Unlocking hidden value: How to turn reverse flows into income streams

For decades, supply chain professionals have viewed reverse logistics as a financial burden, focused solely on damage control and cost minimisation. However, a significant shift is underway.

By adopting circular logistics principles, companies are discovering that the reverse supply chain can actually be a potential profit engine. This transformation, however, requires a fundamental change in perspective, notes Philipp Auerbach, Global Account Director Retail & e-Commerce, FM Logistic.

“To change reverse logistics from a cost center to a revenue stream, companies need to stop thinking about ‘waste’ and start thinking about ‘assets’,” he says. “When a product comes back, it’s not always a problem. It’s inventory that still has value.”

The traditional approach to handling returns often involved selling them to large liquidators for a fraction of the cost of the original items. While this method clears warehouse space quickly, it destroys value. 

To flip this dynamic, companies must retain control of their inventory and not sell to third-party liquidators on the cheap, advises Auerbach. “If you manage the resale yourself, you keep the margin.”

This strategy involves a rigorous process of testing and grading. For example, a returned item can be inspected, cleaned and categorised, allowing it to be resold through the company’s website or an online marketplace. This not only recovers a higher percentage of the original sale price but also reinforces brand equity.

Even when a product is too damaged to be resold, the circular model offers an alternative to disposal: harvesting parts. Instead of purchasing new spare parts to repair other units, logistics teams can salvage functional components from broken returns. This reduces procurement costs and transforms what would have been scrap into a valuable resource.

To measure the success of these initiatives, supply chain executives need to look beyond traditional logistics metrics to track the “recovery rate,” or the amount of revenue retrieved relative to the product’s original price. Additionally, tracking “avoided costs,” such as savings generated by reusing harvested parts instead of buying new ones, provides a clearer picture of the financial benefits of circularity, says Auerbach.

Real-world examples show that businesses moving from liquidation models to “check and clean” resale strategies can recover 60% to 70% of a product’s price, turning a cost centre into a profit contributor, according to Auerbach. A returned item that sits in a box becomes a depreciating asset and an opportunity cost and the faster an item can be processed the more value it retains.

FM Logistic addresses this challenge by integrating reverse logistics directly into standard warehousing operations rather than isolating it in distant facilities. The key, according to Auerbach, is simplicity and speed: setting up workstations directly within the warehouse allows teams to check, clean or re-bag items immediately upon receipt, readying it for resale on the same day it arrives. 

Handling these flows requires a specific operational setup because returns are inherently messy, involving open boxes and damaged packaging that cannot be immediately mixed with new stock. 

To manage this, FM Logistic establishes dedicated areas for sorting and reconditioning under the same roof as forward logistics. This consolidation allows for significant synergies as companies can utilise the same management team, staff and infrastructure, and avoid the overhead of operating separate warehouses, notes Auerbach.

Additionally, teams deploy tech tools that guide them step-by-step through the inspection process, precluding the need for every worker to be a product expert and ensuring that decisions on whether a product can be resold are accurate and standardised.

Yet another area handled by reverse logistics is product recalls, which are typically viewed as crises but also represent unique touchpoints when customer attention is high. How a company handles a recall can determine its future reputation as a slow refund process can damage trust whereas an immediate swap or an upgrade to a better model can enhance it.

Circular logistics also plays a vital role as consumers become increasingly conscious of environmental impact, and companies can transform a potential brand disaster into a demonstration of corporate responsibility and operational competence.

“If a brand demonstrates that recalled units are being recycled or refurbished rather than simply discarded, people really respect that. It shows the brand actually cares about the environment, not just the sale,” notes Auerbach.

In the age of Artificial Intelligence (AI), companies are tackling the lack of data that has historically dogged reverse logistics and move away from paper-based tracking towards cloud-based systems that provide real-time visibility, says Auerbach.

Emerging technologies are aiding this process with innovations like Digital Product Passports (DPPs) becoming essential tools. When a product returns to the warehouse, a scan reveals its entire history – including origin, components and repair logs – enabling operators to make instant, data-driven decisions on whether to resell, repair or recycle.

Furthermore, AI is beginning to automate the grading process. AI-equipped cameras can inspect items and identify damage much faster than the human eye. This technology eliminates guesswork, sorting items into “good as new” or “broken” categories without errors to accelerate the flow of inventory, notes Auerbach.

“Basically, the whole goal is to use these tools to stop guessing what is inside the box so you can move the inventory faster,” he says.

The transition to circular logistics is no longer just a strategic option, it is becoming a regulatory necessity. Anti-wastage initiatives like the EU’s Right to Repair directive and the Corporate Sustainability Reporting Directive (CSRD) are changing the compliance landscape. 

“Before, companies could ignore the messy side of the business, but now they have to report it,” Auerbach notes. “The regulations are good because they make doing nothing very expensive.”

At the same time, for circular logistics to become fully mainstream, changes must also occur in product design because logistics teams cannot fix products that are glued shut or designed for obsolescence, points out Auerbach. Products must be designed for repair from the start and the economics of repair needs to shift because as long as importing new parts is cheaper than local repair, circularity will face hurdles. 

Indeed there is a growing movement built around this state-of-the-art philosophy termed Design for Disassembly (DfD) where products are engineered from the start so that they can be easily taken apart, repaired or upgraded. DfD is increasingly seen to be a game changer for the circular economy as it promotes a cost-effective and eco-friendly, minimum-waste approach to production that enhances bottom lines and business values.

Ultimately, the shift to circular logistics is about more than just compliance, it is about seizing a missed commercial opportunity. By treating returns as assets, leveraging technology for rapid processing and integrating reverse flows into existing supply chains, companies can unlock substantial value. 

Because, in a market where sustainability and speed define success, the question is no longer if you should adopt circular principles, but how quickly companies can turn today’s messy reverse flows into tomorrow’s sustainable growth.