REVERSE LOGISTICS IN SUPPLY CHAIN

INTRODUCTION

Motivated by the environmental, technological and legislative concerns, many companies have started recognizing the importance of the last stage of a product value supply chain i.e.; return and growing need for aftermarket and reverse logistics services. Reverse logistics is now being considered as an important tool for return cost optimization, maintaining environmental footprint and enhancing customer loyalty. The objective of this report is to provide an insight to the concept of reverse logistics and its implications in supply chain management.

REVERSE LOGISTICS: AN OVERVIEW

Research has shown that lack of commonly accepted definition of reverse logistics and its association with supply chain makes the understanding of supply chain management difficult. Results from survey of early literatures considering evaluation of the importance of logistics within supply chains shows that relatively low importance was given to reverse logistic. Confusion was prevalent between supply chain management and logistic both in theory and real time practice. Most of the members of supply chain consider only product return as important feature of reverse logistics. Reverse logistics being comparatively new branch of management, has been referred under various terms like logistics of returns, aftermarket logistics, backward logistics or the reverse distribution. Many definitions exist in literatures but no sharp definition exists for the reverse logistics. Early references to return management had been given since late eighties. (Terry, 1869); (Beckley et al., 1948); (Giultinian et al., 1975, pp. 28-38) but none termed it as reverse logistics. First consideration of reverse logistics can be traced back to late 90’s when it was the defined as flow of products from a user to the manufacturer passing through number of distribution channels (Murphy et al., 1989, p. 12). Now under the aspects of environment safety and corporate social responsibility, reverse logistics has gain reputation as a standard term in supply chain.

Reverse logistics is the often used to refer logistics management of goods so as to recycle them to manage and dispose of e-waste and hazardous byproducts; the broader perspective contains all actions connected with logistics in the relationship of materials reduction, recycling, substitution or reuse and also material disposition (Stock, 1998). Reverse logistics is the dislocation of goods from the customer back to the manufacturer through distribution channels (Pohlen et al., 1992). Reverse logistics is also defined in terms of management of logistics and management of hazardous or nonhazardous wastes coming from packing or production. The management of both physical flow and information flow of sold product, returned product or recycled product coming back in production cycle is reverse activity (Rogers et al., 2001, pp. 128-149). More recently reverse logistic is recognized as the efficient and cost effective methodology involving development, execution, and management of transmission of unprocessed materials, in-process stock, finished merchandise and related information from utilization point to the foundation destination in order to re utilize the product brand value or ensuring proper disposal of waste (European Working Group on Reverse Logistics, 2004). Precisely considering all above definitions from literature, reverse logistics can be regarded as the integrated process of transferring products from their respective final destination in order to capture value or proper disposal. Reverse logistics is not just returns management but it is a important constituent of any business model performing all sort of aftermarket supply chain activities related to returns avoidance, gate-keeping, disposal of goods.

                                        

Figure 1: Disposition hierarchy followed in reverse logistic. Source: adapted from Carter et al. (1998)

Reverse logistic process works with the goal of resource reduction – the minimizing utilization of materials in a product, and the minimising waste and energy by designing environmentally efficient products. The reverse logistics process starts with the point of consumption and ends at the point of origin, with the purpose of recapturing value or ensuring proper disposal. A dedicated reverse logistics cell provides services which includes

·         Customer Service

·         Processing of seasonal inventory, restock, recalls, obsolete equipment and excess inventory. 

·          Depot Repair of returned equipments

·         End-of-life Manufacturing

·          Recycling

·         Refurbishment

·         Replacement Management

·         Returns Authorization Management

·          Spare Parts Management

·         Transportation

·         Warehousing

·         Warranty Management

                 

Figure 2: Typical Activities of Reverse Logistics Process. Source: adapted from Lacerda (2003).

REVERSE LOGISTICS CAPABILITIES

Considering the fluctuating functional and non functional requirements of various segment of industries, reverse logistic solutions are being developed which are highly configurable and scalable across all combinations of channels. Following differentiator capabilities are needed by companies to be considered by customers for reverse logistic solutions:

·         Fast & wide range system for return program parameters like warranty regulations, vendor attributes and processing fee rules.

·         Support for manifold dispositions such as transport to third-party (3PL) & warehouse, customer return, vendor return etc.

·         Configurable control of Return Authorization issuance, online access to application for controlling workflow & financial transactions.

·         Reduced time cycle

·         Coordination at all levels for manufacturing, disassembly, remanufacturing, transportation and collection and efficient asset management.

REVERSE LOGISTICS IN SUPPLY CHAIN

A supply chain consists of the series of activities and organizations that materials move through on their journey from initial suppliers to final customers. Referring figure 3, traditional definition of supply chain is integrated linear process of converting raw materials into final products and delivering them to customers. Integration of material and information flow both up and down adapting to better supply chain (Handfield and Nichols, 1999, p. 2). A decade back there was no concept like close loop supply chain but global environmental concerns persuaded industries to consider return as last part of their supply chain establishing close loop supply chain. Reverse Logistics being a complex subject involves many supply chain participants, functional and non functional, all having their own objectives. Reverse Logistics directly impacts the importance of all supply chain participants including shareholders, customer, employees, suppliers, reverse chain partners, the government and the (public) environment. First model for integrated supply chain was given by Thierry in 1995. It comprises recovering economic values by service, product recovery, and waste management activities (Thierry et al., 1995, p. 114). Reverse logistic, now considered an integral part of close loop supply chain has redesigned the basic structure of supply chain by introducing waste management and resource minimization aspects.

Figure 3: Integrated Reverse chain process (Adapted from le Blanc, 2006)

Extending the supply chain to reverse logistics introduces complexity in design and operational management of supply chain. This complexity is due to reverse distribution and uncertainty and lack of knowledge associated with the whole process. Operational issues related to inventory control policies (Guide et. al., 1997), planning for product disassembly for recovery (Gupta and Taleb, 1994) and non correlated recovery process, demand and production planning (Van der Laan, et. al., 1996a) makes the whole chain implementation quite strategic. Managing returns can be a catch 22 for supply chain managers. In order to gain and maintain loyalty of customers, retailers must be willing to accommodate returned product that have even bypassed the service contract period provided by manufacturers. Also, manufacturers must satisfy the retailers to maintain and improve their accessibility to the market. The entire process revolves around the issue of cost, where ultimately someone must bear the cost. Increased Revenue, minimized cost, sustainable management are the driving factor for better supply chain performance and demands a controlled coordination in reverse logistic for achieving the most optimal business situation.

An effective reverse logistics implementation in supply chain allows industries to create least-cost, positive customer return experiences by effectively managing exceptions and streamlining processes. Considering principles established by ISO 14000 and adopting green philosophy  of 4 R's- reduce, reuse, repair, recycle in reverse logistics, integrated supply chain can be converted into green supply chain.

Reverse logistics Green Solution initiatives in a supply chain will provide:

·         Improved customer satisfaction and loyalty

·         Implementation of an immediate assessment program

·         Reduced repair / replacement unit costs

·         Reduced energy and waste through environment friendly designs

·         Feedback on customer support

·         Improve understanding of real reasons for hardware returns

·         Standardize returns management

·         Robust RMA process drives down return inefficiencies

·         Automatic returns process supported by the latest hardware and software technologies

·         Enable demand driven supply chain concepts for returned products

·         Improve repair center cycle time

·         Reduced carbon footprint through centralization and efficient returns processing

·         Damage reduction processes and monitoring

·         Comprehensive decommissioning and environmental disposal program minimizing exposure due to spills and leaks and enhanced worker safety.

In order to keep the sustainable value of any product and minimizing the effect of price degradation on company profits, they should be readily available to the consumer. Right coordination of reverse logistic along with Sales & Marketing department will help companies in achieving their goals. Lack of information about customer demand induces uncertainties in market with the consequence of disproportionate security stocks as a resources for shielding the firm or supply chain. The Return Merchandise Authorization (RMA) considered the DNA of reverse logistics provides all the critical information about where the product has been in the supply chain and the reason for its return.  Data gathered from the RMA can be analyzed to forecast future trends as well as improve the overall quality of products and services delivered to the marketplace. Implementing reverse logistic in supply chain will provide data analysis for customers to help them drive down the serving cost and improvement in Service Level Agreements (SLA’s) between chain participants. Aftermarket reverse logistics service provides variety of stock related repair data such as actual fault rates, no trouble found rates, essential repairs and probable causes, parts replacement reports. These reports prove to be indispensable in helping industries/customers improve operational processes in supply chain. Forward channel participants—such as retailers and wholesalers strategically use reverse logistics to minimize the risk of buying products that may not be in much demand in market. Implementing reverse logistic customer centric solutions in supply chain will drives down the serving cost reduce cycle time and will strengthen revenue from quality gains. Implementing cost effective, eco-friendly and legislatively compliant reverse logistics services to restore, refurbish, and/or remanufacture electronic equipment to OEM standards with ‘as new’ condition will increase product life and provide companies a potential entry point in low-cost markets. Refurbishment helps in conversion of returned/surplus/latent stock into retails which can be sold again and ultimately improve cash gains. This mechanism provides decline in operating costs, improves stock turns and effective wealth.  Managing sustainability of products offers end-customer cost savings without retail prices and comfort of new upgrades increasing product value and brand image. Time-sensitive procedures for receipt, handling, refurbishment/repair and resale ensure speedy return of items to the consumer marketplace. Fast turnaround of goods will also reduce the carbon costs for warehousing returns.

CONCLUSION

The take-back and recovery of used products not only achieves environmental, but also economic goals in closed loop supply chain management. Successful implementation of reverse logistics will improve service satisfaction levels to customers and overall better financial performance for the supply chain and its individual participants and it is highly desired that sufficient resources must be devoted by every member of supply chain to planning and implementation of reverse logistic. 

REFERENCES

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3.      European Working Group on Reverse Logistics, 2004, accessed from www.fbk.eur.nl/OZ/REVLOG

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