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.
BONUS: Download the Ultimate Guide to Transportation Reverse Logistics White Paper
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:
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 amount of product to be reclaimed and resold as is, or percentage of material recycled, are examples of such metrics.
These metrics came from this amazing article on reverse logistics management which I encourage you to read fully, in Logistics Management:
In analyzing your company’s reverse logistics system performance, consider tracking these metrics:
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 system and processes in place. In the book industry, where 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 is 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.
In attempting to improve reverse logistics system processes, a firm can move along several fronts. Suggested improvements:
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.
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