“The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.” Logistics is defined by The Council of Logistics Management
What is Reverse Logistics?
We refer to the term “reverse logistics” as all activity associated with a product/service after the point of sale, the ultimate goal is to optimize or make more efficient aftermarket activity, thus saving money and environmental resources.
As equally as Logistics deal with the set of events that move the product to customer, the reverse process moves the product at least on step back in the supply chain. The objective is to regain the value or proper disposal, when the product returns in the opposite direction. The sold goods get returned due to improper quality control measures leading to damage, recalls, hazardous materials and obsolescence.,
It involves collection, transportation disposal of returned , damaged /surplus goods through reuse, resale, or repair.
Importance Of Reverse Logistics.
Reverse logistics responsiveness and quality has a direct & a positive effect on the companies’ economic performance. Companies have to accept returns in the shape of products or materials as a legal obligation. As organizations offer warranty along with sale of items, and to minimize the cost of warranty and sale price, the reversals become inevitable for sustaining customer satisfaction and quality assurance. The closer the company is to the end customer, the greater the size and scope of reverse logistics issues. .The worldwide legislations on hazardous materials (WEEE and ROHS), demand reverse logistics for repairables.
Size Of Reverse Logistics
It is difficult to estimate the cost in Reverse logistics management as many companies do not have systems to estimate. Research says it is around 4% of the cost of logistics, based on a survey sample..
The reverse logistics process can be divided into two categories depending on the areas of reverse flow which in turn comprises of primary products, or primary of packaging. A Company has varied disposal options to choose once a product has been returned.
The company looks primarily to return it to the supplier for a full refund.
In case of goods not used may be resold to a different customer or at an outlet store.
If goods do not meet required quality levels, then it may be sold to a salvage company that will export the goods to a foreign market.
Common Reverse Logistics Activities : Activites that comprise of reverse logistics include:, Refurbishing, Recycling , landfill, repackaging, returns processing and salvaging
Key Reverse Logistics Management Elements
Compacting Disposition Cycle Time
Reverse Logistics Information Systems
Centralized Return Centers
Remanufacture and Refurbishment
Strategic Use Of Reverse Logistics
The strategic usage of Reverse logistics among the retailers and wholesalers is to reduce the risk of buying products that may not be hot selling items.
In some industries goods are distributed with the understanding that retuning the goods for credit is allowed if they are not sold. This encourages retailers to carry a huge stock thereby shifting the risk of having unsold goods (obsolescence) goes to the company. The retail seller at the nearest reach to the customer exploits the situation ordering a huge consignment and resulting in heavy returning.
An example of the strategic use of returns in the market is the sale of newspapers and magazines, and the sellers carry more stock for a considerable incentive.
By doing this the reseller were allowed to return the goods within the stipulated time frame. This facilitated the customers to the inventory low and purchase things in time.
Every business aims to lock the customers in and not to opt for to another supplier. There are many ways developed by the supplier to link themselves to the customers not to switch to another supplier. One important service that a supplier can offer to his customer is the ability to accept the defective goods immediately and refund the amount timely. Every retailer needs to have a strategic vision of the logistics in order for him stand updated in the market.
The retailer in business of electronic toys can easily get off business if they do not have the knowledge or vision of reversal logistics. Several surveys have estimated that a larger part of the profit was due to the improvised strategies.
How An Effective Strategy Can Be Developed:
The best methodology for an effective reverse logistics to be framed and implemented would be working on the existing process in the business. The traceability and quality management system will identify goods timely and correctly outlining the features of a product in details and the reasons of defect with a solution of a product when returned.
The reverse logistics process can be managed through a tailored program called Enterprise resource planning system. A tailored ERP system can provide varied information related to the returned inventory. It can give the number of returns from the customer, identify the reasons of the returned goods, check the course action to be taken and deal with the product and allocate resources in dealing with the product.
An ERP system, equipped with robust processes, should be sufficient to manage its reverse logistics strategy.
The other crucial aspect in reverse logistics is the concept of collaboration. It works efficiently with a effective collaboration involving a larger visibility. Sharing of information, supporting integrated decision making should be a vital feature of the collaboration. Constant communication and shared processes with a common vision should be practiced for a successful designing and implementation of Reverse Logistics.
This has become a integral part of any business in day to day life which may results in many benefits to the company. Every retailer, manufacturers and producers need to create the necessity of reviewing the logistics followed. They can work on their existing systems that trying to find ready made solutions.
The companies have developed various simple and effective strategies for running a successful Business.
The various steps or factors involved while defining at effective reverse logistics
Shipping and Receiving
The Return Policy
Real Examples or Practical Examples of Effective Reverse Logistic.
Reverse logistics is also applied for a different non-commercial cause and used for a reason of charity or gain a mileage augmenting advertisement returns. Such donations get a goodwill to a company and act as a substitute for ads .Henna Anderson Co s Hannadowns campaign retrieves used clothes from the customers and gives an offer on the new purchases. The returned clothes reach the less-privileged ones.
As a second example, Kenneth Cole Productions makes offers to customers returning old shoes and given away to the needy. Nike shreds the retrieved old shoes and converts them into basketball courts and tracks.
Despite the costs, companies do accept returned goods, with original receipt or a fees, as Returns Management is an important strategic tool in a competitive environment. Return policies are in place to influence purchase decision of a customer.
Return management is a strategy similar to reverse logistics involving a decision on how the return will be dispositioned. When returns are a liability and restrictions are too many in land filling, then disposal is a less attractive option.
Difficulties Of Reverse Logistics
Companies budget for what is known as “Brand Equity” – to attach an image to products and can not afford to reduce the value of primary investment , by having their product appear in a flea market.
The difference in the objective of the manufactures and retailers exists due to the different strategies followed in managing returns.
For Eg, In case a retailer wants to return a good to the manufacturer and he would disagree for varied reasons as follows:
Condition of the item,Value of the item and the promptness.
The assumption by the retailer for returns sent back in pure , pristine conditions and any damages must have occurred in transit or must be manufacturing defects, leads to criss cross of purposes.
The inefficiency of the reverse logistics is indicated by the amount of returns inventory being held in the warehouse and clearly denotes the way the firm is handling returns.
Unfortunately, some symptoms that cannot be identified and observed are as below. These have been defined by Dr. Dawe.
For most firms processing returns is not a priority.Focus is on new generated products revenue and returns received are in more number to the processing or disposal.
Declined value of the returns due to obsolescence (computers , fashion ware).
Company policies making it difficult to handle returns as the “junk” damages quality products.
First, develop strong reverse logistics strategies. Second, clearly outline financial, corporate, branding, marketing and other objectives. Treat it as another business; and not a simple operation. Give it goals, give it objectives, give it resources, give it executives and let it be part of the “Lifecycle” design for your products and your customers.
Curt Barry, “How to Develop a Reverse Logistics Strategy: 8 Tactics to Try.”
Catalog Success Magazine, 2003.+http://www.fcbco.com/articles-whitepapers/Reverse-Logistics-Strategies.pdf
Reverse Logistics Executive Council, http://www.rlec.org.
Stefan E. Genchev, Reverse logistics program design: A company study
Business Horizons, Volume 52, Issue 2, March-April 2009, Pages
Hawks, Karen. VP Supply Chain Practice, Navesink. Reverse Logistics Magazine Winter/Spring (2006). http://www.rlmagazine.com/edition01p12.php
Rengel, P. & Seydl, C. (May 2002). Completing the Supply Chain Model. Retrieved on 2008-04-25.
Harrington, Ryan, VP & GM for Reverse Logistics / Projects, NYK Logistics. Reverse Logistics Magazine. Winter/Spring (2006). http://www.rlmagazine.com/edition01p14.php
Mollenkopf D., Russo I. and R. Frankel, 2007 “The returns management process in supply chain strategy”. http://veltusresearch.com/Documents/Mollenkopf%20etal-07-Returns%20Mgmt%20Strategy%20(Italy).pdf. Retrieved 2008-05-05.
Reverse side of logistics: The business of returns”. http://www.forbes.com/2005/11/02/returns-reverse-logistics-market-cx_rm_1103returns.html.