What is reverse logistics?
Many organizations and individuals have tried to define reverse logistics. The term "reverse logistics" refers to any activity associated with a product / service after the point of sale, the ultimate goal of optimizing or making a more efficient after-sales activity, thus saving money and environmental resources.
The following table shows how reverse logistics comes into play in the Supply Chain.
Descriptive Table of the Life Cycle of a Product
Other synonymous terms for reverse logistics are post-marketing logistics, retrogistics, or post-marketing supply chain. Reverse supply chain is also a term used in the industry. Reverse logistics is not to be confused with forward logistics or getting the product to the market commonly known as the forward supply chain. Common types of activities with reverse logistics include: logistics, warehousing, repair, renovation, recycling, waste, after-market support call center, reverse fulfillment, field service, and many others.
"In other words, whenever the money is taken from the company's reserve budget or from Service Logistics, it is a Reverse Logistics operation" (Vick, 2006), President RLA.
The definition of Reverse Logistics has evolved since its foundation to encourage all industries to manage their assets. Reverse Logistics is the scientific process of asset management, in all departments in all industries and in all disciplines. Not only supply chain solutions in the High-Tech Industry, but all industries and all departments from Legal to Human Resources.
Logistics is defined by the Logistics Management Council as: the process of planning, implementation and control of the efficient and profitable flow of raw materials, inventory in process, finished products and related information from the point of origin to the point of consumption with the in order to adjust to customer needs. Reverse logistics includes all the activities mentioned in the definition above. The difference is that reverse logistics encompasses all of these activities, as they operate in reverse.
Therefore, reverse logistics is: the process of planning, implementing and controlling the efficient and profitable flow of raw materials, inventory in process, finished products 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 disposition. Remodeling and renovation activities can also be included in the definition of reverse logistics.
Reverse logistics is more than reusing containers and recycling packaging materials. Redesigning packaging to use less material or to reduce energy and transport pollution are important activities, but they may be secondary to the real importance of global reverse logistics.
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If no goods or materials are shipped "backward," the activity is probably not a reverse logistics activity (Backward: reverse logistics, trends and practices, 1998). Reverse logistics also includes processing merchandise returned due to damage, seasonal inventory, re-inventory, salvage, recalls, and excessive inventory. It also includes recycling programs, hazardous materials programs, disposal of obsolete equipment, and asset recovery.
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In the software industry, distributors are trying to reduce retailer returns by implementing just-in-time delivery. However, retailers generally overestimate demand because there is little incentive for them to carefully forecast. Software makers want the product to be on the shelves of retailers, and often agree to fill the channel. The cost of a software box is low compared to the price. In an extreme example, a software manufacturer contracted with a third party to destroy 50 million copies of a software product. While this particular manufacturer would have preferred not to produce an excess of 50 million, the company believes it is better to guess higher than lower. Due to this type of practice,return rates in the software industry recently hovered around 20 percent.
Plus, releasing more software titles forces returns, because the product lifecycles for those titles shrink. Because their risk is low, some retailers will accept software purchased elsewhere. Other retailers, such as Sears, are trying to reduce returns and improve inventory sales volume by reexamining channel relationships. Some of these retailers set 30-day return policies.
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The retail industry, under great competitive pressure, has used return policies as a competitive weapon. The higher the pressure, the more innovative the solutions will be. Within the retail industry, it seems that necessity, in fact, is the mother of invention.
Grocery retailers were the first to start focusing attention on the problem of returns and developing reverse logistics innovations. Your profit margins are so thin that good return management is critical. Grocery retailers first developed innovations such as recovery centers. Recovery centers, in turn, led to the establishment of centralized return centers. The centralization of returns has produced important benefits for most of the companies that have implemented them.
In recent years, retailers have established themselves. Now more than ever, large retail chains are the rule. These large retailers have more power in the supply chain than retailers a few years ago. In general, large retailers are much more powerful than manufacturers. Few manufacturers can dictate the policy to large retailers like WalMart or Kmart. If a manufacturer doesn't accept returns, the big retailer is unlikely to accept those terms easily. In some rare cases, retailers will make allowances for a manufacturer's products that they believe are not replaceable with similar products.
Returns reduce retailers' profitability marginally more than manufacturers. Returns reduce retailers' profitability by 4.3 percent. The average amount that returns reduce profitability among manufacturers is slightly less, at 3.80 percent. Respondents were asked how the provision returns. On average, retailers use a centralized return facility to handle returns much more frequently than manufacturers. Retailers are also found to be more likely to sell returns to a broker or similar entity. They were less prone to manufacturer remanufacturing or renovation than seems logical given that manufacturers are better at manufacturing than retailers.
Manufacturers are significantly more likely to recycle or refill returned material than retailers. Retailers appear to be more advanced than manufacturers when it comes to asset recovery programs. For other disposal options, such as those that are resold, repackaged, or donated; Retailers 'responses were very similar to manufacturers'. The following table presents a comparison of disposal options between retailers and manufacturers.
T
It is clear from both the interviews and the survey instrument that retailers have made greater investments in technology to improve their reverse logistics systems. In fact, manufacturers lag behind retailers in almost every technology category. This difference between manufacturers and retailers does not seem to exist in all facets of an operation.
Almost twice as many retailers as manufacturers included in the research implemented automated material handling equipment. Retailers are also more likely to use barcodes, computerized return tracking, computerized return entry, electronic data interchange (EDI), and radio frequency (RF) technology to improve their reverse logistics management.
C onclusions
Reverse logistics practices vary by industry and channel position. Industries where returns are a larger portion of operational cost tend to have better reverse logistics systems and processes in place. In the book industry, where there has been a great change in the structure of the industry in recent years, returns are an important determinant of profitability. In the computer industry, where lifecycles are almost as short as supermarket lifecycles, quick handling and disposition of returns is now recognized as a critical strategic variable.
Successful retailers understand that effective reverse logistics management will have a positive impact on their bottom line. Industries that haven't had to spend a lot of time and energy dealing with return problems are now trying to make major improvements. Now, more than ever, reverse logistics is considered important.
Process improvement
In trying to improve reverse logistics processes, a company can move along several fronts:
- Simplify delivery procedures Explore the potential of commercial software applications or techniques to improve reverse flow management Route items with one eye to what happens next Align financial incentives with improvements Integrate forward and reverse pipelines
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- Doors maintenance Disposal cycle time compaction Reverse logistics information systems Central Return Centers Zero returns Remanufacturing and Rehabilitation Asset recovery Negotiation Financial management Outsourcing
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It could be the most overlooked aspect of warehouse operations today. However, the need for efficient reverse logistics cannot be neglected. Returning, processing, repairing, and replacing products have a huge impact on customer service. And the nerve center of any such operation is the warehouse.
"One hundred percent of the WMS packages were designed to get things out," says Bill Tyng, systems consultant for Forte Industries of Mason, Ohio (Warehouse Management Solutions, 2004). "They had to adapt to put things back in." The situation has been more critical in Europe, where retail policies tend to be laxer and returns can account for 30 percent of business. But reverse logistics is becoming more important in the United States as well. The trend has spawned a number of niche providers, offering software or services specifically to handle returns, while larger integrated providers are also struggling to adjust.
"Reverse logistics can be your warehouse black hole," says Mary Haigis, chief marketing officer for Optum Inc. in White Plains, NY, USA.) The return process involves huge inefficiencies, but they are manageable with the help. of the right technology and processes. She quotes a large retailer and Optum customer who piloted a reverse logistics app on a couple of her DCs during the Christmas season. "The company typically has a high rate of return," he says, "but realized" incredible savings and efficiencies "with the help of a formal system."
R eferences
Go back: reverse logistics, trends and practices. (1998). Logistics administration. Warehouse management solutions. (2004). Supply chain.
Vick, G. (2006). Inverse logistic.
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