Yesterday we begun our extensive series on what is reverse logistics and in this post and subsequent posts, we will cover all things reverse logistics, so that when you hear about reverse logistics, you can be in the know and know the real facts pertaining to this form of logistics. Yesterday, we explained the formal definitions of reverse logistics and how it compares to the traditional flow of logistics.
As you will see today the history of reverse logistics is quite older than the buzz word of it being thrown around more often today, due to the rise of internet retailing, also known as eCommerce. In fact, Cerasis performs reverse logistics every day with our customers, but you won’t find a formal page on our website or brochure outlining the details (but as we continue to increase in the automotive aftermarket industry, perhaps we should….). The reason is that really, reverse logistics is something a lot of shippers and logistics providers have done for a long time. However, though, with the expectations of an easy return experience from the B2C side of business, the industrial (read bigger freight shipments than small package) side and B2B side of business are now expected to have an efficient, focused, an costly reverse logistics program. This is why, for Cerasis, it is KEY for us to educate you on this practice of reverse logistics, because this flow of logisitcs will only increase over the coming years.
What is the History of Reverse Logistics?
Reverse logistics has been around us for a long time. The history of reverse logistics finds its root from the American Civil War. Of course there would be other literature that records the history of reverse logistics activities even earlier than American Civil War, but these activities were not systematically recorded or widely recognized. To better understand reverse logistics, let’s first take a quick look at the important events in the history of reverse logistics.
You can see a lot of the details of the history of reverse logistics in the book of Rogers and Tibben-Lembke’s book, Going Backwards, Reverse Logistics Trends and Practices.
1861-1865: The History of Reverse Logistics has Its Roots in the Military
At the end of the American Civil War, General William T. Sherman realized that the nature of his armies’ campaign would be a matter of supply and mobility and that his operations through hostile territory would be difficult. He faced the intricate task of supplying his soldiers on the march.
1872: Retail Continues to Drive the History of Reverse Logistics
Today’s retail returns issues find their roots in the customer service policy of Montgomery Ward. Montgomery Ward is an American furniture shop established in1872; their policy was if the customer is not 100% satisfied, they could bring it back for a full refund.
1942: War Always Creates Great Logistics Solutions, Automotive Aftermarket History of Reverse Logistics has Roots to World War II
Material shortages during World War II created a need to rebuild automobile parts and started a trend that continues until today. In fact, this had become a $36 billion business and “90 to 95 percent of all starters and alternators sold for replacement are remanufactured”.
1984: Successful Product Recalls Start Increasing the Use and Adoption of Reverse Logistics
The next major date of interest in the history of reverse logistics is the 1984 Tylenol scare. Johnson & Johnson along with McNeil Laboratories quickly responded as America watched on the evening news about the “tainted lot” of Tylenol. The rapid response by McNeil Laboratories to get the tainted products off the shelves and quickly replaced by new lots with tamper proof bottles instilled great faith in the American public and set the new standard for reverse logistics.
1991-1996: More Oversight into the Positive Environmental Impact from Reverse Logistics comes in 1991
In 1991, The Federal Republic of Germany passed recycling ordinances in the environmental reverse flow and deployed mandatory recycling programs. Included in these ordinances were provisions for fines and prosecution for violators of the ordinances, and stricter guidelines for the handling and transporting of hazardous materials and responsibilities for recovering hazardous wastes.
The German ordinances led to a 1996 United Kingdom legislation requiring shippers and manufacturers to be responsible for the return and recycling of packing materials. The European Union took this one step farther in 2001 by establishing a goal of 50-65% recovery or recycling of packaging waste. The implication for the rest of the world is that they have to be compliant if they want to do business with the EU.
1998 to 2000s: History of Reverse Logistics Grows into Sophistication and is a More Strategic Application in Business
Reverse logistics didn’t catch much attention of the business world until the last decade. In early 90s, the Council of Logistics Management (now the Council of Supply Chain Management Professionals) published two studies on reverse logistics. The first was written by J. R. Stock which systematically reported on how to set up and how to operate reverse logistics programs. Stock’s book also tried to discover the potential of reverse logistics. Rogers & Tibben-Lembke however, presented an extensive collection of various reverse logistics business statistics data categorized by industry types. For example, the magazine publishing industry has the highest reported returns (50%). Magazines have a short shelf life; if they can’t be sold out close to the publication/cover date, they have to be returned or disposed. Rogers & Tibben-Lembke also reported that other industries with high average returns include book publishers, catalog retailers, and greeting cards companies . Besides these above mentioned studies, some other articles focus the optimization and management of reverse logistics appeared on the characteristics of reverse logistics for remanufacturing systems around the year 2000.
Although the Council of Logistics Management has already given a definition to reverse logistics, reverse logistics has been evolving since the date it was recognized, as a result, its real definition varies largely on what company or industry segment intended to explain it. Shad Dowlatshahi in his paper titled, Developing a Theory of Reverse Logistics described a holistic view of reverse logistics with 11 factors. Dowlatshahi further divided these factors into two main categories: strategic factors and operational factors. Strategic factors consist of strategic costs, overall quality, customer service, environmental concerns, and legislative concerns. The operational factors consist of cost-benefit analysis, transportation, warehousing, supply management, emanufacturing and recycling, and packaging.
The Rise of eCommerce and the Aftermarket Increases the Formal Use of Reverse Logistics by Shippers
The rise in eCommerce goes hand in hand with the rise of reverse logistics in the history of reverse logistics. As the use of the internet was more commonplace in American households and the rise of multi-channel retailing has increased since the last 2000s and in this current decade, reverse logistics is now a requirement when it comes to eCommerce. The mid-nineties to 2000’s saw major advancements in the commercial use of the Internet. The largest online retailer in the world Amazon, launched in 1995 as an online bookstore. Brick-and-mortar bookstores were limited to about 200,000 titles and Amazon, being an online only store, without physical limitations was able to offer exponentially more products to the shopper. Currently, Amazon offers not only books but DVDs, CDs, MP3 downloads, computer software, video games, electronics, apparel, furniture, food, and toys. A unique characteristic of Amazon’s website is the user review feature that includes a rating scale to rate a product. Customer reviews are now considered the most effective social media tactic for driving sales. The company attracts approximately 65 million customers to its U.S. website per month and earned revenue of 34.204 billion in 2010. In 2001, Amazon.com launched its first mobile commerce site.
Another major success story of the dot com bubble was Ebay, an online auction site that debuted in 1995. Other retailers like Zappos and Victoria Secret followed suit with online shopping sites; Zappos being a web only operation.
When one thinks of ecommerce, one often focuses on the cycle that culminates in delivering goods to a customer. But there is an entire leg of the ecommerce supply chain that comes into action after goods are delivered. Enter the world of “reverse logistics.” There are several reasons that make reverse logistics inevitable. Here are some of the most common:
- Mis-delivered or Undelivered Goods
- Damaged Goods
- Malfunctioning Goods
- Exchange Programs
Application of Reverse Logistics in the Growing Aftermarket Industry
The U.S. auto aftermarket industry should grow 3.4 percent annually through 2016 to $263.8 billion, adding $32.6 billion to the economy, according to a report produced jointly by the Automotive Aftermarket Industry Association and the Automotive Aftermarket Suppliers Association.
As stated in yesterday’s post, ordinary logistics flows focuses on everything that happens prior to the sale and then between the sale and the point at which the customer has the product in hand. Your product, whatever it is, must be manufactured and then warehoused in preparation for final shipment, or must be distributed throughout a variety of retail channels or other businesses for position in front of the consumer.
Conversely, reverse logistics focuses on the return of automotive aftermarket product sfor various reasons (usually the same as listed above for eCommerce). Reverse Logistics is really a focus on a lot of core automotive aftermarket logistics activities. If a part doesn’t fit, it must be returned. If the part is damaged, it must be returned. Remember, the aftermarket industry is defined as the market for spare parts, accessories, and components, especially for motor vehicles. Just think of when you have a fixer up project on your own car and how often you’ve had to return to the autoparts store. That’s the same idea with automotive aftermarket reverse logistics!
So why then is automotive logistics seeing a boom in reverse logistics? Well, mainly for the fact the industry is growing, but also, it’s quite telling from this quote from AAIA CEO, President, Kathleen Schmatz: “The forecast model demonstrates that despite strong new vehicle sales, historic high gas prices and a flattening of miles driven, our industry is poised for steady growth. Why? The average age of vehicles is 11.3 years, the oldest ever, and the age mix of vehicles continues to favor older vehicles, creating a robust sweet spot for service and repair.
This Vast and Various Applications through the History of Reverse Logistics, Creates a LOT of Different Synonyms
Other terms synonymous to Reverse Logistics are Aftermarket Logistics, Retrogistics, or Aftermarket Supply Chain. The reverse supply chain is also a term used in the industry. RL is not to be confused with forward logistics or getting the product to market commonly known as the forward supply chain. Types of activity common with reverse logistics includes: logistics, warehousing, repair, refurbishment, recycling, e-waste, after market call center support, reverse fulfillment, field service and many others.
What are we missing in this history of Reverse Logistics? What would you add?