Understanding the costs in reverse logistics

Last update: 24.06.2025

In this blog:

1. What is reverse logistics?
2. What are the costs associated with reverse logistics
3. How to reduce the costs associated with reverse logistics
4. Further reading: Reverse logistics FAQs

What is reverse logistics?

Reverse logistics is the process of moving goods from their final destination back through the supply chain to recapture value or ensure proper disposal, but uniquely, it can be defined as:

Reverse logistics refers to the process of managing the return of goods from customers back to the business. It typically includes activities such as returns management, recycling, refurbishment, and disposal. Unlike traditional logistics, which focuses on moving products toward customers, reverse logistics works in the opposite direction to recover value or ensure proper disposal.

The strategic orchestration of post-consumer product flows—returns, repairs, recycling, and reuse that transforms end-of-life or end-of-use goods into assets, closing the loop between consumption and sustainability in a value-driven supply chain.

Reverse logistics, or managing returned goods, is an essential aspect of supply chain management. The returns process can be complex and costly, but businesses can take steps to manage the process efficiently. By implementing effective returns management strategies, businesses can reduce waste, achieve cost savings, and meet customers' expectations for customer service. 

What are the costs associated with reverse logistics

The costs associated with reverse logistics include: 

1. Transportation

2. Processing

3. Restocking

3. Disposal

How to reduce the costs associated with reverse logistics

Here are five things businesses can do to reduce the costs associated with reverse logistics: 

1. Improve product descriptions and images.

   Many returns happen because what the customer receives doesn’t match the expectations set by the descriptions and images in the web shop.  Analysis of returns data can help retailers identify product pages in need of updates.
   

2. Streamline the returns process.

   By making returns easy and intuitive, managed through a single returns solution, businesses can reduce the time and cost associated with processing returns.

3. Optimise inventory management.

   Businesses can reduce the number of overstocks and stockouts that lead to returns.  According to Accenture, this can reduce costs by up to 30%.  

4. Implement a data-driven approach.

   According to Gartner, using data analytics to identify trends and patterns can help reduce costs by up to 10%.  

5. Embrace the circular economy.

   Circularity involves reusing or repurposing used or unwanted items into new products.  It reduces a business’s environmental footprint and can help reduce input costs. McKinsey has found that implementing a circular economy model can cut costs by up to 50%.  

By automating the entire returns process and placing the customer experience front and center, effective reverse logistics management can have a significant impact on the bottom line of a business.  nShift’s Returns solution helps turn as much as 30% of returns into exchanges, whilst also improving customer loyalty.

Further reading: Reverse logistics FAQs

What is reverse logistics in supply chain?

Reverse logistics involves managing the return of goods from the end customer back to the business, for purposes like recycling, refurbishment, or disposal. It optimizes the flow of products to reduce waste and improve efficiency.

Why is reverse logistics necessary

It’s necessary for cost recovery, sustainable operations, and enhancing customer satisfaction by efficiently handling returns or end-of-life products. It also meets legal and environmental compliance standards.

What is forward and reverse logistics?

Forward logistics moves products to customers, while reverse logistics handles returns, repairs, recycling, or other processes in the opposite direction. Forward logistics delivers goods to customers; reverse logistics processes returned or end-of-life products back into the supply chain. Both ensure a seamless and fully accountable product movement. Together, they form a complete supply chain lifecycle.

Some examples of companies who use reverse logistics

Companies like Amazon, IKEA, and Dell leverage reverse logistics to manage returns, refurbish products, and promote sustainability. nShift customers such as Elgiganten, JYSK, and Stihl also utilize robust reverse logistics solutions for operational efficiency.

Why reverse logistics is required?

It’s required to improve resource utilization, reduce waste, and meet customer and regulatory demands for sustainable practices. Businesses also use it to enhance profitability and build brand loyalty through better service.

What are the 5 R's of reverse logistics?

The 5 R’s are Return, Resell, Repair, Recycle, and Reuse, forming a framework for managing products sustainably and efficiently. They create opportunities to minimize environmental impact while maximizing product value.

Author

Jyo Saikia

Product Specialist Director, nShift

With extensive experience in logistics, supply chain, and IT SaaS, Jyo specializes in helping businesses optimize operations and achieve sustained success. His deep industry knowledge enables him to craft innovative strategies that deliver tangible results, ensuring customers gain a competitive edge.