Just over a month into the new year, supply chain disruptions continue to cause headaches for retailers, creating shortages of everything from trucking parts to semiconductors. But what if brands were able to double, triple or even quadruple the lifetime of their inventories?
Companies large and small are embracing a circular logistics model that allows them to do exactly that. The model enables companies to keep inventories stocked even when supply lines are clogged, all the while making their supply chains more sustainable.
The core feature of a circular logistics model is that products that have been sold eventually return to a retailer’s inventory to be recirculated. According to Mike Newman, CEO of Santa Cruz, California-based Returnity Innovations, the difficult part about enabling a circular model isn’t getting the product to the consumer — it’s getting it back.
“It either needs to get, in essence, a free ride home or it needs to get a bulk ride home,” Newman explained to Modern Shipper.
Newman makes his living enabling circular logistics for other brands with his company’s reusable packaging, which is used for products from grocery to apparel to appliances. He explained that a free ride home would consist of a vehicle that’s already out for a nearby delivery picking up a returned product, while a bulk ride home would mean that a single truck picks up multiple returned items in a small radius.
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“The key, it turns out,” he added, “is to really focus in on the logistics models and customer relationships that have the sort of foundation for a switch to reuse.”
AptDeco, a used furniture marketplace based out of New York City, has managed to do both. The company has been able to weather supply chain woes with its circular logistics model, which takes used furniture from sellers and delivers it to buyers for a second, third or even fourth life.
“We help facilitate the sale and help fulfill the order in terms of delivering it and the logistics aspect of it,” explained Reham Fagiri, AptDeco’s founder and CEO.
AptDeco customers place orders for furniture by inputting a desired delivery date. From there, the company’s proprietary software automatically matches them with a seller on the platform who wants to move the requested item on the same date.
It then generates a route for the company’s delivery team, which picks up the item from the seller, inspects and wraps it, and transports it to the buyer on the same day. Using this model, AptDeco also eliminates the need for physical storage — everything happens at the buyer or seller’s home.
“When the pandemic hit, it was unclear what we could or couldn’t do, so we had to shut down our entire operation, pretty much cancel all our orders,” Fagiri explained.
But she soon realized that AptDeco’s logistics model could weather pandemic-driven shortages because its suppliers were its customers. All Fagiri had to do was come up with an effective way to retrieve inventory from those customers, which is where AptDeco’s routing optimization software comes in, enabling those cost-saving free rides and bulk rides.
“The advantage that we have now, given the supply chain problems, is we are able to pick up and deliver immediately, and the inventory is available right away. So I think with a lot of the issues that people are encountering now, like, if you buy a sofa, you probably won’t expect it for months,” Fagiri said. “With us, anything you buy is actually available now.”
Another company, Los Angeles-based furniture rental business Fernish, has also had success with a variation of the circular model.
“At our core, we’re a furniture and decor rental company that allows you to choose any duration between two and 12 months for one item to an entire home of furniture and decor,” Kristin Smith, Fernish’s president and chief operating officer, told Modern Shipper.
At the end of the rental period, customers have the option to renew the rental, purchase the item in full or return it to Fernish, which cleans it, refurbishes it and turns it around for recirculation from one of its local warehouses. According to Smith, rentals make up 99% of the business, but like Fagiri and AptDeco, Fernish also struggled at the start of the pandemic.
“In March 2020, we were doing almost no home office business because a lot of people were not outfitting their offices,” Smith explained. “But all of a sudden, everyone needed a home office because it got really old and tiring to work at your dining table or kitchen counter.”
Many companies experienced a similar lull followed by a jump in demand, but not all were able to handle the increased orders. Fernish wasn’t among them.
Despite maintaining an inventory that Smith described as “pretty small,” Fernish has been able to source items essentially at will by leveraging its network of rental customers. The company tracks things like product return dates, how long the customer has had the item and whether or not they’ve said they will renew, using that data to optimize pickup and delivery routes and create as many free and bulk rides as possible.
Once the products arrive at one of Fernish’s warehouse locations, they’re quarantined for a few hours before being cleaned, inspected and reassembled if necessary. Then they’re ready for their new lives.
“There are some things that require a lot more time and other things that just require some cleaning and no refurbishment at all,” Smith explained. “But generally, we’re able to get things back into inventory within two days of that quarantine being cleared.”
The flexibility of Fernish’s circular logistics model has allowed it not only to survive the pandemic but to thrive. The company measures net promoter scores, which are a metric for customer loyalty and satisfaction, and found that customers are even more satisfied with the business now than they were before the pandemic hit.
“We were already in the high 80s, but now we’re in the low-to-mid 90s. And it’s just so humbling to see that we’ve been able to scale and go through this uncertainty and give customers this great experience,” Smith said.
Circular logistics have helped small businesses like AptDeco and Fernish find their footing in a post-pandemic world. But larger companies are experimenting with circular models too. For example, Newman and his company Returnity are serving clients like New Balance, Walmart and Electrolux, all of which have dipped their toes into reusable packaging.
“They all have had these same foundational components of high frequency and the brand’s ability to kind of control the movement of the goods and so forth,” he explained. “That allows for reuse to be successful.”
For example, Walmart, for which Returnity makes reusable grocery bags, often delivers to consumers on a regular schedule — say, every Friday.
“That’s high frequency, high engagement — they’re coming to your house every week, and they can remind you when they’re coming to your house every week that you have three bags from last week,” Newman added.
By reusing, refurbishing and reselling products, companies can reduce not only their losses and headaches, but also their impact on the planet. NPR reported that retailers throw away about a quarter of their returned products, which, according to returns solutions company Optoro, translates to about 5.8 billion pounds of waste in landfills.
“This has been a really exciting journey over the last three years to really figure out how to do the best job of restoring these items back to new so that they don’t go into a landfill,” said Smith. “Instead, they’re able to have a second and third and fourth life with customers, without them really knowing.”