves various stakeholders and operations. Handling reverse logistics in-house can be challenging, especially due to the high costs associated with product returns, sorting different return qualities, repairs, and repacks. Additionally, standardizing the reverse logistics process with clients, accurately tracking, and managing returned goods, and disposing of damaged or returned goods in an environmentally responsible manner can be difficult. To address these challenges, outsourcing the reverse logistics operation to a third-party logistics (3PL) provider may be a better option, especially if the business has a high return frequency or volume.

Outsourcing to a Third-Party Logistics (3PL) Provider

Outsourcing reverse logistics to a third-party logistics (3PL) provider is a popular practice among companies and offers many benefits. A 3PL can help establish clear communication with clients, provide expert guidance, and keep clients informed of the reverse logistics process. They handle client education on proper returns handling and work to ensure the process is efficient and effective. By utilizing their expertise, experience, and resources, a 3PL can improve customer service, lower the cost and complexity of reverse logistics, and ensure regulatory compliance. The 3PL will handle repairs and repacks of returned products to ensure they are in good condition for resale, even for complex returns, at a manageable cost.

The Benefits of Vendor Managed Return (VMR)

Using a third-party logistics (3PL) provider on reverse logistics is a good option, but have you considered adopting the Vendor Managed Inventory (VMI) concept for reverse logistics?

VMI is a supply chain strategy where the supplier manages a customer's product inventory, monitoring usage and maintaining minimum stock levels. We could extend this by having the supplier manage our returns as well, which I would call it Vendor Managed Return (VMR). The idea is, when we receive returns from our client, we could directly ship them back to the supplier for repairs and repackaging.

By having the supplier manage our returns, we can ensure that the refurbishment and repackaging processes are performed to the highest standard, which will result in improved customer satisfaction. This approach minimizes defects, as the supplier is equipped with the best knowledge of the product and can quickly identify and address any issues, even better than an appointed 3PL. They may also be able to recycle parts of damaged products, reducing disposal costs and having better control over inventory levels, resulting in lower repack costs and improved quality control.

"At BrandLoyalty, one of our unique selling points is our commitment to accepting all surplus stock from clients following promotional or program periods"

Handling returns in-house or through a third-party logistics (3PL) provider can result in the entire batch of returned products becoming part of our inventory. By adopting the Vendor Managed Return (VMR) approach, the supplier takes over ownership of the repacked cargo, like VMI, reducing our inventory level and inventory management costs. Additionally, when the returns are being handled, the supplier can have enhanced visibility and control over their inventory levels. This approach enhances their ability to monitor the on-hand supply, resulting in quicker delivery times, minimized stock shortages, and optimized supply chain operations. The Vendor Managed Return (VMR) approach offers several advantages over traditional reverse logistics management solutions. By entrusting the supplier with the responsibility of managing returns, we can minimize costs, improve customer satisfaction, and optimize our supply chain operations.

Is the VMR Approach Right for Your Business?

It could be debated if it's still worthwhile to ship returns to an Asian supplier despite the shipping cost. However, it is worth noting that shipping from North America to Asia is significantly more cost-efficient than shipping from Asia to North America. In fact, eastbound shipping can be up to 50% less expensive than westbound shipping. Although there will be extra costs associated with an additional trip to Asia, the benefits, such as the ability to refurbish and recover more returns, take advantage of lower repack costs due to economies of scale, and potentially reduce inventory levels, often outweigh these costs. Nonetheless, minimizing these extra shipping costs can be achieved by partnering with a reliable freight forwarder if this is still a concern for you. Certainly, it is crucial for each company to evaluate the costs and advantages to determine whether the Vendor Managed Returns (VMR) approach is suitable for their circumstances.

The cost of reverse logistics can be significant and often mismanaged, potentially leading to as much as 10% of overall supply chain costs. Among the three options - in-house management, outsourcing to a 3PL, and Vendor Managed Return (VMR) - only VMR offers the highest return recovery rate, ensures the best refurbished quality, and optimizes customer experience. Additionally, VMR helps ease the pressure of inventory and inventory management, making it a highly worthwhile solution to consider. Proper management of reverse logistics is just as crucial to success and profitability as forward logistics. A comprehensive end-to-end supply chain management approach is the key to sustained success.