The term "reverse logistics" may be relatively new, but the basic concept is not. Even decades ago, it wasn't uncommon for distribution centers to contain a returns processing function. You could spot them right away because all the people were moving with the speed and purpose of extras in a George Romero film. They clearly weren't happy about having to deal with returns. Neither was management.
Businesses still hate the hassle of dealing with returns, but returns remain a fact of retail life. And the numbers are staggering—anywhere from 10 to 30 percent or more of merchandise is returned annually, depending on the product category. In one business, the returns rate is 100 percent. Can you guess the business? (It's tuxedo rental.)
For most people, "returns" means taking a garish tie back to a department store after Christmas, or sending the size 8 sweater that doesn't fit a size 12 body back to the catalog retailer. But it's not just apparel that gets returned. Beyond clothing, there's electronics, books and magazines, greeting cards, processed foods, auto parts, anything sold at The Home Depot, and so on.
If reverse logistics (RL) were simply a matter of easing the pain in the retail and wholesale sectors, it would be challenge enough. But there's a lot more to reverse logistics today. Besides returns, reverse logistics managers have responsibility for a host of other R-factors: Repairs and Refurbishment, Recycling, Recovery and Recalls. Let's take a closer look at them:
- Repairs and Refurbishment. Some items are returned at the customer's whim. Others—electrics, electronics, auto parts and technology components, among them—are returned because they don't work. If these items, which range in value from a few dollars to more than $100,000 per unit, are repairable, they're typically sent out to be fixed and readied for resale. (Sometimes it turns out that the item wasn't broken or defective at all—in which case, it's simply repackaged and readied for resale.)
As for the disposition of these repaired/refurbished items, their fate varies. Some are resold at retail stores, others are resold through alternate (usually discount) channels, and still others are reinstalled in different operating configurations (more on that later). - Recovery. In reverse logistics, "recovery" refers to the process of turning products into their component parts or materials for reuse in other products or reintroduction into production processes. It might mean disassembly for component reuse, wire stripping for raw plastics, transforming telephone cable into granulated copper, or even isolating components and melting them down into basic elements.
- Recycling. Though many of the processes are similar, "recycling" is different from "recovery" in that it's largely driven by federal, state or local regulations and mandates.
Even foreign environmental policies may play a role. Take the European Union's environmental directives, for example. Though they don't have the force of law in the United States, the rules are still having an impact on this country. Most domestic electronics manufacturers have adopted the EU standards rather than try to manage their domestic and international supply chains separately. It's worth noting that the EU's Waste Electrical and Electronic Equipment (WEEE) and Restriction of Hazardous Substances (RoHS) directives make corporations responsible for end-of-lifecycle product disposition. Imagine the RL supply chain planning required to come up with effective solutions to that! - Recalls. The topic of recalls is much too complex to cover here. For now, we'll just note that more industries, companies and products than ever before have become vulnerable to recall actions. Any company that faces even the remotest chance of a recall should have a reverse logistics recall plan and should test that plan periodically—just the way you would conduct a fire drill.
Challenges in RL supply chains
Unfortunately, the reverse logistics chain is not simply the outbound chain stood on its head. Along with the usual logistics challenges, reverse supply chain managers face some added complications. For example, they rarely receive much warning of RL arrivals; they're likely to end up shipping quantities of one, as opposed to more economical truckloads; and they often have to ship goods to destinations other than the manufacturing source.
On top of that, there's the challenge of designing the network: deciding where to collect the returns, where to process them, and where to redistribute from. Intake requires some planning as well. With the exception of retail giants like Sears, few companies have local outlets nationwide where they can accept returns. That's opened the door for a host of new services— like the new combinations of FedEx/Kinko's, UPS/MBE, and DHL/OfficeMax—that can reach most of the nation's population. This need may finally provide a genuine value-adding role for the U.S. Postal Service.
Once they've collected the returns, managers must decide what to do with them. It used to be a simple matter of sending them back to the factory. But times have changed. Today, deciding which disposal route to take has become a complex analytical question. And we do mean complex. First, you have to weigh the many disposition options. In addition to recovery and recycling, they include liquidation; resale in offshore or secondary markets; resale at auctions, in outlet stores, or in employee or company stores; and donation to charities. Then you have to factor in the product's age, quality, condition, style and seasonality, potential liability risks, repackaging requirements, and whether "de-kitting" will be required. Other factors may come into play as well. For example, saturation in one channel may force a product's diversion into an alternate channel.
Reverse logistics is not just a matter of getting stuff back, either. Managing the process involves a host of other tasks as well. They include returns authorization management; collection, sorting and testing; transportation and distribution; warehousing and storage; spare parts management; replacement management; warranty and service contract management; remanufacturing or refurbishment; redistribution and resale; end-of-life management; and IT management. Small wonder that a whole sub-industry of third parties specializing in reverse logistics has sprung up. They range from suppliers that offer software to companies that will take over the entire returns process, from providing customers with preprinted labels to handling final disposition of the merchandise.
Secrets of success
Though it's not always easy to convince companies of this, reverse logistics can be made to work well. It is working well for those who've invested in learning how to make it work.
As for how to make it work, we've identified several keys to success. Here's what you need: dedicated (separate) management and organization; independent processing/storage facilities; strong IT support; accurate, up-to-date data; good process design and staff training; strategic context (often overlooked, but vital); and a solid dollars-andcents business case.
With these, you've got a better than fighting chance. Without them, you may never realize the potential of reverse logistics in your organization.
Editor's note: For more information, contact the Reverse Logistics Executive Council (www.rlec.com), which is a collaboration of manufacturers, retailers and academics, or the Reverse Logistics Association (www.reverselogisticstrends.com), which is a trade association of third-party service providers.
Loxo/Planzer