REVERSE LOGISTICS

Praveen Singh Bhandari

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 from their place of use, back to their place of manufacture for re-processing, re-filling, Repairs or recycling / waste disposal.

Reverse Logistics Activities

Handling of returned merchandise Damage Seasonal inventory Resell via outlet Salvage of outdated products Stock–balancing returns

Recycling and reuse Material reuse Remanufacturing / refurbishing

Hazardous materials disposition

Forward Vs Reverse Logistics

Forward Logistics

Straightforward forecasting

One to many distribution point

Destination / Routing clear

Uniform pricing

Consistent inventory management

Negotiation between parties straightforward

Reverse Logistics

Forecasting more difficult

Many to one distribution point

Destination routing unclear

Pricing depends on many factors

Inventory management not consistent

Negotiation complicated by additional consideration

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

Publishing 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

Computer / Electronic 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

Automotive 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

Retail Industry

Drivers in Reverse Logistics

The success of reverse logistics system depends on the efficiency and effectiveness of following sub-systems

1. 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 Location

3. 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 Weapono Reduce the risk of buying products that may not be “hot selling” items. o Increase the switching costs of changing suppliers.

Competitive Reasonso 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 Citizenshipo 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 Channelo 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 Assetso Large portion of bottom-line profits is derived from asset recovery programs. o Profit derived from materials that were previously discarded.

Legal Disposal Issueso 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

Strategic use of reverse logistics

Reverse Logistics – Cost Implications

The reverse logistics system is a cost centre. However, these costs are incurred for achieving company’s certain objectives and can be attributed to the following activities:

1. Product location (investment & operating costs)

2. Transportation

3. Product collection (customers > retailers > plant)

4. Disposal (Plant > Suppliers / Disposal)

5. Refilling, repairs, refurbishing, remanufacturing, recycling

6. Documentation (for product tracking and tracing during entry, exit and flow in the system) .

Reverse Logistics – Barriers

Legal issueso 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

Thank You