Reverse logistics came to researchers interest at the beginning of the 1980´s. In 1986 Murphy defines reverse logistics as the “movement of goods from a customer towards a producer in a channel of distribution” (Carter and Ellram, 1998). Throughout the 1980´s the scope of Reverse Logistics was limited to the movement of material against the primary flow, from the customer toward the producer (Rogers and Tibben-Lembke (2001). A more detailed definition of Reverse Logistic was conducted by Rogers et al:
“The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing or creating value or propel disposal”.
Reverse logistic systems, the secondary handling of products, is a competitive advantage to many companies. Reverse logistic can be viewed as the reverse
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distribution of materials among channel members. A more holistic view of Reverse Logistic includes the reduction of materials in the forward system in such a way that fewer materials flow back, reuse of materials is possible, and recycling is facilitated (Carter et al. 1998).
How To Manage Reverse Logistics
There are many ways to improve the reverse logistic process. It is presented below some of the elements that can improve when functioning properly will improve the reverse logistics.
- Process development
- Information support systems
- Horizontal relationships
- Performance measurement
- Customer relationship management
- Transportation issues
- Warehousing issues
To manage reverse logistics well, quality information and processes is needed, just as in forward logistic systems. Products and processes have to be tracked at all times. That begins by understanding how to create a reverse logistics flow. The process of reverse logistic has to be understood in order to optimize it (Trebilcock, 2002). Flow charts and Value Stream Mapping (VSM) can be effective tools. To become really good at reverse logistic a company has to work with the process and often invest in systems and physical infrastructure. According to Rogers et al. (2001), many companies believe that in order to be effective, reverse logistic must be allowed to function as a separate entity, not connected to the forward Introduction I Research Methodology I THEORETICAL FRAMEWORK I Company Description Empirical Data I Benchmarking I Analysis I References distribution process. A return centre located at a forward distribution site could be one solution to consider when investigating how to work with reverse logistic (Rogers et al. 2001).
In terms of transport, physical location of the Central Hub is an important issue (The Chartered Institute). Road links and opportunities to increase the amount of backhauling done by the company's own fleet can make both economic and environmental sense. Other improvements can be to introduce satellite tracking systems that can help to keep track of the product and to monitor and improve transport routs and fuel consumption.
Process development could also be to increase the use of information technology in terms of sorting, inspecting and storing. Increase use of technology can create less opportunity for mistakes. An example is to use bar-coded labels attached to the product and the pallet so that no human mistakes can be made while typing in the number, and of course it goes faster.
Information Support Systems
To manage reverse logistic, managers will need to apply sophisticated information support (IS) systems to maintain satisfaction levels across the supply chain and
efficiently handle the reverse logistics (Daugherty et al. 2002). Reverse logistic require multi-party coordination (Blumberg, 1999). Buyers and sellers must interact to accomplish tasks. This requires compatible systems to facilitate the exchange (Daugherty et al. 2002). Reverse logistic can benefit both the firm and its customers. By developing and improving a close relationship with its customers, firms can design a customized Reversed logistics program that is beneficial for both parts.
Relationships and communication is an important end necessary factor for the reverse logistic flow to be managed effectively (Daugherty et al. 2002). This could
be divided into two sections, the internal and the external relationships.
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The external relationships are the ones that the company possess with their customers or dealers. These relationships can then be divided into two different kinds, vertical and horizontal. The vertical relationship is more of a hierarchy than the horizontal, which often is characterised by shorter decision making processes.
Horizontal relationships are often argued is the most favourable for effective
Relationships in reverse logistics.
Horizontal relationships can take the form of mergers, which means full horizontal Integration or as joint programs. In joint programs competitors or actors with Introduction i research methodology i theoretical framework i company description Empirical data i benchmarking i analysis i references complementary products or processes co-operate in order to gain economies of scale, in some cases scope. Horizontal co-operation in relationships means in the dissertation, to co-ordinate their efforts in order to find solutions beneficial for both. A higher degree of horizontal co-ordination can be reached through consolidation of material flows from several shippers or several flows.
This provides increase volumes, and can hence deliver the same logistics service at a lower cost (Huge, 2002). The co-ordination could be organised by a third party or by the co-ordinators in the relationship.
Another solution is to agree with the customer to work under open-book accounting. The open-books mean that the company's would become open to the each other, showing some of their facts and sheering information (Grant, Lambert, Stock and Ellram, 2006).
The internal relationships and communications are the ones that happen inside the organization. It is important that it is clear to everyone involved in the reverse logistic flow who they should contact and for what. The communication routines are important to investigate.
Many managers remain unconvinced as to the value of the efforts in reverse logistics like reduce of costs, increasing profitability and enhancing relationships.
That can determine the commitment of decision-makers satisfaction with the efforts, as with any other new system. Thus it is important to measure the systems
ability to handle returns effectively (Daugherty et al. 2002).
Monitoring the performance of any logistic system should include measures both internal and external to the firm. (Stank, Crum, and Arango, 1999). For the evaluation of reverse logistic operations, internal performance indicators include how effectively assets are recovered via the channel, as well as how effectively inventory investment has been reduced. Any evaluation of a logistic system must also include that systems ability to contain costs associated with transportation and inventory (Daugherty et al. 2002).
There are other ways to calculate the performance, like when selecting materials with low emission rates and energy consumption standards when the cost that is saved should be calculated. Re-use of materials can be measured against the percentage of “virgin'' or new materials used in parts production. Ideally, this percentage should be as low as possible. Disassembly and shredding can be measured as volume of goods handled per time unit. Transportation can be assessed in terms of loads against capacity of transport equipment. A high degree of utilization is an indicator of the efficiency of transportation. Driving empty trucks around creates emissions without economic value. Packaging cannot only Introduction I Research Methodology I THEORETICAL FRAMEWORK I Company Description Empirical Data I Benchmarking I Analysis I References be evaluated based on packaging material used but also by the amount of air or useless space in the package. Returns handling can be measured in terms of volumes handled to indicate the size of the operation. More important is the volume selected for recycling/ entering the re-use supply chain, as this provides an indication of the effectiveness of the return flow of goods and the value of products returned (Remko, 1999).
It is also important to measure the effects of the work. It is not only necessary to measure the profitability in money but to actually calculate the effect of the work that could be much harder to calculate. Like higher moral for the employees, or improved trademark image and a stronger support from the society (Esty et al. 2006).
The reverse logistic system is no different from the forward logistic system in terms of customers and their impotency (Giuntini, 2007).
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Customer satisfaction is a measure of how products and services supplied by a company meet customer expectation (internet source 5).
In a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy.
The company therefore need to make it easier to return goods by providing adequate return packaging and simplifying administrative burdens, pictorial documentation and return transportation (Giuntini, 2007). If the customers are submitted to work with the reverse flow an aggressive notification process that signals if a customer has breached a return deadline is important. The company can also visit the customers to educate them on importance of timely returns or trigger them to want to return the products. The company should emphasis that they want the products back and do not want to invoice the customer for no returned materials.
Customer relationship management concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use the following steps to build customer relationships:
determine mutually satisfying goals between organization and customers establish and maintain customer rapport Introduction i research methodology i theoretical framework i company description Empirical data i benchmarking i analysis i references produce positive feelings in the organization and the customers
An effective sustainable distribution approach to reverse logistics is to integrate as far as possible the logistics operations into the existing outbound network for both warehousing and transport (The Chartered Institute). This will lessen the amount of additional transportation required to move the goods within the network.
The use of a third party logistics provider by a retailer to handle returns may offer a commercially effective solution. However, if the location of the return warehouse is not centrally located geographically and utilizes a separate vehicle fleet to pick up the product returns then the result will lead to additional vehicle emissions compared with an in-house operation.
However, if a third party is contracted to manage the returns on behalf of the company then the effects of shared facilities could provide an optimal solution from a sustainable distribution point.
The Chartered Institute describes 4 different types of network configurations and disposition routes for returns. These are:
Type A network – integrated outbound and returns network. This type utilises the outbound distribution transport fleet operated by a retailer to take back products from retail store to the Regional Distribution Centre (RDC). The RDC then undertakes activities such as sorting and refurbishment. Type A networks work well where the frequency of delivery to stores is high and the volume of returns is also high.