reverse logistics-semi final

7/27/2019 Reverse Logistics-Semi Final

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Reverse logistics 1

Background of the study

The goal of manufacturing companies is to ship goods through their plants to their customers.

This movement of goods most often means a pro0t to all involved. These same companies,

however, do not want products to be returned for any reason. They do not plan for the backward

movement or return of goods, known as reverse logistics, as these returns represent a substantial

cost rather than a pro0t. Some CEOs even perceive returned goods as a failure of their system.

Sometimes reverse logistics is regarded as a recycling process involving aluminum cans, papers,

plastic and glass. Reverse logistics is related to the fifth component of SCOR model which is

Return and by far is the least attended area of all other four components.

The importance of reverse logistics has increased during recent years. The companies are

becoming aware of their benefits. The rate of reverse logistic streams can be dangerously high for

some companies but having a good management of these streams can lead to a significant

increase in the bottom line. Reverse logistics are environmental friendly because of the reuse,

refurbish and recycle, of used products leaving the landfill as the last option. If properly handled

reverse logistic will not only add to the bottom line but also help in gaining customers loyalty and

opportunities to recapture and create value in the supply chain. When firms view returns as just a

cost center or a regulatory compliance issue, they miss potential.

There is an emerging focus on reverse logistics in every sector. Reverse logistics has become a

competitive necessity and has gained increased acceptance as a profitable business strategy. It has

been documented that the efficient management of reverse processes can save as much as 10

percent from a companys total logistics costs. (Daugherty, Meyers, Richey 2002).


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Reverse logistics 2

Introduction

According to the Reverse Logistics Executive Council, reverse logistics is the process of moving

goods from their typical final destination to another point, for the purpose of capturing value

otherwise unavailable, or for the proper disposal of the products

Or

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 or creating value or proper

disposal. (Rogers and Tibben-Limbke 2001)

Reverse logistics activities that add to the bottom line:

To reduce the cost of reverse logistics and turn it to a profitable business activity, firms need to

focus on improving several aspects of their reverse logistics flow

Reutilized/Remanufacture and Refurbishment Reverse Logistics Information Systems Obsolete equipment disposition / Compacting Disposition Cycle Time Asset Recovery Responsibility towards the environment Central Return Centers Gate keepingReutilized/ Refurbishment or Remanufacturing

Reclaiming products/parts that can be reutilized in the forward supply chain can dramatically

reduce a firms cost of goods sold; essentially free inputs where a refund is not required. The

firm has already paid for the raw materials once, and doesnt have to re-procure to gain additional

revenue. Appliance and electronic goods manufacturers are prime examples of organizations that

are taking such advantage.


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Reverse logistics 3

Reverse Logistics Information Systems

Operating expenses can be reduced through effective and innovative returns management

programs. In addition to minimizing costs relative to returns capturing information about the

reasons for returns being made can be leveraged to further improve the product, thus reducing

future returns. It can also reduce a firms environmental compliance or waste disposal costs.

Obsolete equipment disposition and Compacting Disposition Cycle Time

Assets in the form of obsolete inventories can bereduced if returns are managed efficiently. This

means gettingmerchandise returns from dealers in a timely mannerso that alternative uses can be

made of the inventory before the only option is to write it off, and then dispose of theproduct.

Managing the timing of returns is especially criticalfor seasonal or short life-cycle products.

Asset Recovery

Return products are often an overlooked source of additional revenue. Recovered product may be

re-sold through existing or new channels, depending on the characteristics of the target markets.

For example, remanufactured computer products are often resold to consumers that represent a

different target market than the primary customers and generate higher gross margin. Not

exploring these potential new markets can really shortchange a firms revenue opportunities.

Responsibility towards the environment

Reduce, Reuse, Recycle

As customers and consumers become increasingly conscious of the environmental impact of the

corporations they deal with, being able to honestly promote reverse logistics activities can help a

firm gain repeat business and increase customer loyalty. Many firms are finding that significant

brand equity can accrue by being an environmentally responsible corporate citizen.


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Reverse logistics 4

Central Return Centers

Centralized return centers (CRCs) are processing facilities devoted to handling 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.

It provides the benefit of creating the largest possible volumes for each of the reverse logistics

flow, which often leads to higher revenues for the returned items. Generally, they are associated

with information system improvement

Gate Keeping

Gate keeping decides which products to allow into the reverse logistics system. Good gate

keeping is the first critical factor in making the entire reverse flow manageable and profitable.

Generally, a large cost is transportation. If the product is going to be thrown away, it is best to

discover this as early as possible, to prevent performing additional steps and incurring additional

costs.

Firms must shift its focus from viewing returns as an unwanted but necessary evil and instead

look for opportunities to transform returns into additional revenue, profit and market perception

capital.

Green Logistics

The energy and pollution reduction associated with better transportation planning, and the use of

less packaging materials, could be considered as a part of the Green Logistics agenda.


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Reverse logistics 5

Problem Statement

As with globalization and evading of national boundaries, competition is at all time increase. Cost

cutting and efficient use of resources is only viable option for survival. For this reason, we will try

to analyze the impact of decently new practice in SCM know as reverse logistics on the health of

an organization.

Objective

The purpose of this study is twofold: to present an overview and introduction to reverse logistics,

and to provide a brief insight into some practices undertaken by some diverse industrial sectors

and its impact on their performance and also shed some light on RL practice in Pakistan.

Scope of Study

The scope of this study is little broad since its based on secondary information collection and its

analysis which is primarily through internet. It will include the impact of RL practices in several

diverse industrial sectors of USA and a brief insight into drug industry of Pakistan. Also it will

see the practices mostly in use under this broad field.


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Reverse logistics 6

Literature

KOI ACHA SAA LITERATURE DAAL DO BHAIYOOOO !!!!!!

Baqi kaam ho gya hai


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Reverse logistics 7


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Reverse logistics 8

Analysis

After analyzing the key research studies and related articles to this business practice, following are

our findings.

In general, the practice of reverse logistics involves three distinct stages: retrieval, transportation and

disposition. Each stage has a set of people or organizations involved with the reverse logistics

process, each having their own special interests. Each stage will be discussed in detail as we move

down further.

Following are described some of the core activities and terms involved in reverse logistics:

Retrieval:

Retrieval can best be described as the process of collecting and removing goods from a customer.

This stage is affected by the type of product picked up and who does the retrieval from the customer.

There are several different operations of the retrieval process such as

1. Store Level- product recall, inventory items and seasonal items adjustment2. Customer Level- warranty returns, damaged goods3. Collection centre Level- reusable container, hazardous items recalls etc


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Reverse logistics 9

Transportation

The transportation stage of the reverse logistics process is considered to be the actual movement of

goods from one location back to another location. The transportation stage is extensively involved in

all aspects of reverse logistics, since manufacturers are often unwilling to be the final destination of

their returned goods. Instead, they prefer to have an outside source or third-party logistics company

dispose of these goods. As a result, transportation companies are often left holding the goods waiting

for disposition information. These companies are recognizing the profitable situation of handling

otherwise unwanted returned goods.

Disposition

The disposition process involves decisions and actions associated with the fate of a product once a

customer demonstrates product dissatisfaction. There are two types of disposition, on-site and on-

site.

On-site disposition involves activities that take place at the customers facility to handle issues

related to product concerns. The product may be repaired or replaced on-site. Off site disposition

involves shipping the defective product to a different facility for repair, replacement, or disposal.

Processes which are involved in off site disposition include the following:

1) Repairs-Goods that have been returned and are in need of repair at a processing center.2) Inspection- Visual, mechanical and electrical testing3) Replacement part return to customer4) Refurbishing and repackaging5) Recycling and using the recovered as raw material6) Salvage-Goods that are either physically destroyed, disposed of by means of dismantling and

landfill


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Reverse logistics 10

Off line disposition also involves the process of liquidation centers and secondary market outlets.

They come through two approaches namely Click and Brick.

Click operations are web based and use sites like E bay and U bid to sell the items tothe lowest bidders.

Brick operations are based on primary market discount retail chains such as K martand Dollar store which work like any other store.

Top benefits realized form applying RL operations in following sector according to an Aberdeen

group study:

As can be seen, the highest catch for companies was in retention of their customers which easily

stands out against any other measures. But increased service profitability and plummeting new part

procurement cost is the definite proof of the excellence of RL if implemented to its merit.


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VP or Higher Director Level No discrete management

Following is the depiction of the level of Senior Management involvement especially regarding the

companys service level:

This clearly shows the level of involvement to see the profit and loss for service operations. Almost

more than 40% of all the respondents in these industries have a director level involvement in

service operations in particular and reverse logistics in general.

But as can be seen in the yellow bar, there are still some companies out there who have a

perception of service as cost and a burden which they some how want to shed and not get involved

in.

Pharmaceutical Sector- A Pakistan perspective

Pharmaceutical sector in Pakistan is one of the most organized in our country and a good chunk of

it consists of transnationals which stand at about 55%.

Pharmaceutical sector is possibly one of the most important sectors where the high costs of

products, low to moderate shelf lives, and potential for unscrupulous intermediaries compromising

the integrity of products are major concerns.


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According to the graph below, companies that have internal/in house or third party system for

returning operations

This shows that still, the practice of RL and

particularly that of returns is nave since there

are no third parties out there to whom this

function could have been outsourced.

On the right mentioned figure, shows the use of

IT to supplement RL function In Pakistani

Pharma sector. No use of 2-3D bar codes and

RFID with most use of computer based record

keeping.

The RL costs according to this study are

accounted as part of marketing and sales

expense with 1/5 of respondents saying they

have no record of its magnitude. The

standard though is that it is around 3-7 % of

cost of sales.


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Findings

After reading and analyzing multiple studies related to this subject, both national and foreign,

following is what our findings are:

1. Implementing RL practices doesnt incur a cost as perceived but is of tremendous use inhelping companies retain customers and inflate service profitability.

2. Through efficient use of recycling, a lot of material is extracted back to be used as raw inputwhich decreases the new parts procurement.

3. It helps build corporate image and supplements CSR such as in the case of Pharmaceuticalsector where for the purpose of cleaning channel, unused or near expiry drugs could be sold

to poor and donated in a charitable organization.

4. Efficient return system helps companies design more generous warranty and return policies,which in turn makes loyal customers. A definite edge in todays competitive marketplace.

5. Many companies in several industries have executive level involvement in viewing the RLoperations with top dedication, but the case is almost opposite in Pakistan where even the

cost of such function is limited to rough estimates.

6. IT is the enabler of RL in general and also in case of Pakistani drug industry7. World wide there are companies specializing in RL practices to which other companies

outsource and one such example is GENCO, a Canadian based company which is the

market leader in this arena providing cutting edge RL solutions with guaranteed profit gains.


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Recommendations

For Pakistani companies, this is an additional area to ponder upon on ways of cutting their costs

and increasing their bottom line. The reduction in cost of new part purchase through recycling is

very fine idea. And also the perfect brick and click models for disposition is something we can have

in Pakistan such as by having large discount stores which will be feasible for people with moderate

purchasing power and also websites such as OLX.com which has got good momentum in recent

times be used as online secondary market for sale of old and semi used products.

Also better return and warranty policies will create good perception in consumer mind of these

electronic companies and hence will be beneficial in attracting other foreign brands which will be

good for our economy as well. This will be in contrary to having a very monopolistic attitude.

reverse logistics-semi final

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