While conventional logistics optimizes the flow of goods from producer to consumer, reverse logistics manages the processes for inverting that flow to deal with returned parts, materials, and products from the consumer back to the producer. Most often, this includes warranty recovery, value recovery, repair, redistribution, product recalls, used parts and replacement materials for refurbishment, service or product contract returns, and end-of-life recycling.
With the purpose of optimizing supply chain efficiency and asset recovery rates, applying a reverse logistics system has increasingly become a tool that positively impacts profitability as well as assisting an organization in meeting sustainability goals. With the growth of sustainability initiatives, more companies have adopted the use of recycled materials in production and have developed procedures for the responsible disposal of products that cannot be recycled or reused. For instance, a growing number of cell phone manufacturers have established procedures in place for consumers who wish to return an older model and ensure that the device is refurbished or recycled rather than dumped into the local landfill.
Thus, reverse logistics management has developed into a discipline that produces cost reductions, adds efficiencies, and improves the consumer experience. Producers have discovered value within returned assets and the benefits of streamlining repair, return, and product reallocation processes.
6 Benefits of an Effective Reverse Logistics System
With the advent of sophisticated management systems, organizations have discovered the logic of prioritizing a reverse logistics system, which has led to the development of advanced technology that supports the process. Much of this development derived from the electronics sector, in which product lifecycles are significantly shorter, global service networks are increasingly intricate, sustainability processes are mandated and consumer customization is becoming the norm.
However, for many organizations, the returns management process has remained a cost center with low visibility that contains products to be restocked, repaired, recycled, repackaged, or disposed of appropriately. Conventional logistics service providers had very few alternatives for reversing the channel; however, as the technology has progressed, companies using a robust, proficient reverse logistics system have benefited from:
- Reduced administrative, transportation, and aftermarket support costs.
- Increased velocity.
- Increased service market share.
- Higher achievement of sustainability goals.
- Greater customer service and higher retention levels.
- Recovery of capital investments in assets
Importance of Metrics in Reverse Logistics Management
To monitor progress against its reverse logistics management plan, a company needs metrics that measure the financial impact of returns on the firm and on other members of the supply chain. As part of this process, the company should develop procedures for analyzing return rates and tracing the returns back to the root causes. Measures such as the amount of product to be reclaimed and resold as is, or percentage of material recycled, are examples of such metrics.
In analyzing your company’s reverse logistics system performance, consider tracking these metrics:
- Disposition cycle time: Cycle times can be an important measure of reverse logistics. The more standardized and streamlined the processes are, the shorter the cycle time should be.
- Amount of product reclaimed and resold: What percentage of product that moves to the reverse statistics system is reclaimed and resold? How much value is recaptured?
- Percentage of material recycled: This metric tracks the percentage of product in the reverse logistics stream that is recycled in an appropriate manner.
- Waste: How much product and other materials are moved to landfills, incinerated, or disposed of as waste? The objective is to minimize product in the waste streams.
- Percentage of cost recovered: Is the firm maximizing the profitability of a product that did not sell well or has been returned by consumers?
- Per item handling cost: A cost-per-touch type of metric can be readily computed by dividing total facility costs per month by the number of items processed. This is also a valuable way to compare the efficiencies of different facilities.
- Distance traveled: Tracking the average distance traveled per item is not nearly as simple as determining per-item-handling cost. Generally speaking, the fewer miles that can be put on an item in the reverse logistics network, the better.
- Energy used in handling returns: This metric is used in sustainability programs. It measures how much energy (diesel fuel, electricity, etc.) is used in the reverse logistics process.
- Total Cost of Ownership: What is the total cost of ownership related to originally acquiring the product, reselling it, bringing it back as a return, and moving it through a secondary market or placing it in a landfill?
Reverse logistics system practices vary based on industry and channel position. Industries, where returns are a larger portion of operational cost, tend to have better reverse logistics management systems and processes in place. In the book industry, where a great change in the industry structure has occurred in the last few years, returns are a major determinant of profitability. In the computer industry where life cycles are nearly as short as grocery life cycles, the speedy handling and disposition of returns are now recognized as a critical strategic variable.
Successful retailers understand that managing reverse logistics effectively will have a positive impact on their bottom line. Industries that have not had to spend much time and energy addressing return issues are now trying to make major improvements. Now, more than ever, reverse logistics is seen as being important.
5 Process Improvements Along the Way
In attempting to improve reverse logistics system processes, a firm can move along several fronts. Suggested improvements:
- Streamline turn-in procedures
- Route items with an eye to what happens to them next
- Integrate the forward and reverse pipelines
- Explore the potential of commercial software applications or techniques for improving reverse flow management (such as the new Cerasis Reverse Logistics product within our transportation management system.)
- Align financial incentives with improvements
Key Reverse Logistics Management Elements
- Compacting Disposition Cycle Time
- Reverse Logistics Information Systems
- Central Return Centers
- Zero Returns
- Remanufacture and Refurbishment
- Asset Recovery
- Financial Management
Advantages of Partnering with 3PL for a Reverse Logistics System
Organizations that partner with a sophisticated third-party logistics service provider (3PL) benefit from greater controls over the entire supply chain resulting in improved inventory management, increased visibility, reduced costs, and enhanced risk management. Specifically, the benefits of utilizing the expertise of a 3PL for a reverse logistics system produces greater controls over inspecting, recovering, testing, and disposing of returned products.
The nature of reverse logistics management includes higher uncertainty and threats than forward logistics. Companies find it difficult to predict which products may have higher than normal fail or return rates. In addition, products may come back in unrecoverable conditions. The complexity of the reverse system grows as manufacturers may have specific procedures for literally thousands of unique SKUs.
It might be the most ignored aspect of warehouse operations today. But the need for efficient reverse logistics management can not be brushed aside anymore. The return, processing, repair, and replacement of products have a huge impact on customer service. And the nerve center of any such operation is the warehouse.
Would you like a demo of the GlobalTranz transportation management system and the accompanying reverse logistics system product? Schedule a demo today!