To understand reverse logistics, let’s start with how it relates to forward logistics,
as is shown here.
We simply reverse the flows of cash…
and materials,…
which could include returns of products from the end user…
from the retailer…
from the wholesaler or distributor…
or from the manufacturer to an upstream location.
Why invest in reverse logistics?
It is often thought of as a required cost of doing business.
Let’s assume that in one organization’s gross sales,…
a significant percentage of product is returned, sent for repair, traded in for remanufacture,
or recycled.
These reverse logistics activities directly reduce gross sales.
The remaining net sales must cover all product and administrative expenses.
Organizations can limit the cost of reverse logistics by limiting returns.
They can establish return criteria and enforce the rules with a return material authorization
form.
The organization could charge fees for restocking, service programs, or extended warranties.
A drastic policy would be to accept no returns at all.
In today’s “customer is always right” world, however, going too far in return policies,
charging too much for services, or limiting repair options can backfire.
While the number of returns would be much less, market share would be lost to competitors
with better guarantees.
Because it is important to develop well-balanced returns policies that enhance customer loyalty,
it is vital to find other ways to reduce reverse logistics costs.
The next main cost lever is to make reverse logistics more efficient.
This could be to hand off all reverse logistics to a 3PL or 4PL who has reverse logistics
as a core competency.
For example, GENCO ATC is a reverse logistics 3PL that has clients like Walmart and Target.
Regardless of who manages logistics, manufacturers can reduce waste and scrap so that less material
is entering the system.
Other organizations develop their own reverse logistics infrastructure.
A key example is a dedicated reverse logistics warehouse or entire supply chain.
Creating a central warehouse just for reverse logistics can prevent this stream of varied
returns from clogging up whole storage bays at an outgoing logistics warehouse.
Reverse logistics can also be made more effective by redesigning products and services for reverse
logistics.
In many cases this can also benefit sustainability.
The waste hierarchy shown here prioritizes reduction of waste over reuse, and so on.
Each area can apply to reverse logistics.
For example, for reduce, organizations can redesign a product to have fewer replacement
parts.
For reuse, they could design packaging and products so that more returns will be fit
to be resold.
Cores or cartridges can be returned for remanufacture.
Manufacturers can make more effective use of materials by reusing components instead
of scrapping them.
They can ensure more of their product is recyclable or free from hazardous materials.
They can recover recyclable or hazardous materials and reuse them in production.
Finally, they can reduce landfill use such as by making longer-lasting or re-manufacturable
products.
The analysis then sums the costs and benefits of reverse logistics.
Note the revenue generators, such as revenue from liquidating products or selling recyclables.
Also note the costs, such as material costs for unsellable items or transportation costs.
A flowchart can be used to help determine how to dispose returned products.
Note how the process starts with a control point.
A return material authorization is required before material can be returned.
Next, returns are consolidated at a returns facility,
where each item is sorted into recall, defective, or acceptable categories.
Some recalls will not meet recall criteria and may end up being returned or processed
as defective.
For defective items, they may be subjected to repair or their parts may be reused.
Finally, the returns are sorted into restock items, returns upstream, liquation at a discount,
donation for a tax deduction, recycling of materials, or disposal in a landfill.
Transportation is then the last step.
We hope that you enjoyed this overview of reverse logistics.