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Reverse Logistics


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This report discusses the concept of reverse logistics, and disposal strategies. It discusses using a Philips case study.

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Reverse Logistics

  1. 1. Operations_Management_Rever se_Logistics_Concept_Philosoph y_Disposal_Packaging_Return_C ocaCola_Expired_Products_Retu rn_Policy_Supply_Chain_Partner s_Sell_via_Outlet_Sell_To_Second ary_Market_Remanufacture_Ref urbish_Donate_To_Charity_Recy cling_Auctions_Landfills_Gateke eping_Collection_Sortation_Disp osal_Operations_Management_R everse_Logistics_Concept_Philos ophy_Disposal_Packaging_Retur n_CocaCola_Expired_Products_R eturn_Policy_Supply_Chain_Part ners_Sell_via_Outlet_Sell_To_Sec ondary_Market_Remanufacture_ Operations Management Assignment [Type the author name]
  2. 2. 1 Table of Contents Concept and Uses.................................................................................................. 2 Waste Management ............................................................................................ 2 Unsold Products ................................................................................................. 2 Return Policy ..................................................................................................... 2 Product Disposition Strategies................................................................................. 3 Philosophy of Investing in Robust Reverse Logistics................................................... 4 Strategies explained using Phillips Consumer Lifestyle Case Study............................... 5 References ........................................................................................................... 9
  3. 3. 2 Concept and Uses Reverse logistics is 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 consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal.[1] The products procured via reverse logistics are called as recovered assets. Asset recovery is the classification and disposition of returned goods, surplus, obsolete, scrap, waste and excess material products, and other assets, in a way that maximizes returns to the owner, while minimizing costs and liabilities associated with the dispositions.[2] Waste Management To reduce environmental impact, we need to recollect the waste generated from our products. This is especially true in case of certain medical products such as syringes where proper disposal is needed. Sometimes, the empty containers/packaging can also be reused for new products. The classic example is that of glass cola bottles. It makes great sense to recall empty glass bottle so that they can be reused. This also costs less than making more glass bottles. Similar is the case with newspapers. Used newspapers can be recycled to produce more paper. Unsold Products Sometimes, products can get damaged. Sometimes, the expiry date passes but the product is unsold. These good need to be salvaged from the retailers and need to be disposed or recycled. To enable these operations development of reverse logistics is needed. Sale of certain products is seasonal. Their off season demand is very low and high left over inventory is a pain for the retailer. This situation is also called as a job-out. Similarly, some products are released only for limited period. There can also be products that have become obsolete and enjoy no market demand. Development of reverse logistics is needed to manage such closeouts. It might happen that sale of products in a certain region is high and low in another region. It makes sense to move goods from low sales to high sales area. This is a common practice followed by many companies. ITC follows this practice for its Sunfeast biscuit line. Return Policy The company can at times have a return policy for products in case the consumer remains unsatisfied. There is also a sales contract that says if products are unsold within a certain time frame then they need to be taken back. To honour such return policy, there is a need for reverse logistics. [3]
  4. 4. 3 Product Disposition Strategies There are these uses of assets recovered via reverse logistics:  Sell via outlet: This option is usually chosen by brand sensitive companies. Manufacturers take back returns and sell them in their own outlet stores. These outlet stores are often highly profitable. The margins for the manufacturer are even higher than if the product was sold to a retailer.  Sell to secondary market: The type of products sold to secondary markets are usuallycloseouts, surplus, and salvage items. Firms that buy these products at low prices operatethis market. Then they sell them through their own stores or to other mark−downretailers.  Remanufacture or refurbish: Specially used for electronic equipment, domesticappliances and industrial machines. The manufacturer diagnoses the problem andrepairs the item, sometimes with a loss of quality but conserving the product identity  Donate to charity: When the product is usable but need some reparations or it is out ofseason to give it to a charitable organisation is an alternative. This option can lead to tax advantages.  Recycling: An ecological motivation is behind recycling. Some legislation and groupsof pressure have pushed manufacturers to adopt environmental friendly plans. Toreduce the amount of materials used in doing a product, to reuse and recycling theproduct is the goal. And this order is important, first material reduction to maximum,then maximise the reuse and finally recycling. The items for recycling are usually sentto specialised companies.  Auction returned goods on the internet: This application might increase. Even if themanufacturer has to pay for this service to internet auctioneers, the cost of thetransaction is lower than absorbing the costs of shipping the products back and disposing them.  Landfill: Landfill and incineration capacities are almost saturated in the industrialcountries. Disposal should be the last option. The manufacturer will dispose the product at the lowest cost.[4]
  5. 5. 4 Philosophy of Investing in Robust Reverse Logistics Organizations are not just simply seeking to minimize their reverse logistics costs, as many firms are seeking to improve their recoveries on goods and assets at the end of the flip side of the supply chain. By actively marketing their surplus – getting an unneeded asset out of their hands and deriving positive revenue from it the process - companies are finding that they can produce significant gains. If a firm can sell its surplus assets, then these incremental revenues can enhance the company's financial standing. Money generated through asset recovery goes straight to the bottom-line. This accounts for the rapid growth of a host of used machinery sales outlets or "'B' channel," for goods that have been through a reverse flow. While the "B" channel is intended to operate separately from a company's primary sales channel, the "B" channel can also handle first quality and never used items as well. By operating as a "B" channel, companies can derive positive revenue, without harming their "A" channel. [5] Cost Area Implications Opportunity Costs Surplus assets have little value, but they tie-up cash and consume management's time and attention, taking away from the organization's primary mission. Poor Space Utilization Surplus assets take-up space on shelves and in warehouses, crowding-out more productive, revenue- generating items and activities. Monitoring Expenses Surplus assets must be tracked and monitored, at a cost, and with activity that could be better directed at revenue-generating activities. Maintenance Costs Many surplus assets must be maintained in order to be kept is usable condition – at a cost. Insurance Costs Surplus assets must be insured against loss or destruction, as well as for liability purposes. Higher Taxes Surplus assets may well increase a company's property and/or state tax liabilities. Depreciation Expenses Surplus assets depreciate more rapidly than other assets.
  6. 6. 5 Strategies explained using Phillips Consumer Lifestyle Case Study There should be awareness regarding the importance of reverse logistics to a high level in the organization. The senior management should support reverse logistics efforts and build cross-functional teams. Consumers who purchase a Sonicare toothbrush, decide after a few uses that it’s not for them, and return it, probably never think about what happens to that product after they receive their refund. But for Philips Consumer Lifestyle— maker of Sonicare, Norelco shavers, Avent baby products, and a variety of consumer electronics goods— what happens to returned products is crucial to the bottom line and to its sustainability goals. A company needs to have a clear reverse logistics philosophy that guides their strategy. Because of the nature of the products’ use, returned products such as toothbrushes, shavers, and baby bottles cannot be resold and must be disposed of. But just heaping them in a garbage dump does not meet Philips’ zero-landfill goal. Then there should be development of human capital that will take this forward. The key here is to select right supply chain partners that can help your goal. The company should then closely work with the supply chain partners to develop reverse logistics. To make sure its products do not end up in landfills, Philips works with third-party logistics provider Ryder Supply Chain Solutions to select partners that can provide proper disposition. “Our zero-landfill goal is critical when selecting partners,” notes Tony Sciarrotta, senior sales manager for Philips Consumer Lifestyle. “We don’t want a partner to put our products in a dumpster.” Sciarrotta’s division also has stringent environmental guidelines for handling returns of its consumer electronics goods. Together with Ryder, it has crafted a reverse logistics process that helps it refurbish, reuse, and resell nearly 80 percent of these returned goods. Develop a clear reverse logistics process that will determine the fate and physical flow of recovered assets. The process steps are: gatekeeping, collection, sortation, and disposition. Gatekeeping is defined as the screening of defective and unwarranted returned merchandise at the entry point into the reverse logistics process. IT enabled gatekeeping process can help to analyse the cause for return. By tracking hundreds of return authorizations, a firm can build a data warehouse that contains return reasons. If a quality problem exists with a product, consolidation of returns will highlight those quality difficulties more quickly than if returns dribble in slowly from retail customer service desks. The return policy should also be shaped as per the feedback.
  7. 7. 6 Centralized return centres are processing facilities devoted to collecting returns quickly and efficiently. In a centralized system, all products for the reverse logistics pipeline are brought to a central facility, where they are sorted, processed, and then shipped to their next destinations. This system has the benefit of creating the largest possible volumes for each of the reverse logistics flow customers, which often leads to higher revenues for the returned items. It also allows the firm to maximize its return on the items, due in part, to sortation specialists develop expertise in certain areas and can consistently find the best destination for each product Because most of the finished goods returned to Philips Consumer Lifestyle still function well, the key emphasis is on repackaging and reselling these products as refurbished goods— and doing so in a cost-effective and green manner. Returned products are shipped to a 500,000-square-foot facility in Groveport, Ohio, which Ryder operates for Philips Consumer Lifestyle. The secondary market is a term for the collection of liquidators, wholesalers, exporters, brokers and retailers who sell product which, for one reason or another, has not sold through the primary sales channels. Companies in the secondary market sell both new and used product. The figure below describes the flow to the secondary market and its reasons. Figure 1:0:1 Flow of Returned Goods into the Secondary Market There, Ryder runs a triage operation to determine if goods are resalable or malfunctioning, and whether it makes business sense to repair them for resale, or dispose of them (see chart). If they are to be resold in a secondary market, Ryder manages the distribution of those repackaged goods. If they can’t be resold, Ryderdisassembles, sorts, and segregates parts by product type and works with the recycler to ensure they are disposed of in an environmentally sensitive way. Most of Philips Consumer Lifestyle’s returned goods still function well, so the company relies on third-party logistics provider Ryder Supply Chain Solutions to handle returns correctly. To ensure consistency, a technology solution guided by business rules
  8. 8. 7 determines how to direct the returned product through each step in the reverse logistics process. Here’s how it works. Figure 0:2 Reverse Logistics Strategy The company should develop IT support for reverse logistics. This helps in accurately assessing the true cost of returns on reverse logistics and ensures return information is visible and traceable throughout the channel. “Our goal is to determine the greatest value Philips Consumer Lifestyle can get from its returned assets, and execute in a green-friendly fashion— as quickly and cost-effectively as possible,” says Chad Burke, director, supply chain excellence for Ryder. To that end, Ryder developed an IT solution with business rules that govern when goods should be set up for resale or put through the disposition process. “We make a business decision on returned products based on their cost and retail sale price point,” Sciarrotta explains. “A product that sells for less than $100 at retail, for example, is not worth refurbishing.” The IT solution has increased the velocity of reverse logistics for Philips Consumer Lifestyle, and brought much-needed transparency to the process. “The system gives Philips immediate visibility to what is being returned, when credits have been initiated, and what path those products will take, as well as a feel for the amount of refurbished inventory it has on hand,” Burke explains. “This visibility to the whole process helps the company make better decisions and lessens its impact on the environment.” Gatekeeping is defined as the screening of defective and unwarranted returned merchandise at the entry point into the reverse logistics process. IT enabled gatekeeping process can help to analyse the cause for return. By tracking hundreds of return authorizations, a firm can build a data warehouse that contains return reasons. If a quality problem exists with a product, consolidation of returns will highlight those quality difficulties more quickly than if returns dribble in slowly from retail customer service desks the return policy should also be shaped as per the feedback.
  9. 9. 8 Another critical element to successful reverse logistics management is having short disposition cycle times. The companies that are best at managing their reverse logistics processes are adept at gatekeeping and identifying causes. These firms are also able to reduce cycle times related to return product decisions, movement, and processing. Ryder also handles reverse transportation for Philips Consumer Lifestyle, consolidating product returned from retailers and implementing proper gatekeeping practises to “reduce the number of trips, and the associated carbon footprint and costs,” notes Norm Brouillette, Ryder’s group director, supply chain solutions. Having Ryder handle both the reverse logistics processes and forward distribution of repackaged goods out of its Grovepoint facility allowed Philips Consumer Lifestyle to cut its transport costs and fuel use, and leverage its building’s carbon footprint. “Rather than have a separate third party handle distribution and incurring duplicate transportation and carbon footprint costs, we do everything in one facility and cut down on the need for multiple shipments,” Brouillette explains. As an additional green benefit, Ryder uses recycled cardboard and paper rather than petroleum-based products when it repackages and ships returned goods to secondary sales channels. “At our request, they try not to put anything into the waste stream that has a negative effect on the environment,” Sciarrotta says. Besides this case, there are some other reverse logistics strategies that are commonly used. One such strategy is zero returns policy. In zero return programs, the manufacturer or distributor does not permit products to come back through the return channel. Instead, they give the retailer or other downstream entity a return allowance, and develop rules and guidelines for acceptable disposition of the product.A zero returns policy, properly executed, can result in substantially lower costs, according to the research respondents. Firms using zero returns can reduce the variability of returns costs, by pre-setting the maximum dollar amount of returned product. Stabilizing return rates using a zero returns program promotes planning and fiscal health. Zero returns enable the firm to avoid physically accepting returns altogether, a strategy being adopted by some consumer product companies, and several electronics companies. Interestingly, most retailers do not track the cost of returns. Instead, merchandise buyers factor the return allowance into their pricing, which ignores the cost of returns. [2][6][7]
  10. 10. 9 References [1] [2] Dr. Dale S. Rogers, Dr. Ronald S. Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, pages 37-43, 50-52, 60-62, 66, 89-90 [3] _maximization.pdf [4] [5] [6] [7] products-green-to-the-end/