Edition 131, June 2024

Mastering Reverse Logistics: The Critical Role of Dispositioning Strategy for Retailers

By Robyn Kahn Federman, Liquidity Services

One of the most critical components of reverse logistics is the dispositioning strategy, or the systematic approach that retailers take to manage returned products. Dispositioning strategy involves making decisions about the fate of returned items, such as whether to restock, refurbish, recycle, liquidate, or dispose of them.

Developing and implementing a well-thought-out dispositioning strategy is crucial for maximizing recovery value. Why then, do we so often hear anecdotes about dispositioning processes that have not been reviewed since Reagan was president?

What Goes into a Great Dispositioning Strategy?

Before you go running to update your dispositioning processes, however, let’s talk about a few foundational considerations: product condition, volume and seasonality, costs, and sustainability. All of these should be assessed and addressed as part of a smart dispositioning strategy.

1. Product Condition The first step is to assess the condition of returned items. Items in like-new condition can be returned to vendor, restocked or resold, while damaged or obsolete products may require refurbishment, recycling, or liquidation. Your processes for inspecting, sorting and grading are crucial here.

2. Volume and Seasonality Management Your returns volume and product seasonality will significantly impact your dispositioning decisions. Seasonal items need fast liquidation to avoid inventory obsolescence and free up space for forward-bound merchandise. High return volumes will need scalable dispositioning processes.

3. Costs You’ll want to assess the cost implications of different dispositioning options. For example, restocking/reselling may appear to cost less than refurbishment or recycling. But after factoring in the extra handling required, you may find that the potential resale value does not outweigh the hassle. Every extra touch also adds cost.

In addition, if you are refurbishing/recertifying, you must consider the impact to the brand. If it’s not done properly and done well, you could end up with a negative quality perception, which could impact new product sales.

4. Environmental Sustainability Retailers are increasingly prioritizing sustainable dispositioning practices to minimize environmental impact and align with corporate sustainability goals. If you’re not thinking about this already, you should be. I guarantee your customers are. (And your boss too)

Benefits of an Effective Dispositioning Strategy

Beyond the obvious benefit of improved operating efficiency, a well-thought-out dispositioning strategy will deliver several other advantages.

  • Cost Savings. An efficient dispositioning strategy can lead to significant cost savings by minimizing return handling costs, reducing inventory holding costs, and maximizing recovery value from returned items.
  • Improved Customer Satisfaction. Streamlining your dispositioning processes means faster returns processing, a better customer experience, and increased customer satisfaction. Customers appreciate hassle-free returns and prompt resolution of their issues, which can also enhance brand loyalty.
  • Better Inventory Management. By reducing the amount of time that returned items spend in inventory, a good dispositioning strategy contributes to better inventory management. This optimizes warehouse space utilization and reduces the risk of inventory obsolescence.
  • Sustainability Initiatives. Sustainable dispositioning practices show that you’re socially responsibility and resonate with environmentally conscious consumers. They also enhance brand reputation and appeal to a broader customer base. So don’t limit your sustainable practices to forward logistics; prioritize them in your reverse processes as well.

The Right Building Blocks

To gain insight into return trends, product condition, and customer behavior, start by leveraging your data and analytics — they’ll tell you, for example, whether it’s worth the extra touches to sort products by value before they are palletized. Data-driven decision making will let you identify patterns, optimize processes, and make better informed dispositioning decisions.

Next, foster collaboration with suppliers, manufacturers, and third-party logistics providers. These partners can streamline the dispositioning process and improve efficiency.

The ability to customize the process can also be critical. Every retailer is unique, so be sure to choose a partner who can adapt their processes to yours. Tailor dispositioning processes to align with the unique needs and goals of your retail operation. Adopt a flexible approach that allows for adjustments and refinements based on changing market dynamics, customer preferences, and performance metrics.

Last, regularly review and assess the effectiveness of your dispositioning strategy through performance metrics, KPIs, and customer feedback. Continuously evaluate and refine your strategies to adapt to evolving market trends and re-allocate your resources as necessary. We recommend reviewing your plan annually and at least once every two years to build a culture of continuous improvement and adapt to changing market dynamics.

How Far Upstream Should You Go?

Initiating dispositioning strategies higher up in the supply chain offers several strategic advantages.

1. Proactive Issue Management By identifying potential return triggers and quality issues earlier in the supply chain, you can mitigate returns before they occur. By being proactive, you can minimize return volumes, reduce costs, and improve customer satisfaction.

2. Cost Reduction and Efficiency — Early dispositioning strategies allow you to address quality issues, production errors, and slow-moving inventory before it escalates. This leads to cost savings, greater efficiency, and more streamlined reverse logistics processes.

3. Improved Product Quality and Brand Reputation Emphasizing quality control measures and product inspection during the manufacturing and distribution stages improves product quality and reduces the likelihood of returns due to defects or performance issues. It will also enhance your brand reputation, establish customer trust, and drive repeat purchases. That’s a win-win all around.

4. Sustainable Practices — By adopting environmentally friendly initiatives such as waste reduction, recycling programs, and responsible disposal methods, you can contribute to corporate sustainability goals and deliver on customer expectations for eco-conscious business practices. Nobody wants to be the company who winds up on the 10:00 news for burning inventory or dumping product into the landfill.

Incorporating Technology in Your Dispositioning Strategy

Technology plays a crucial role in developing a good dispositioning strategy. If you haven’t already, consider adopting automation and AI-driven solutions to streamline processes, improve accuracy in product grading and sorting, and reduce manual labor costs. Automated systems can handle high volumes of returns efficiently, which leads to faster processing times and improved efficiency.

Use predictive analytics and machine learning algorithms to forecast return volumes, identify potential return trends, and proactively address customer issues. Predictive analytics also empower you to anticipate demand fluctuations and optimize inventory levels.

Incorporate RFID (Radio Frequency Identification) and IoT (Internet of Things) to track and trace returned items throughout the reverse logistics process. Real-time visibility into product movement, location, and condition gives you better inventory visibility, reduces loss, and improves asset recovery rates.

You can also leverage blockchain technology. Blockchain-enabled platforms make it easier to share data securely, improve record-keeping, and create transparent transactions. All of these will improve trust among stakeholders and ensure regulatory compliance.

Who’s Doing It Well?

Analyzing industry best practices can provide valuable insights and guidance.

Amazon, for example, employs advanced technology solutions such as automated sorting systems, AI-powered algorithms, and data analytics tools to streamline returns processing, minimize handling costs, and maximize recovery value from returned items. Amazon's customer-centric approach focuses on providing seamless returns experiences, enhancing customer satisfaction, and driving repeat purchases.

Walmart emphasizes sustainable dispositioning practices such as product recycling, responsible disposal, and donation programs to minimize environmental impact and promote corporate social responsibility. Walmart's collaboration with third-party recycling partners and charitable organizations enables efficient management of returned items while supporting sustainability initiatives.

Best Buy implements refurbishment and resale programs for returned electronics and appliances, extending product lifecycle, reducing waste, and generating additional revenue streams. Best Buy's partnerships with certified refurbishment providers and resale channels ensure quality assurance, warranty coverage, and customer satisfaction.

Zappos' customer-centric returns policy focuses on providing hassle-free returns experiences, offering free return shipping, extended return windows, and easy return processing. Zappos' commitment to customer satisfaction and convenience fosters brand loyalty, positive word-of-mouth, and repeat business.

In conclusion, developing and implementing a successful dispositioning strategy in retail reverse logistics requires a holistic approach that encompasses data-driven decision making, collaborative partnerships, technological innovation, sustainability initiatives, and continuous improvement. By leveraging advanced technologies, best practices and industry insights, retailers can optimize returns management, cut costs, enhance customer satisfaction, and drive business growth in the dynamic retail landscape.

Need a hand developing your disposition strategy? Interested in outsourcing part or all your reverse logistics operation? Contact Liquidity Services at 800.310.4604 ext. 5500 or email businessdevelopment@liquidityservices.com.

Robyn Kahn Federman
Robyn Federman is a senior demand generation manager at Liquidity Services, Inc. (NASDAQ: LQDT), where she develops marketing and key account programs to support the growth of the retail division. She has directed marketing initiatives for a variety of business-to-business agencies and corporations for more than 25 years. She holds an MS in journalism from the University of Kansas and an MS in sociology from the University of Chicago.