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The processes involved in dealing the return of orders and packaging from customers, better known as 'reverse logistics', is in many ways the neglected child in the extended family of the supply chain. For many firms the priorities are making sure goods get out, not on managing their return in an efficient manner. The majority of firms do not properly understand the value of returns to their revenues, or to their reputation. Most are diverted by the fact that returns can be expensive and hard to administer. All this has meant returns have traditionally been dealt with as exceptions within the normal operation of core supply chain processes and IT systems. However, as the desire to improve customer service intensifies, so reverse logistics has considered much more importance.
This best practice guide from LIS, one of the world's fastest growing supply chain execution companies, illustrates how changing market forces are driving reverse logistics up the supply chain agenda. It also examines how forward-thinking companies can rise to the challenges presented, both strategically and operationally.
Reverse Logistics (RL) may be defined as the handling of returned materials from customers, including their restoration, reengineering, recycling, liquidating or disposal of waste in organized manner.
Flow of surplus or unwanted material, goods, or equipment back to the firm, through its logistics chain, for reuse, recycling, or disposal.
The objective is to minimize the handling cost while maximizing the value from the goods, or proper disposal. The basic thing is to speed up this cycle. Essentially, reverse logistics is the opposite of logistics management. Goods or materials move in the opposite direction of the supply chain, that is, from the customer back to the supplier. Products are returned to the manufacturer or retailer for any number of reasons.
Some of the more common reasons are warranty failures, damaged products, product recalls, incorrect product orders/shipment, exchange of impaired products for functional ones, reusable packaging materials, product upgrading and so on. Whatever the reason, returned goods have to be processed in the best manner possible.
Reverse Logistics has become a fairly serious issue in recent times primarily because retailers have been forced, due to increased competition, to take a liberal stand as far as returns are concerned.
Meyer (1999) believes that returns have increased to as much as 30-50% in some cases. He observes that returns can be as high as 50% for goods sold on-line. Meyer (1999) also refers to a study conducted by the Reverse Logistics Executive Council, in that, U.S. firms spend more than an estimated $35 billion annually on handling, transportation, and processing of returned products. This estimate does not include disposition management, administration time, and the cost of converting impaired materials into productive assets. An issue of such dimension should be dignified with appropriate measures to implement reverse logistics.
Although the phenomenon of Reverse Logistics was in existence for a long time, it did not gain recognition until recently. This area has intrigued many people in terms of the impact it has had and continues to have on the business world. People have approached the subject in different ways and given their perspective on the same. The next section briefly mentions some of the study and analysis done in the area of reverse logistics. Reverse logistics is a complicated process that requires detailed planning in terms of continual audit of returns, determining the best disposition of products that is both economically and technically feasible, warehouse and transportation management, recycling programs, and other related areas.
2. LITERATURE REVIEW
During the early nineties, the Council of Logistics Management started publishing studies where reverse logistics was known as being relevant both for business and society (Stock, 1992). Other studies followed stressing the opportunities on reuse and recycling (Kopicki et al., 1993) in the late nineties; Kostecki (1998) discussed the marketing aspects of reuse and extended product life. Stock (1998) reported in detail how to set up and to carry out reverse logistics programs. Rogers and Tibben-Lembke (1999) presented a broad collection of reverse logistics business practices, giving special attention to the US experience (see also Lund, 2001). Recent reviews and literature compilation either on models to support reverse logistics or on the business perspective can be found at Fleischmann et al., 1997, Guide et al., 2000, Guide and van Wassenhove, 2003, and Dekker et al., 2003. Former studies have argued that the processes, actors, types of reuse and actors are relevant to characterize reverse logistics (Fleischmann et al., 1997). De Brito and Dekker (2002) provide typologies of the what, whom and how of reverse logistics.
REAL CASE EXAMPLES
In a specific case example of how complex the situation can become and how allowances are made to assure proper services are provided, we can take a look at what Microsoft did when it decided to introduce its XBOX. The details help make the point about the importance of paying attention to the full supply spectrum, including reverse logistics. Microsoft decided to have the main product manufactured by Flextronics. Accessories would be produced by a variety of manufacturers. Distributors and electronics retailers were to perform the warehousing, distribution, and end customer sales functions. Solectron was used for aftermarket warranty and customer repair services. Microsoft took the time to ensure the above capabilities were fully operational before the first XBOX was sold to an end consumer and that any returns would be processed effectively by the designated party.
In another example, a cell phone reverse logistics model proved very beneficial for a firm selling such products under their brand name. This firm had the cell phones manufactured by LG Industries, Samsung, Motorola and others. Accessories were again manufactured by a variety of firms. Order taking and initial end consumer billing was performed by Amazon. Forward logistics, including warehousing, carrier service programming and order fulfilment were performed by CellStar. Cellular carriers such as Verizon and Sprint provided the monthly service. Extended warranty and product protection insurance was provided by lock/line. The customer call centre service and reverse logistics was performed by CellStar.
COMMON OBJECTIVE FOR REVERSE LOGISTICS INITIATIVES
• Improved customer satisfaction and loyalty.
• Reduced repair / replacement unit costs.
• Reduced replacement turnaround times.
• Feedback on hardware design and ease of use.
• Feedback on OEM quality.
• Feedback on end consumer education and first level customer support.
• Improve understanding of real reasons for hardware returns.
• Reduce overall level of returns.
• Standardize returns processes across enterprise where possible/desired.
• Handle increased volumes of returns due to new products, programs, business partners.
• Enable demand driven supply chain concepts for returned products.
• Differentiate company services from the competition.
3. REVERSE LOGISTICS STRATEGIES
This section analyzes and evaluates the RE strategies according to the following decision-making focus: Reverse Logistics Network Structure, Relationships, Inventory Management, and Planning and Control (see Ganeshan et all, 1999; Fleischmann et al, 1997). Furthermore, we give an overview of deposition for processing and transmitting environmental sensitive material.
3.1. RETURN MANAGEMENT
Both products and packaging return for a variety of reasons, but returns can be broadly divided between those that are unplanned and those that are planned and desired. Unplanned returns are typically limited to products which customers have purchased. The list of reasons for return is lengthy and each requires different physical handling. It is important that the reason for return is recorded and used to modify future business behaviour.
Returns of new products
* The customer changed his/her mind
* The product was defective.
* The customer perceived the product to be defective.
* The product was damaged in transit.
* A vendor error (such as wrong item or quantity sent).
In conclusion, reverse logistics should be taken out of the supply chain twilight and brought into the open, so it can become an area of opportunity, as opposed to being a necessary evil. Companies should select one area of the business, where they can test the concept and develop a model for using what takes place as a source of knowledge for better satisfying customers and turning an area of cost into an area of profit.
To describe the foundations of a successful reverse logistics strategy, firms must realize that it is not solely a supply chain issue. Without the direct participation of an organisation's customer service and finance functions, the whole process will become useless and unresponsive. When the main beneficiary is improved customer service, this equals loss. Many supply chain systems are not in the position to initiate high levels of interaction with the rest of the business. This has given rise to the development of excellent supply chain execution systems that offer good supply chain visibility and related applications. These allow companies to share data and management control with diverse parts of their organisation, enhancing designated managers to streamline the administration of returns and make a better contribution to customer service clear differentiation.