From E-commerce to Social Commerce: Management of Reverse Logistics

Hui Han
Technical University of Madrid (UPM), Engineering
Management, Business Administration and Statistics Department

Silvana Trimi

Silvana Trimi
University of Nebraska-
Lincoln, Department of
Supply Chain Management
and Analytics
silvana@unl.edu

Reverse Logistics

Reverse logistics deals with the management of backward flow of returned items in the supply chain, from end users to the producer. Returned items can be classified into two categories (Toktay 2003): (1) Used returns, where the product has been used by the customer, including warranty returns, lease returns, reusable articles, product recalls, end-of-use returns (EOU), and end-of life (EOL) returns; (2) Commercial returns, where the commodity is returned before use (Han and Ponce-Cueto 2016).  The obvious objective of reverse logistics is to maximize economic value of returned goods. In addition to the economic consideration, however, the strategic importance of reverse logistics has been triggered by other factors such as: the increasing scarcity of natural resources, government regulations, green management strategies, corporate social responsibility, customer relationship management, competitive differentiation, and contribution to the greater good (Agrawal et al. 2015).

According to Guide et al. (2006), the return rates vary widely by product category, by season, and across global markets. For example, the average e-commerce return rates are between 20 to 30 % (Fabrikant 2013). Large traditional retailers, such as Home Depot, can have return rates of 10% of sales or even higher due to liberal returns policies ( Guide and Van Wassenhove 2009). Interviews conducted by Richey et al. (2005) indicated fashion apparel (particularly women’s clothing) is one of the highest return categories, one major catalogue retailer reporting returns exceeding 60%. A survey of catalogue retailers of electronics products showed an average return rate of 9.71% (Daugherty et al. 2001).

Managing the reverse logistics is substantially more difficult than handling a traditional forward logistics. This complexity is due to a high degree of uncertainty in collection rates, the lack of resources, and capacities in the reverse channel. This complexity can significantly increase the cost of the supply chain (Batarfi et al. 2017).  CNBC reported that returned products cost firms more than $260 billion a year and cause an average profit loss of 10% (McKevitt 2016). Enterprises struggle with the complexity of reverse logistics, but where there is pain there is also opportunity for gain.

Reverse Logistics in E-commerce

The last few decades witnessed remarkable changes in the business world. One of these changes is the emergence of e-commerce (Batarfi et al. 2017). The development of e-commerce has an obvious influence on the way of selling products, and it has also created a viable channel for returned and used goods.

E-commerce has emerged as an innovative business model to enable efficient exchange of goods and services, reduce the loss caused by returns, maintain the firm’s core competitiveness and enhance corporate reputation. Trading through an online platform, customers and businesses can save a great deal of time and space and improve reverse logistics management (Ryan et al. 2001). Kokkinaki et al. (2001) also suggested that e-commerce could help unify the markets in reverse logistics.

Reverse logistics in e-commerce is a necessity for maintaining customer satisfaction and loyalty. When consumers find out the product they ordered is not what they wanted, they can send it back without having to go to a retail store. While the Internet has enhanced the speed and efficiency with which shipments can be ordered and received, it has also given manufacturers and retailers a platform to communicate product information, return policies, and warranty information, as well as answer customer service queries.

Information technologies involved in e-commerce applied to reverse logistics have positive impacts. Information systems can satisfy specific reverse logistics requirements effectively and efficiently. Also, e-commerce with information technologies makes the closed-loop supply chain possible by data interchange between suppliers, assembly lines and freight forwarders. For instance, the National Transportation Exchange (NTE) is the platform where freight distribution resources can be pooled and where customers can bid through a website for using capacities to transport their returned goods (Rodrigue et al. 2008).

E-commerce technologies contribute to more efficient returns management. E-commerce-based tools have been established to cross-examine each order for incompatibilities in ordered items and to inform customers accordingly (Kokkinaki et al. 2002). For example, when a consumer orders a product and later found that the good did not fit the one wanted, then the user interface would indicate the incompatibility and require the customer to confirm. When customers decide to return some goods, they can use a website interface which minimizes the uncertainty associated with returns.

E-commerce helps businesses control and cut costs in their reverse logistics by integrating the various activities required for handling returns. Reverse logistics in e-commerce would add new revenue streams to the business beyond the traditional brick and mortar channel. It helps firms transform return processes into convenient customer experiences, minimize costs, enhance transparency and strengthen long-term relationships with valued customers.

From E-commerce to Social Commerce

Social commerce is a new business model of e-commerce, which utilizes Web 2.0 technologies and social media to support social-related exchange activities. While its popularity, being a subset of e-commerce, has been increasing tremendously since its introduction in 2005 (Han and Trimi 2017). It quickly became a means for adding value to commercial services through the use of customer engagement by major web companies, such as Amazon, Groupon and eBay (Wang and Zhang 2012). A recent report indicated that online orders which were referred through social media had an average value of $88.92 in the second quarter of 2016 (Statistic 2017). In 2019, enterprise social networks are expected to generate more than $3 billion in revenue worldwide (Statistic 2016).

The biggest difference between social commerce and e-commerce is that in social commerce consumers can easily change their roles from consumers to be sellers (Jang et al. 2013). Social commerce emphasizes social activities such as collaboration for online shopping experience and supporting social interactions (Liang and Turban 2011), while traditional e-commerce targets maximization of efficiency by providing superior features such as product vividness and personalized shopping experiences (Huang and Benyoucef 2013). As for customer connection, in e-commerce customers are always independent from others and interact individually (Kim and Srivastava 2007). Social commerce, on the other hand, involves online communities that support social connections to enhance conversation among customers. Regarding system interaction, e-commerce in its conventional mode usually affords one-way browsing, where information from customers is rarely (if ever) sent back to businesses or shared among customers. Social commerce, however, provides social and interactive applications that allow customers express their opinions and share useful information with others (customers and businesses) (Gibreel et al. 2015).

Reverse Logistics in Social Commerce

The efficient implementation of reverse logistics requires an appropriate communication platform. Social commerce enables creating multiple channels of discourse with customers to eliminate confusion and enhance service experience. It offers a platform connecting consumers and companies for e-business, customer relationship management, technology support, and information systems (Han and Trimi 2018). Given the enormous effect of returned items on the company’s bottom line and social commerce´s popularity, an increasing number of firms have made efforts to streamline their reverse logistics process in social commerce platforms  (Tavana et al. 2016).

Reverse logistics initiatives with social commerce not only provide opportunities for firms to create new sources of revenue but also demonstrate their corporate social responsibility via social, green, and environmental activities.

References:
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Batarfi, R., Jaber, M. Y., & Aljazzar, S. M. (2017). A profit maximization for a reverse logistics dual-channel supply chain with a return policy. Computers and Industrial Engineering, 106, 58–82. doi:10.1016/j.cie.2017.01.024

Daugherty, P. J., Autry, C. W., & Ellinger, A. E. (2001). Reverse logistics: The relationship between resource commitment and program performance. Journal of Business Logistics, 22(1), 107–123.

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Hui Han earned her Ph.D. in Industrial Engineering at the Department of Industrial Engineering, Business Administration and Statistics, Technical University of Madrid (UPM), Madrid, Spain. Her current research focus is social commerce and data communications and networking. She also leads research initiatives on Reverse Logistics and Closed-Loop Supply Chains.

Sylvana Trimi Silvana Trimi is an Associate Professor in Department of Supply Chain Management and Analytics at the University of Nebraska – Lincoln. Her research interests are on Big Data, Artificial Intelligence and Machine Learning, Green IT and Supply Chain Management, Social Networking, Organizational and IT Innovation, Digital Convergence, and Knowledge Management. She has published more than 60 articles in such journals as Communications of the ACM, International Journal of Production Research, Journal of World Business, Communications of the AIS, Information and Management, Journal of Computer Information Systems, Industrial Management and Data Systems, International Journal of Public Administration, Journal of Innovation and Knowledge, International Journal of Knowledge Management, Management Decision, and others.
Updated: April 19, 2018 — 12:46 pm

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