How to help your 3PLs better manage returns

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Over the past decade, 3PLs have honed their reverse logistics capabilities across many industries. But most companies don’t leverage that experience to spot opportunities for improvement. On the contrary, companies tend to micromanage their 3PLs through tight metrics and tight tolerances. As a result, 3PLs end up operating according to rigid scorecards rather than looking for ways to improve the system.

Conversely, companies that give their 3PLs greater control over reverse processes actually reap system-wide benefits in the form of reduced complexity, greater responsiveness to emerging issues, and , ultimately improving customer performance.

Our research shows that a similar pattern occurs when companies focus on return transaction management rather than 3PL relationship management. Typically, 3PLs seek to deepen relationships with customers by providing value-added services that go beyond the formal framework of the outsourcing engagement. For example, one 3PL we spoke with was very responsive to specific and often complex client requests that arose when the pair first started working together. This responsiveness paid off as the client turned to them to lead several strategic initiatives related to returns management.

More often, however, companies are so focused on tracking transactions that they fail to recognize and reward the special efforts of their 3PLs. In another instance, a 3PL proactively suggested changes to accommodate a decision to insource several highly complex products. Because the proposal was not part of the structured process established by the client, it did not receive a proper hearing. The insourcing decision moved forward, adding complexity to the supply chain and ultimately undermining the efficiency goals the customer had hoped to achieve.

The example above illustrates one final point. Companies need to be open to changing their view of returns. Companies that get the most out of their 3PLs are able to expand their initial understanding of returns management to consider a wide range of reverse solutions. Indeed, we found that companies that expanded their understanding of the value that can be created from reverse operations – and were willing to give control to their 3PL partners to execute innovative solutions – were able to develop new approaches. to handle both forward and reverse flows. as an integrated whole.

Imagine looking at returns not as a cost of doing business, but as an opportunity to grow customer relationships and improve downstream logistics. It can, but only if companies are willing to be open to new ideas and let their 3PL partners drive.

About the authors: Dan Pellathy, Ph.D., is an assistant professor at Seidman College of Business at Grand Valley State University and a research fellow at the Global Supply Chain Institute at the University of Tennessee-Knoxville. He can be reached at .(JavaScript must be enabled to view this email address). Ivan Russo, Ph.D., is a professor of logistics and supply chain management at the University of Verona, Italy. He can be reached at .(JavaScript must be enabled to view this email address). Ayman Omar, Ph.D., is Associate Professor in the Department of Computer Science and Analytics and Associate Dean of Graduate Programs and Student Services at Kogod School of Business, American University. He can be reached at .(JavaScript must be enabled to view this email address).

March 4, 2022

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