WORKWEEK

If reverse logistics isn’t a concept you’ve ever heard of, that’s because 99% of focus historically has been on forward logistics. I.e., how do you get a product from point A to point B? For the most part, after point B (and after people use a product), things go to a landfill.

This is especially true when it comes to retail goods. One statistic that hits home the lack of sufficient reverse logistics systems is that 80% of returned goods end up in a landfill. If you’ve ever wondered why companies like Target tell you “just keep it” when you try to return something, it’s because it’s too much hassle for them to reverse the flow of that good from you back to them.

Even in mint condition, something you bought for $50 might be uneconomical for them to process and return to a shelf. Which is why many new or like-new things end up in a landfill.

I remember the first time my then girlfriend started buying things from Target and ‘returning’ them even when she intended on keeping them to get them for free (she’s an awesome person, otherwise). I thought to myself, “this is absurd!”

Whether it’s returns or landfilling, there are many absurd systems. The amount of wasted food is another one we’ve discussed. It is absurd that when I waste food, it gets landfilled in South Carolina, not New York. It gets put on a train just to get landfilled. If the total amount of wasted food annually in the U.S. were a herd of African elephants, it’d be 12M strong.

When a system is objectively absurd, that’s typically a solid sign there’s business opportunity inherent to the absurdity. And often, the absurdity of our systems comes with a climate cost, meaning there’s a solid climate tech business inherent to the absurdity. 

Real quick: what is reverse logistics

Reverse logistics refers to managing the return, repair, refurbishment, or disposal of products after they have been sold to the end user. It involves the reverse flow of goods from the consumer back to the manufacturer or retailer. Reverse logistics does exist; it’s necessary for various reasons. Think product recalls and warranty claims, as well as recycling.

Reverse logistics hasn’t been popular in the past for a few reasons:

• Uncertainty: Reverse logistics involves a much less predictable flow of goods (e.g., when will a product be returned or need to be returned?) 
• Complexity: The variability of condition and product location makes reverse logistics dependent on more disparate processes.
• Reduced control: There’s less control over the complete supply chain; it depends on a lot more parties, including distributed customers, various retailers, and other service providers.
• The tech: Efficient reverse logistics requires tech and systems to track, process, and manage product returns. These didn’t always exist.
• Cost implications: All of the above can be quite expensive!

That said, managing reverse logistics is taking on more importance, especially in sustainability circles, whether it’s to recycle EV batteries, turn wasted food into renewable natural gas, or upcycle other products and materials.

Businesses we’ve covered recently that integrate this concept include Divert and Chapul Farms. Both take forms of organic waste (wasted food in Divert’s case) and try to divert it from going to the landfill, using it to create valuable products (renewable natural gas and insect protein, respectively). 

Reversing landfilling

As we identified at the top of this newsletter, retail returns are an especially ripe area to reduce landfilling and engineer better reverse logistics systems. One company I’ve enjoyed getting to know that’s working in this area is LiquiDonate.

Last year, LiquiDonate raised a $2.25M seed round specifically to offer sustainable reverse logistics services to retailers to better manage their returns. Here’s where all this ties back to wasted food: founders Diz Petit and Chai Nadig learned the reverse logistics ropes at Postmates, where they built systems for the food delivery app to salvage food otherwise wasted by restaurants.

Once they saw what was possible with wasted food, they opened the aperture. In CEO Diz Petit’s words:

We realized if we could move food or furniture, we could move almost anything.

Now, LiquiDonate actively helps divert countless different types of goods from landfills and routes them to nonprofits instead, layering in a significant social benefit and equity element. Again, I’ll let Diz tell some of the story here:

We work directly with retailers, brands, and businesses to help them enable seamless donations of all of their excess products and inventory to nonprofits and schools nationwide… a lot of people don’t think about what happens with a product when it gets returned. When it costs a retailer more money to put an item back on the floor, it makes more sense for them financially to landfill it. We come in and reduce the cost of reverse logistics to donate products and keep them out of a landfill.

To speak more to why reverse logistics can be costly and inefficient, consider what it might take to reprocess a product returned by a customer in-store. 

1. If the product is damaged somehow, a truck comes and picks it up to send it to a warehouse.
2. Labor at the warehouse is required to catalog this returned inventory.
3. The product often sits at the warehouse for up to thirty days.
4. A separate truck picks it up from the warehouse at a later date.
5. The truck sends the product to a landfill (where it also pays a fee).

LiquiDonate’s solution stops that process at the checkout stand. They’ve built a two-sided marketplace that includes retailers on the supply side and nonprofits on the demand side.

The name of the game here for LiquiDonate is making it incredibly easy for the retailers with whom they work to offload goods. To this end, they’ve engineered easy-to-use APIs for retailers to notify nonprofits when they have returned products available they don’t want to reprocess and restock. Nonprofits can then ‘raise their hand’ for a product or set of products. At that point, the nonprofit can either pick up the goods for free or LiquiDonate can coordinate a pickup or delivery with 3PL companies in their network. 

Their business model rests on getting paid by said retailers (whom they charge a fat fee for donating a product on their platform). All goods are free for nonprofits (fulfillment is also free if nonprofits pick things up themselves). 

But by building a better platform to reduce the cost of moving returned goods, they can still save retailers money compared to what they would have paid if they went through their own complicated reverse logistics flow. Here’s what LiquiDonate focuses on to this end: 

• Automation: This is the name of the game to keep costs down and move items efficiently. 
• Matching: This is another core concern inherent to moving goods successfully and quickly. It needs to be easy for nonprofits to see what’s available, pick it up themselves, or coordinate a delivery.
• Marketplace: LiquiDonate doesn’t just invest on the supply-side retailers (where their sales team focuses); they’re building a demand-side focused team to onboard nonprofits, too.

Since last year, LiquiDonate has become the national donation partner for Room & Board, a national retailer of modern furniture and home decor. Their donation as a Service API is up and running and available for integrations with inventory management systems and reverse logistics providers. Their team is also growing post-seed round to continue cultivating both sides of the marketplace as well as on the engineering side.

Another natural question to ask is, “What about e-commerce?” Not all returns, especially by you good folks reading this digital newsletter, are made in-store anymore. In the case of e-comm and drop shipping, retailers have to add additional shipping back to a distribution center or returns center to their reverse logistics queue. LiquiDonate also partners with companies on this side of things, just like they do for in-store returns via their API.

Reverse logistics to reverse climate change

To spell out the climate opportunity here clearly, there’s a major opportunity to reduce landfilling and avoid additional transportation emissions. And  LiquiDonate’s solution hits on the ‘S’ in ‘ESG,’ not just the’ E.’

Consumers want brands they love to bone up on sustainability. But the equity and community impact of facilitating donations to nonprofits is also a big part of the story here. Which is often implicitly the case where climate benefit is concerned. But it’s nice when it’s explicit, too.

The net-net

This newsletter often focuses on sweeping climate solutions like clean energy, EVs, or mitigative technologies in agriculture or carbon removal. 

LiquiDonate’s solution may seem a bit more niche in comparison. It is! 

Which is a good thing. We need sweeping societal change. And we need an army of problem solvers to start companies that tackle very specific, oft-overlooked problems. Not every company needs to be OpenAI or Tesla.

As I wrote a few months ago:

It’d be a mistake to discount tech that offers incremental change … In our pursuit of the big answers [in climate solutions], we lose our way when we neglect ‘smaller’ wins…