The Growing Relevance of Reverse Logistics in India

The Growing Relevance of Reverse Logistics in India

A 400 million Internet user database, a government dedicated to ‘Digital India’ and the emergence of retail as a dominant market segment are a heady cocktail for the unprecedented growth of e-commerce in India. According to a joint study by ASSOCHAM-Forrestor,[1] India's e-commerce revenue is expected to jump from USD 30 billion in 2016 to USD 120 billion in 2020, growing at a world beating annual rate of 51%!

While retail category penetration has increased to 65 million unique visitors a month, registering an annual growth of 55%,[2] reverse logistics is struggling to keep pace. Like a ‘fat Indian wedding’, where the initial pomp and show is often followed by a ruinous trail of litter and waste, the self-gratifying purchase made with a few clicks on a smartphone is often followed by the heartache of refunds and returns.

What is Reverse Logistics?
In broad layman’s terms, ‘reverse logistics’ refers to all the activities associated with a product/ service after the point of sale. If one does a deep dive, UPS[3] has come out with its five R’s that comprehensively cover all aspects of reverse logistics. These are:

1.       Returns and Exchanges: These comprise the major component of reverse logistics. According to one estimate, 47% of high-tech shoppers have returned or exchanged an item purchased online.
2.       Reselling Returned Products: Processing and reselling returned products are major revenue generators. There are companies dedicated solely to such activities
3.       Repairs: Companies prefer to repair and return rather than replace, as it enables them to carry less inventory.
4.       Recycling and Disposal: Smart recycling not only generates revenue but also promotes sustainability and green goals. As per UPS, Apple has recovered USD 40 million worth of gold in 2015.
5.       Replacements: These have complex supply chain requirements. More than 1 in 3 buyers say shipping products back to retailers is too difficult.

Need for Reverse Logistics
Every impulsive purchase on the Internet is followed by some guilt-tripping, frequently resulting in a product return. It goes without saying that beyond a certain level, the growth of an e-commerce company will be associated with the robustness of its reverse logistics network. According to a nationwide survey conducted in the U.S., 66% of customers switch companies due to poor service and 73% of consumers say friendly customer service reps can make them fall in love with a brand.[4] This is why companies like Amazon and Flipkart are finding it increasingly relevant to have a customer friendly reverse logistics infrastructure.

Constraints and Challenges in Reverse Logistics
The mantra of any e-commerce company is: ‘sell as much as possible, as quickly as possible and dominate the market share’. All activities up to the point of sale generate positive revenues for the company and those beyond that are laggards to revenue. For companies looking to make a quick buck, reverse logistics is left in the shadows; but for companies on the long haul, robust reverse logistics is a necessary evil. Such companies are now understanding the complexities of reverse logistics in India, where no ‘cut and paste’ solutions ever work.
The greatest challenge faced by all in the Indian supply chain (forward/ reverse) is one of geographical constraints. While the situation is relatively better in Tier I and II cities, infrastructure issues pose massive challenges in rural areas. With 70% of the Indian population living in rural areas, companies are struggling to find solutions. A few other challenges are clarity on taxation, transit documentation issues, warehousing issues and the necessity of dealing with multiple agencies. Further, orienting a company's entire environment towards a ‘reverse logistics culture’ is a major challenge.
The Way Forward
Increasing consumer awareness, remote buying habits, inclusive Internet, and launch of new models by companies are some of the trends that are making reverse logistics increasingly relevant. The way forward for e-commerce companies is to have layers of outsource partners through third party (3PL) and fourth party (4PL) logistics.  While 3PL only involves activities related to distribution, the 4PL concept involves outsourcing complete supply chain solutions. Hence 3PL is being preferred for ‘return, resell, exchange and repair’, while 4PL is preferred for ‘recycling and disposal’. Companies also need to overcome gaps and challenges in skill sets by exposing people to reverse logistics programmes.

A well-developed reverse logistics infrastructure can provide a wealth of opportunities to companies. Reverse logistics can provide manufacturers with ways to not only achieve greater sustainability but also reduce the overall cost of manufacturing.

About the author:
This article has been written by Col Rajiv Bhargava, Associate Director, Munjal Institute for Global Manufacturing & Commercials at ISB.

Also read: Fighting Fraud in the Reverse Logistics Boom | Institute in Focus | Reboot Systems’ Refurbished Computers: A Frugal Solution for Digital Divide | Reverse Logistics: Imperative for Green & Smart Business