Although reverse logistics is often overlooked, retailers that master this discipline can gain competitive differentiation and turn the tables on pure-play e-commerce goliaths.

1. Reverse Logistics: The Way Forward
(Part I of II)
Although reverse logistics is often overlooked, retailers that master
this discipline can gain competitive differentiation and turn the
tables on pure-play e-commerce goliaths.
Executive Summary
In our experience with numerous retailers,
reverse logistics remains an overlooked area.
Reverse logistics is the process of receiving
returned merchandise with the purpose of proper
disposal or recapturing value. While many retail
organizations run best-in-class transportation
and logistics systems and processes, some have
neglected reverse logistics as a primary focal
area. However, they have started to realize that
to create and maintain an edge over the com-
petition, they must rethink and reorganize their
reverse logistics strategies.
This is the first in a two-part white paper series
that assesses major retail trends that will shape
the reverse logistics landscape. This paper
covers shopping’s transformation into a channel-
agnostic experience and how this evolution
impacts reverse logistics, including key regulatory
compliance issues that have emerged along
the way. The second installment delves into the
importance of data analytics, highlighting how
changing worker demographics can be leveraged
to overhaul the reverse logistics process.
Moreover, it explores how reverse logistics can be
applied as a differentiator, particularly as product
recalls become increasingly common.
Moving Back and Forth
A focus on logistics and supply chain, as well
as building flexibility in serving customers, is
important to retailers as they seek to create
leaner processes and increase cost savings. Tra-
ditionally, retailers have placed greater attention
on moving goods and materials forward in the
supply chain, but a prevailing challenge is to
move backwards. The backward flow of goods is
referred to as “reverse logistics;” the concept is
premised on moving goods and materials from the
point at which they are purchased or consumed,
or moving them back to a previous supply chain
point to recapture value.1
Within the retail industry, reverse logistics plays a
critical role in consumer returns and how retailers
process returns efficiently. While this may appear
to be a simple process of moving goods from
customers to returns centers, retailers face
numerous operational challenges. For instance,
hazardous waste and related disposal methods
place stringent restrictions on the management
of reverse logistics.
Further, supply chain transformations are occur-
ring as purchasing habits swiftly change. No
longer are consumers constrained to shopping
just at brick-and-mortar stores; they are instead
• Cognizant 20-20 Insights
cognizant 20-20 insights | july 2014

2. 2
shopping across multiple channels and expect-
ing the same levels of service across each touch-
point. This presents new challenges for how
to accommodate and integrate returns across
these channels. Retailers, therefore, are seeking
methods for processing mul-
tichannel returns; however,
fraud remains a growing chal-
lenge. Methods must be found
that enable hassle-free returns
while mitigating the risk of
fraud, which, if quantified,
ranges from $9.1 billion to $16.3
billion annually.2
Changing Shopping Styles
Today’s shoppers are gradually moving away
from buying at brick-and-mortar stores. They
are more price-conscious and increasingly prefer
the convenience of shopping from anywhere at
any time.3
As online shopping continues to grow,
e-commerce revenues are expected to rise 20.1%
in 2014, to $1.5 trillion.4
But with those online pur-
chases come increased returns; industry insiders
estimate that up to 40% of clothing and around
8% of electronics goods bought online or from
a catalog during the last holiday season resulted
in product returns.5
As the popularity of online
shopping continues to increase, a similar return
rate may occur year-round.
Even as online sales rise, many shoppers are reluc-
tant to buy certain product categories online, pre-
ferring instead to walk into a store and touch and
feel the item before making a purchase. Industry
gurus suggest that physically holding a product
can create a sense of psychological ownership,
driving must-have purchase decisions. This idea
may underlie the push to move inventory from
display cases into customers’ hands.6
To keep
customers loyal, retailers offer free shipping and
hassle-free returns. By allowing shoppers to expe-
rience the product in the comfort of their homes
at no additional cost, retailers have begun to tilt
the buying process in their favor.
Of course, providing consumers with free shipping
and returns comes at a price: a heavier emphasis
on the effectiveness of the returns management
process. In addition, consumers expect an equiva-
lent level of service across all channels.
Multi-channel Retailing and
Flexible Returns
It is not uncommon for shoppers to purchase a
product from a retailer’s Web site and then return
it to the physical store for a refund. This presents
numerous challenges for order management,
order fulfillment and inventory management,
which costs retailers $9.6 billion a year.7
Returns
management, and specifically fraudulent returns
prevention, presents its own challenges. By inte-
grating returns with order management tools,
retailers can achieve greater visibility of returns
and decrease return fraud. This has been sub-
stantiated in our experience with a leading home
improvement client through the centralization of
its returns process across channels.
To support these processes, retailers are placing
a greater emphasis on master data contained
within their supply chain systems. By maintaining
a single source of information, one of our clients
has successfully reduced fraudulent returns by
introducing the following remedies:
• Issuing refunds in the original form of payment
only.
• Introducing authorizations for canceled or
rejected orders.
• Implementing locks prohibiting simultaneous
returns from different stores.
• Instituting velocity checks for non-receipted
returns.
To further improve the supply chain process,
retailers need to automate the critical steps of
reverse logistics and increase visibility throughout
the supply chain. While enabling consumers to
return products through the channel of their
choice, retailers need to maintain visibility and
control over their processes, while controlling
costs. Often, returned merchandise does not
need to go back to a claims center but can be
returned to the online shelf. By routing it through
an extended claims process, the retailer might
lose an opportunity to sell the product when
demand is highest.
Compliance Challenges
Hazardous waste handling requires retailers
to comply with a multitude of safety and envi-
ronmental protection laws and regulations. Of
particular significance is the management of
hazardous goods as they flow through the reverse
logistics channel.
Often, the product vendor requires the product to
be returned to maintain the value of the product/
brand in the market. Leading retailers are
defining standard operating guidelines and pro-
viding training for returns associates, particularly
cognizant 20-20 insights
Retailers are
seeking ways to
offer hassle-free
multichannel returns,
while minimizing
fraud and abuse.

3. cognizant 20-20 insights 3
for individuals handling hazardous waste. Freight
such as used batteries, chemicals and inflam-
mable/combustible materials all contain harmful
residual elements that need to be properly segre-
gated and transported.
Another major push for reverse logistics partners
and retailers to stay abreast of current laws and
regulations for material handling are the penalties
that can result from noncompliance. Retailers can
face costly fines or consent decrees; an example
is the CVS Caremark Corp. in the state of Con-
necticut, where the retailer was fined for violating
hazardous waste laws at seven of its stores there.9
Adequate controls and standards are needed
to both remain in compliance and safeguard
associates handling returned items. Existing
processes might be sufficient, but there is a
growing need for retailers to assess exception-
handling capabilities and make necessary changes.
Changing Demographics
A key driver across all industry sectors is the
changing demographic pattern of the workforce.
This trend is expected to cause major changes in
the workplace, and the key is to be prepared.
• Labor management systems of the future:
With 20% of the experienced workforce
55 years or older10
and soon approaching
retirement, retailers need more interactive and
scalable labor management systems across
the reverse logistics domain. These systems
will track employee productivity and provide
increased visibility into labor standards while
providing real-time feedback for employees to
improve performance.
• Training to engage and empower: As next-gen
workers enter the workplace, retailers should
invest in new training methods that aim to
satisfy their varied needs. Gamification is
one successful method that keeps next-gen
workers engaged through interactive training.
Deloitte, for instance, has already seen the
benefits of gamification, with a 37% increase
in the number of returning users to its training
site, and these benefits will only grow as the
next-gen demographic within the workplace
increases.11
• Automation to compete: As a fifth of today’s
workforce approaches retirement in the next
decade, a shortage of manpower within reverse
logistics will emerge. To mitigate this, retailers
will need to focus on specialized systems for
decision-making to enable an effective and
lean workforce.
Product Recalls
Product recalls impact thousands of companies
every year, affecting sales, testing customer rela-
tionships and disrupting supply chains. According
to data gathered by ExpertRecall, the quantity of
recalled units increased by 292% in the fourth
quarter of 2013, compared with the prior quarter.12
If retailers lack an adequate reverse logistics
network, product recalls can cause irreparable
damage to a company’s brand.
To better prepare themselves for recalls, retailers
should build flexibility into their reverse logistics
networks by increasing data capture throughout
their networks. By capturing more data, coupled
with analytics, retailers can identify areas of oppor-
tunity and minimize risk, allowing them to react
more quickly and efficiently to product recalls.
Looking Ahead
Reverse logistics should no longer be viewed
simply as a cost center for retailers. Rather, a
well-planned reverse logistics strategy can be a
crucial factor for improving a company’s com-
petitive advantage and creating both tangible
and intangible market opportunities. With clearly
defined processes and metrics, retailers can drive
efficiencies and gather valuable analytics that will
turn reverse logistics into a profitable investment.
Part two of our series will provide additional
guidance on how to get there from here, offering
actionable recommendations and areas to
prioritize to transform reverse logistics from a
necessary evil into a competitive differentiator.
Footnotes
1
“What Is Reverse Logistics?” Reverse Logistics Magazine, Winter/Spring 2006.
2
“2013 Consumer Returns in the Retail Industry,” The Retail Equation, 2013,
http://www.theretailequation.com/retailers/IndustryReports.
3
“2013 UPS Pulse of the Online Shopper,” comScore, February 2013, http://pressroom.ups.com/
pressroom/staticfiles/pdf/fact_sheets/2013_PulseShopper_FINAL.pdf.

4. About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 178,600 employees as of March 31, 2014, Cognizant is a member of the
NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
World Headquarters
500 Frank W. Burr Blvd.
Teaneck, NJ 07666 USA
Phone: +1 201 801 0233
Fax: +1 201 801 0243
Toll Free: +1 888 937 3277
Email: inquiry@cognizant.com
European Headquarters
1 Kingdom Street
Paddington Central
London W2 6BD
Phone: +44 (0) 20 7297 7600
Fax: +44 (0) 20 7121 0102
Email: infouk@cognizant.com
India Operations Headquarters
#5/535, Old Mahabalipuram Road
Okkiyam Pettai, Thoraipakkam
Chennai, 600 096 India
Phone: +91 (0) 44 4209 6000
Fax: +91 (0) 44 4209 6060
Email: inquiryindia@cognizant.com
­­© Copyright 2014, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is
subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.
About the Authors
Joydip Lahiri is a Senior Consultant within Cognizant Business Consulting’s Retail Practice. He is respon-
sible for projects in supply chain and logistics and has worked with multiple Fortune 500 clients on
defining supply chain and logistics strategy. Joydip holds an M.B.A. from Indian Institute of Management,
Kozhikode. He can be reached at Joydip.lahiri@cognizant.com.
Subhash Anuguthala is a Functional Consultant within Cognizant Business Consulting’s Retail Practice.
His primary areas of work are supply chain and operations. Subhash has worked on multiple warehouse
management systems implementations. He holds a master’s degree in management information systems
from Texas A&M University, as well as an undergraduate degree from Jawaharlal Nehru Technological
University in Hyderabad, India. Subhash can be reached at Subhash.Anuguthala@cognizant.com.
Brian Martin is a Business Analyst within Cognizant Business Consulting’s Retail Practice. Brian is respon-
sible for providing strategic governance for a leading retailer’s international operations and has success-
fully helped implement a direct-to-customer fulfillment supply chain transformation program for a large
retailer. Brian received his undergraduate degree in information systems with a minor in transportation
and logistics from the University of Arkansas. He can be reached at Brian.Martin@cognizant.com.
4
“Global B2C Ecommerce Sales to Hit $1.5 Trillion this Year Driven by Growth in Emerging Markets,”
eMarketer, Feb. 3, 2014, http://www.emarketer.com/Article/Global-B2C-Ecommerce-Sales-Hit-15-Trillion-
This-Year-Driven-by-Growth-Emerging-Markets/1010575.
5
Sarah Butler, “Gift Returns Take Shine Off Christmas Retail Figures,” The Guardian, Jan. 3, 2013.
6
Lawrence Williams and Joshua Ackerman, “Please Touch the Merchandise,” Harvard Business Review,
Dec. 15, 2011, http://blogs.hbr.org/2011/12/please-touch-the-merchandise/.
7
Kristin M. Finklea, “Organized Retail Crime,” Congressional Research Service, Dec. 11, 2012,
http://fas.org/sgp/crs/misc/R41118.pdf.
8
“Reverse Logistics,” Council on Safe Transportation of Hazardous Articles,
http://www.costha.com/page/reverse-logistics-30.html.
9
Allan Gerlat, “CVS Agrees to Pay Fine for Connecticut Hazardous Waste, Recycling Violations,”
Waste360, Jan. 30, 2013, http://waste360.com/waste-generators/cvs-agrees-pay-fine-connecticut-haz-
ardous-waste-recycling-violations.
10
“Household Data Annual Averages 2013,” U.S. Department of Labor, Bureau of Labor Statistics,
http://www.bls.gov/cps/cpsaat39.pdf.
11
Jeanne Meister, “How Deloitte Made Learning a Game,” Harvard Business Review, Jan. 2, 2013,
http://blogs.hbr.org/2013/01/how-deloitte-made-learning-a-g/.
12
“The Recall Sprawl,” ExpertRecall, Q4 2013, http://recall.stericycleexpertsolutions.com/wp-content/
uploads/sites/2/2014/02/Recall-Index_Q4_2014_v8.pdf.