Typically, reverse logistics encompasses planning, implementing and controlling the flow of materials and management of related information back through the supply chain with the prime purpose of recapturing value. Services can include the removal, return for refurbishment, recycling for compliant and safe disposal of products.
Historically, reverse logistics has not been seen as a priority by many organisations who have not established policies, systems, human or financial resources to deal with this area. Until now, little work has gone into studying how reverse logistics could have a positive impact on a company’s bottom line.
Europe lags behind other geographies in reverse logistics. In North America, many returns are already handled by third party logistics providers and processes are firmly in place.
The focus on reverse logistics is being influenced, not only by supply chain improvements, but also, by legislation that will put the onus on manufacturers and retailers to safely dispose of returned goods and to have full knowledge of the entire product lifecycle.
Managed in the right way there are multiple benefits, beyond meeting legislation, to be realised by tackling reverse logistics. By harnessing and re-engineering existing supply chains, there are opportunities to improve accuracy, reduce costs and track products that will minimise loss of revenue due to faulty, obsolete or missing stock. In some cases, organisations have investigated ways to reward employees based upon how much value is recaptured via the flow of products back though the supply chain.
At present, many organisations remove and dispatch damaged or faulty goods back to the original supplier. By doing this additional problems could be introduced including time delays, transport costs, loss or further damage to goods. This is where reverse logistics will bring true benefits to an organisation by following agreed processes for returning goods to suppliers and rectifying service issues without disruption to the customer. Companies can also adapt existing, forward supply chains to establish reverse logistics that will help resolve these issues.
Businesses are attempting to improve the constant flow of returned goods, parts, packaging and waste back through the supply chain. Many retailers and manufacturers are recognising the value of effective reverse logistics and identifying it as an integral and strategic part of their business due to a number of factors. These include:
Supply chain developments – The impact of globalisation, improvements in product costs, reliability, design and packaging, shorter product lifecycles and requirements for enhanced visibility are increasing the focus on all stages of the supply chain, including reverse logistics. Whilst supply chains are becoming more efficient, even well-managed supply chains will sometimes suffer minor ad hoc failures, from simple picking errors to goods damaged in transit, and that drives the need to have an effective reverse logistics operation.
Customer service – To remain competitive, retailers have, in many cases, broadened the range of goods and now stock items including high-value consumer electronic products and domestic appliances. Distribution processes have also become more complex to support retailers who need to match new consumer behaviour. This diversification has created the need to have liberal returns policies, for both online and offline stores in order to retain competitiveness.
A competitive differentiator
Comprehensive customer returns policies are increasingly used as a competitive differentiator and to ensure that customer requirements are met, product is often oversupplied to providers to ensure a prompt fix. This is an area of growth as competitive markets are driving ever higher standards of customer service.
A tough economic climate has put a greater emphasis on lean supply chains and created the need for just-in-time processes, meaning that retailers hold only the stock needed. This promotes the need for an accurate picture of what is on the shelves, what is in stock and which goods are being driven back through the supply chain to ensure consumer demands are met.
Legislation – European Union (EU) legislation is directly impacting reverse logistics. Already, packaging obligations determine manufacturers’ decision-making and directives such as the Waste Electronic and Electrical Equipment (WEEE) and End of Life Vehicle (ELV) will be closely followed by other stringent regulations concerning batteries, tyres and other hazardous wastes. EU member states have until August 2004 to legislate on the WEEE Directive, which does not leave much time to develop a sound reverse logistics strategy. In addition, the UK government is raising the landfill tax so companies are encouraged to look at alternative ways to reduce the amount of waste sent to sites.
Value recovery – Recovering value for materials that cannot be resold, is key. This would include selling materials, retaining usable parts for the repair of other items, and selling waste to recyclers. These are all prime examples of how implementing product disposal processes will benefit the bottom line, as goods are not just left in a distribution centre or backstage area of a store but are disposed of properly or re-used where possible.
Corporate citizenship – The demands of the regulatory landscape, increased competition, multiple channels to market and decreased brand loyalty all mean that most companies promote how they meet environmental legislation and regulation.
Supporting corporate reputation
This communication agenda upholds company reputation by establishing a high level of corporate citizenship which can, in part, be achieved via comprehensive reverse logistics operations. Many organisations are proactive about this agenda and use their reverse supply chain to collect old equipment or clothing to be dispatched to third world countries, a key marketing and business strategy in many cases. In this example, reverse logistics is an important tool for supporting marketing and brand initiatives in an age where good corporate citizenship has become more important to consumers as they try to differentiate and measure companies against each other.
Robust reverse logistics solutions need to meet the above challenges, particularly legislation and ensure the effective management of the following reverse logistics processes by: Processing returned merchandise for reasons such as damage, end of season, restock, salvage, recall or excess inventory; recycling packaging materials and reusing containers; reconditioning, remanufacturing and refurbishing products; obsolete equipment disposition; hazardous material programmes; and asset recovery.
Technology plays a huge role in the development of reverse logistics practises. Organisations must capture, interpret and report information on all areas of reverse logistics that will help. For example, retailers will need to identify reasons for returns to alleviate recurring issues.
Also, there is much discussion about the future role of RFID, a technology that could be used to tag goods throughout their entire lifecycle, including back through the supply chain. Manufacturers and retailers can expect many benefits and competitive advantage from reverse logistics as shown in the ‘key benefits’ box.
The effective management of reverse logistics will no doubt improve customer service levels, support companies’ environmental strategies, meet developing legislative requirements and has the potential to positively impact profitability and competitive positioning.
Steve Butler is product director for Exel’s reverse logistics solutions. firstname.lastname@example.org
- Compliance with legislative requirements
- Improved control and asset recovery
- Enhanced information and supply chain visibility – full tracking to ensure accurate information
- Income generation through recycling
- Efficient route planning – returns collections matched with outbound deliveries
- Reduced inventory and obsolescence.