Introduction:
Reverse logistics is the backward flow of previously
shipped products or parts from the point of distribution or consumption to
upwards the supply chain for possible recycling, energy harvesting or disposal.
Though it is fairly a new concept, it is gaining increasing importance in today’s
business organization, not only as a sustainable practice but also as a profit
center. Strategic decision factors associated with reverse logistics are investment
in building and operating the chain, overall quality, customer service,
environmental and legal concerns, whereas operational factors are cost-benefit
analysis, picking- transportation and warehousing, re-manufacturing,
reprocessing, packaging etc.
Reverse
logistics evolution:
Reverse
Logistics, in early days was mostly focused on convenience in terms of simplified
return process and customer satisfaction. In case of retail business, the
companies that did not support the process found themselves at a strategic
disadvantage to those that did, and were eventually forced to support the same.
Eventually they started seeking the same concessions from manufacturers and
distribution channels. Manufacturers and distributors, in turn began to
put effort on planning and consolidating freight for return products to reduce
expenses related to fuel and labor. Cost comparison done over various
alternatives e.g. centralized versus localized warehousing, collaborative
transportation management, outsourcing of logistics activities and deployment
of information technology. Later, manufacturers began to consolidate depot
warranty repair operations inside the same facility to maximize the utilization
of parts, labor, warehouse and materials. Electronics and computer products
have shorter product life cycle. Reverse logistics activities are mostly
dedicated to recover and reuse materials e.g. lead, copper, aluminum gold,
plastics and glass contained within E-waste (includes computers, televisions,
cell phones, audio equipment and batteries). The activities are also dictated
by compliance and regulations like RoHS, WEEE and controls on Lead and Mercury
based materials. Performing those
activities is not only financially rewarding, but in the case of hazardous
materials, it is conforming to the legislation. In service industry, uniqueness
and responsiveness are the key factor. Designing reverse supply chain elements
in terms of gathering the data that pertains to customer call centers, extended
warranty services, spare parts, resale value, parts procurement costs and
impending returns often requires extensive collaboration, integration and data
exchange within and among organizations. Nevertheless, organizations which
carefully crafted these elements will enjoy the competitive advantages of
improved bottom line and precision management.
Driving factors
for the upsurge of interest in reverse logistics:
A) Harvesting valuable materials, mainly from
electronic products results in good amount of savings.
B) Ease of return and repair can be viewed as an
added value to customer.
C) Companies can enhance marketing efforts by
analyzing reasons for returns and conducting ongoing defect analysis. Learning
from this can be used to guide product design and engineering to prevent future
defects and returns.
D) As landfill fees increase, and options for
disposal of hazardous material decrease, legally disposing of non-salvageable
materials becomes more difficult.
E) Growing
concern for environment raises attention to the afterlife of commercial
products. Logistics managers of socially responsible organizations are putting
efforts to ensure that the discarded items which are not bio degradable can be
moved back to the supply chain for necessary actions. This also helps the brand
building of the organization as a responsible corporate citizen.
Reverse
logistics objectives:
Activities related to reverse logistics are designed
to serve the following objectives-
A) Reduced use of resources is considered as the most
responsible alternative. Measures are to be taken at the early phases of
product life cycle, starting from conceptualization and design so that most
efficient use of physical resources becomes possible. Design aspects should
also include the impacts on packaging, transportation, warehousing and product
handling.
B) Reuse of the product comes in the next level of
importance. Modular design sometimes facilitates reuse of parts of a product.
Timely and convenient up gradation can extend product life (most suitable
example is software up gradation which can be done without even a CD, through
internet). Rechargeable instruments and batteries can be used several times
before being discarded.
C) Recycling and recovering energy has an inseparable
relation with reusing. If a discarded product is broken down in parts, some of
them can be reused, others can be recycled. Recovering energy results in savings
for the community.
D) Physical components which cannot be utilized any
more must go to a landfill. The landfill should be responsible enough so that
it does not cause any impairment to environment.
Reverse
logistics considerations over product life cycle:
Various
aspects of reverse logistics should be built into product design phase like
possibility of reuse of the product or its components and efficient uses of
resources and energy. By making designs modular, the assembly and disassembly
times can be reduced which enhances remanufacturing. Standardization,
especially in terms of fasteners, interfaces and tools, always supports
remanufacture. Use of specialty components or tools may render remanufacture of
assemblies impossible and degrade serviceability if these specialty components
cannot be contained any more. Packaging and shipping factors are also to be
considered at the design phase, as well as the network of warehouses and
transportation is required to be in place. Network design is extremely important
for today’s supply chain spread across the globe. Highly efficient customer
services are required to accommodate returned products and customer concerns
during introduction of the product.
Reverse logistics events in maturity phase are generally fulfills day to
day operational activities like handling returns, repackaging and inspection.
In the decline phase, final return and disposal needs to be documented and
preparation should be taken for legal and/or environmental concerns, especially
applicable for hazardous material.
Operating factors of a reverse logistics chain is
somewhat different than the forward one. Forecasting is difficult because
returns are more disruptive in nature- both in numbers and in quality; pricing
is mostly subjective, as well as allocation of costs; speed and increased
visibility may not be prioritized. In short, processes involved in reverse
logistics are more complicated compared to forward logistics processes.
Financial
aspects of reverse logistics:
Paying attention while designing reverse supply chain
and deploying contract management can results in a sustainable profit for the
organization. Maintenance contracts, extended warranties not only generate cash
but also create lifetime customers. Increased revenues can be realized from
"secondary" sales and from reducing discounting levels by offering
fresh stock in place of unsold or slow-selling stock. Remanufactured products,
especially in heavy engineering industry are finding lucrative market. In some
cases, fees charged for recycling products (e.g. motor oil) are far more than
the costs involved in taking back products. Investments in reverse chain may
result in development of greener technologies which will conserve resources for
future generation and will create new types of job. Costs that should be
considered are- warranty costs, fluctuating freight costs due to small scale
shipments and special handling expenses. Economics of scale benefits may not be
achieved as extra transportation legs would be added to cover specific
locations for returns and repairing/recycling.
Reverse
logistics challenges:
The handling of reverse logistics challenges is a
strategic capability and many firms are yet to exploit this capability in full
extent. Lack of an effective partnership between the retailer and manufacturer
causes conflicts while deciding on condition and value of the item and required
responsiveness, which in turn lengthen the time for processing returns. Lack of
information about the processes like authorization of return and involved costs
is also major source of problem. Sometimes management is unable to justify a
large investment in improving reverse logistics systems and capabilities. Some
organizations do not have specific strategy for handling returns and
non-salable items. Companies often focus on the cost side of reverse logistics rather
than on its revenue side. To be successful, however, the revenue side needs to
be managed aggressively too. Moreover, running a distribution system backward
is challenging – employees have difficulty making decisions when the decision
rules are not clearly stated and exceptions are often made. Because of this,
automation of paper intensive return processes is also not easy.
Future trends
and conclusion:
As many firms have only become aware of the importance
of reverse logistics relatively in recent times, it is expected in the future
they will pay considerable attention on it. To reduce the cost, firms will need
to focus on improving several aspects of their reverse logistics flows like better
entry point screening, partial returns credit, earlier disposition decisions, shorter
processing times and superior information management. Cross-industry consortia
are among viable options, where companies with a shared requirement for
recycling, but without a competitive clash of interests, pool their resources
so that they can cost-effectively handle reverse logistics activities. Implementing
a return merchandise authorization system can generate visibility in the
returns channel, by providing advance notification of incoming products, which
in turn can enable improved inbound control/scheduling and workforce planning. Guidance
and support from top management is vital to recognize strategic importance of
the process. It is also crucial to
integrate all the functional areas that affect, or can be affected by, returned
processes. Tighter linkages between the marketing and logistics functions will
ensure a smooth return process with prompt and correct credits for customers. By
aligning employees with reverse logistics processes ahead of time, companies
can achieve desired level of responsiveness while improving throughput
processing.
It is clear that, while sometimes derisively referred
to as junk; much value can be reclaimed cost-effectively from discarded
products. Though the efficient handling and disposition of returned product is
unlikely to be the primary reason upon which a firm competes, it can clearly
make a competitive difference. Gradually, the reverse logistics will be more
recognized as more than a cost minimization exercise; it will fit into a
company's strategy to be a cost leader or to better serve customers.
References:
1. The Hidden Value in Reverse Logistics by Diane A.
Mollenkopf and David J. Closs, Supply Chain Management Review July 1, 2005
2. Going Backwards: Reverse Logistics Trends and
Practices by Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke, 1998
3. The Future Direction of Supply Chain: Mastering
Reverse Logistics by Mark Elliott and Jonathan Wright
4. Building Competitive Operations planning and
Logistics, APICS 2009 Ed.
