To start - Definition Reverse Logistics “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 consumption to the point of origin for the purpose of recapturing value or proper disposal” - Rogers and Tibben-Lembke –Reverse logistics may be defined as a process of moving goods fromtheir place of use, back to their place of manufacture for re-processing, re-filling, Repairs or recycling / waste disposal.
Reverse Logistics ActivitiesHandling of returned merchandise Damage Seasonal inventory Resell via outlet Salvage of outdated products Stock–balancing returnsRecycling and reuse Material reuse Remanufacturing / refurbishing Hazardous materials disposition
Forward Vs Reverse Logistics Forward Logistics Reverse Logistics Straightforward forecasting Forecasting more difficult One to many distribution point Many to one distribution point Destination / Routing clear Destination routing unclear Uniform pricing Pricing depends on many factors Consistent inventory management Inventory management not consistent Negotiation between parties Negotiation complicated by straightforward additional consideration
Publishing Industry Highest rate of unsold copies (28% on average) Growth of large chain stores: More square footage requires more books To secure a prominent display in superstores, publishers must supply large quantities of books Superstores sell less than 70% of books they order Shorter shelf life Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Computer / Electronic Industry Shorter life cycles Approximately 325 million PC’s became obsolete in the US between 1985 and 2005 Opportunities to reuse and create value out of a nearly omnipresent asset How to recover and reuse materials contained within E-waste? Lead, copper, aluminum gold, plastics and glass E-waste includes computers, televisions, cell phones, audio equipment and batteries Remanufacturing of toner cartridges: 12,000 remanufacturers, employing 42,000 workers, sell nearly $1 billion annually Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Automotive Industry Three primary areas: Components in working order sold as is Other components, such as engines, alternators, starters, and transmissions are refurbished before they can be sold Materials are reclaimed through crushing or shredding Automotive recyclers handle more than 37% of the nation’s ferrous scrap Remanufactured auto parts market is estimated at $34 billion, annually Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Retail Industry Profit margins are so slim that good return management is critical Returns reduce the profitability of retailers marginally more than manufacturers Returns reduce the profitability of retailers by 4.3% The average amount that returns reduce profitability among manufacturers is 3.80% Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Drivers in Reverse LogisticsThe success of reverse logistics system depends on the efficiency and effectiveness offollowing sub-systems1. PRODUCT LOCATION The first step in the call back process is to identify the product location in the physical distribution system of the firm. Product location becomes more difficult after it is sold and handed over to the customer. Tracing the product location becomes easier if proper documentation is maintained at each channel level.2. PRODUCT COLLECTION SYSTEM Once the product location is identified, the collection mechanism gets into operation. This Can Be Done Either Through Company’s Field Force, channel members or third party. Proper instructions have to be given to motivate the customer for returning the products.
Drivers in Reverse Logistics – Product Location3. RECYCLING / DISPOSAL CENTRES These may be the company’s plant/ warehouses or some fixed location in the reverse logistics network. The called back products are inspected before they are further processed for further repairs, refurbishing, remanufacturing or waste disposal.4. DOCUMENTATION SYSTEM Tracing the product location becomes easier if proper documentation is maintained at each channel level. However, at the time of handing over the product to the customer, the detailed information if collected through proper documentation, can form a good database that can be used in case of product call backs.
Strategic use of reverse logistics Strategic Weapon o Reduce the risk of buying products that may not be “hot selling” items. o Increase the switching costs of changing suppliers. Competitive Reasons o Liberal return policies over the last few years due of competitive pressures. o Taking back unwanted products or products customers believe do not meet needs. Good Corporate Citizenship o Use reverse logistics capabilities for altruistic reasons, such as philanthropy. o These activities enhance the value of the brand and are a marketing incentive to purchase their products. Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Strategic use of reverse logistics Clean Channel o Clean out customer inventories, so that they can purchase more new goods. o Fresher inventories can demand better prices, which in turn, protects margin. Recapture Value and Recover Assets o Large portion of bottom-line profits is derived from asset recovery programs. o Profit derived from materials that were previously discarded. Legal Disposal Issues o As landfill fees increase, and options for disposal of hazardous material decrease, legally disposing of non-salvageable materials becomes more difficult. Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Strategic use of reverse logistics Operational Factors in Reverse Logistics Systems – A holistic view of reverse logistics is essential for a profitable and sustained business strategy. Source: Dowlatshahi S. Developing a theory of reverse logistics. Interfaces; May/Jun 2000
Reverse Logistics – Cost ImplicationsThe reverse logistics system is a cost centre. However, thesecosts are incurred for achieving company’s certainobjectives and can be attributed to the followingactivities:1. Product location (investment & operating costs)2. Transportation3. Product collection (customers > retailers > plant)4. Disposal (Plant > Suppliers / Disposal)5. Refilling, repairs, refurbishing, remanufacturing, recyclin g6. Documentation (for product tracking and tracing during entry, exit and flow in the system) .
Reverse Logistics – Barriers Legal issues o Under Indian regulations excise paid goods once sold by the manufacturer cannot be brought back to the plant without proper documentation and declaration to excise authorities. o This is a very cumbersome & time consuming process and non-compliance may mean that the manufacturer will have to face legal action. o Many organizations term reverse goods as ‘junk’ and they don’t want to waste their resources on these ‘junks’ The goods are considered unworthy of any investment