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This paper explains what reverse logistics is. It looks at different viewpoints of reverse logistics. The paper starts off with a brief background of logistics describing how and when this term came about. Logistics has been a part of the society since the Greeks and the Romans. It was in the Second World War that logistics developed greatly. Logistics has come to be a kind of relief for many organizations that formerly looked upon it as a burden. Companies nowadays are hiring people with the requisite knowledge to deliver sustainable enhancements in the field of supply chain management.
Reverse logistics includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. Reverse Logistics offers several advantages to the company in terms of both tangible and intangible benefits. In the first instance, companies are able to retrieve defective equipments and parts which are either salvaged or refurbished and thus reclaims value out of the defective parts. Secondly, the packaging and defective materials are collected and recycled thereby generating scrap value back for the company. Thirdly unsold and obsolete equipments are collected back from point of sale which encourages the distributors and stockiest to confidently buy stocks from the company knowing that he can always return unused inventory and not stand to lose in the bargain. All items must be identified, assigned to a customer or account, assigned a disposition and then physically sorted for processing. Finally, credits are generally issued at a later time and often for only some part of a return, including discarded or un-saleable goods.
This process is difficult to automate with a generic ERP package and very challenging with a simple paper process. Specialized returns systems, whether part of a Warehouse Management System (WMS) or stand-alone, can support effective automation with appropriate setup. As reverse logistics evolves within your company, you will want to start developing or improving the Key Performance Indicators (KPIs) used to measure and monitor the performance of your Returns Management and Reverse Logistics.
We obtain a number of managerial guidelines for using marketing and operational strategy variables to influence the reaction parameters so as to obtain the maximum benefit from the market for each problem. We here also disprove that return policy is all about cost. We found that return policy is a powerful tool to increase firm’s profit. By capturing the reasons for returns, you can better monitor quality and vendor performance, and learn more about your customers’ purchase and return behavior. In addition, by returning goods to your supply chain quickly, you can minimize the cost of obsolete goods, and meet customer demand elsewhere.
Table of Contents
The birth of Logistics can be traced back to ancient war times of Greek and Roman empires when military officers titled as ‘Logistikas’ were assigned the duties of providing services related to supply and distribution of resources. This was done to enable the soldiers to move from their base position to a new forward position efficiently, which could be a crucial factor in determining the outcome of wars. This also involved inflicting damage to the supply locations of the enemy and safeguarding one’s own supply locations. Thus, this lead to the development of a system which can be related to the current day system of logistics management.
During the Second World War (1939-1945), logistics evolved greatly. The army logistics of United States and counterparts proved to be more than the German army could handle. The supply locations of German armed forces were inflicted with serious damages and Germany was not able to wreak the same havoc on its enemy. The United States military ensured that the services and supplies were provided at the right time and at the right place. It also tried to provide these services when and wherever required, in the most optimal and economical manner. The best available options to do the task were developed. This also gave birth to several military logistics techniques which are still in use, albeit in a more advanced form.
Logistics has now evolved itself as an art and science. However, it cannot be termed as an exact science. Logistics does not follow a defined set of tables nor is it based on skills inherited from birth. A logistics manager performs his duties and responsibilities based on his educational experiences, skills, past experiences and intuition. These skills are nourished by a constant application of the same by him for the betterment of his organization. The logistics manager ensures that the company is benefited by an effective and efficient system of logistical management. He also needs to ensure that the right kind of products and services are provided at the right time and for a right price, whether inside the organization’s premises or delivery of shipments outside the premises of the organization.
Logistics has come to be a kind of relief for many organizations that formerly looked upon it as a burden. Companies nowadays are hiring people with the requisite knowledge to deliver sustainable enhancements in the field of supply chain management. As has been the case throughout most of logistics history, the task of a logistics manager involves a clear vision and a drive within to deliver results under strict deadlines in addition to his usual responsibilities.
Reverse logistics stands for all operations related to the reuse of products and materials. It is “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 value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics.” The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.
As we all know that Logistics is part of supply chain management process. Whereas the Logistics deals with forward movement of goods within any supply chain, reverse logistics manages the reverse movement of goods, in other words returns management within supply chain function. Reverse flow is as important as forward movement in any supply chain. By examining a consumer supply chain process flows, one can conclude that reverse flows are very critical and important function within supply chain to recover the product cost comprehensively and at the same time helps in safe disposal of waste.
Purpose and aims of reverse logistic
Reverse logistics includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery.
For a practitioner, the disposition choice is determined by the most profitable alternative:
Reconditioning – when a product is cleaned and repaired to return it to a “like new” state;
Refurbishing – similar to reconditioning, except with perhaps more work involved in repairing the product;
Remanufacturing – similar to refurbishing, but requiring more extensive work; often requires completely disassembling the product;
Resell – when a returned product may be sold again as new;
Recycle – when a product is reduced to its basic elements, which are reused – also referred to as asset recovery.
Nature and Scope of reverse logistic
Reverse logistics has been adapted in a big way by automotive aftermarket spare parts field as well as electronics and computer hardware markets. Retail and book publishing too have implemented reverse logistics schemes but the volumes that are returned are relatively lesser than the other fields.
Reverse Logistics offers several advantages to the company in terms of both tangible and intangible benefits. In the first instance, companies are able to retrieve defective equipments and parts which are either salvaged or refurbished and thus reclaims value out of the defective parts. Secondly, the packaging and defective materials are collected and recycled thereby generating scrap value back for the company. Thirdly unsold and obsolete equipments are collected back from point of sale which encourages the distributors and stockiest to confidently buy stocks from the company knowing that he can always return unused inventory and not stand to lose in the bargain. Distributors are more likely to be open to stocking all fast moving as well as slow moving stocks.
In the eyes of the customer and society, the organization stands to gain a good standing and reputation of being a responsible company which takes care of the e waste and hazardous waste generated and thus stands out for its corporate governance policies.
Reverse logistics has been successfully adapted as marketing strategy. Refurbished computers are sold at cheaper prices by all leading brands and the demand for such laptops seems to be growing. The spare parts used by the computer manufacturers to service the laptops and computers on warranty or on sale, include refurbished parts. Many electronic and consumer durable manufacturing companies offer buy back or exchange offer for the old equipments in lieu of the customer purchasing a brand new product. In consumer electronics and white goods, the exchange offers are a big hit during discount sale seasons.
Principles of reverse logistic administration and practice
Returns are fundamentally complex because of how they impact physical inventory, electronic inventory and accounting systems. All items must be identified, assigned to a customer or account, assigned a disposition and then physically sorted for processing. Since some of the product might be discarded or kept back for vendor chargeback’s, not all merchandise enters electronic inventory; some merchandise must be repacked and accounted for manually versus electronically. Finally, credits are generally issued at a later time and often for only some part of a return, including discarded or un-saleable goods. This process is difficult to automate with a generic ERP package and very challenging with a simple paper process. Specialized returns systems, whether part of a Warehouse Management System (WMS) or stand-alone, can support effective automation with appropriate setup. The software must:
Separate the physical process from the accounting process and allow for gaps between physical and accounting realities. For example, out of a returned pallet only part of the pallet may be added to inventory and a different part of it may be credited to the customer.
Separate responsibility over physical inventory from responsibility over customer credits. A warehouse employee should not be concerned with how and when a customer will receive credit. Credit processors use an electronic transaction log of returns dock activity to release customer credits.
Distinguish between return reasons and physical disposition. The former describes why customer returned it. The latter describes physical state of the merchandise. Credit clerks must understand return reasons. Warehouseman must understand the dispositions.
Try to control the returns process through “Returns Authorizations.” With Return Authorizations, the pre-approved returns can be received quickly thereby simplifying the returns identification and speeding overall processing. To enable radio frequency (RF) equipment automation and verification, these expected returns should be entered into the system prior to arrival.
Stage saleable merchandise by a put away zone. Most of the returned merchandise is generally in saleable condition and will be returned to the storage area. To streamline the subsequent put away process, saleable products should be staged on pallets by destination zone.
Track un-saleable merchandise with a bar-coded label. Any merchandise that is not saleable and cannot be discarded is usually stored according to vendor guidelines. While some vendors simply require an inventory report to issue credits, others will send a sales representative to inspect the goods or to ship to the vendor. A complete audit trail consisting of return reason, date of initial shipment, date of return, customer name, etc. will assure legitimacy of the claim and improve supplier relationships
Key elements of the reverse logistics process
As reverse logistics evolves within your company, you will want to start developing or improving the Key Performance Indicators (KPIs) used to measure and monitor the performance of your Returns Management and Reverse Logistics. To help develop KPIs, Tony Sciarrotta shared some of his insights and important KPIs he uses as the Director of Returns Management at Philips Consumer Electronics, North America.
Tony brings a great deal of experience and industry expertise to the Reverse Logistics requirements for Philips, its supply chain partners and its returns processing partners. “Gate keeping, Product Data and Asset Recovery are three of the key areas I monitor closely,” says Sciarrotta as he outlined some of the KPIs he uses to help manage each of these areas.
Philips works closely with its Retail partners to monitor and manage returns. To do this, Philips shares and reviews regular reports with the retailers to outline the data related to recent product returns. These reports help everyone work together in order to reduce returns and become critical in the arrangements that Philips negotiates with its retail partners.
Philips also monitors statistics about the condition of the returning goods upon arrival. “Flat Panel TV’s can be very expensive if they are not handled properly in the return process.” Working with Retail partners to avoid damage is of major importance.
Discrepancies are also an area monitored closely to ensure that all returning units have been authorized. Recently, Philips has been experiencing very few discrepancies.
Philips outsources its Reverse Logistics processing and repair. The Philips team works closely with its Reverse Logistics partners to monitor No Trouble Found, Repair with Parts, Repair without Parts and the Scrap levels. This important data is forwarded to manufacturing and to the product design groups. “Consumer electronics products are becoming more and more complex. If a product is experiencing a high “No Trouble Found” rate, the data is sent to manufacturing to seek product or user experience improvements to reduce the return rate”
“We always try to achieve the highest asset recovery rate possible” says Sciarrotta. To monitor this, Philips tracks the Asset Recovery rate. Also tracked are returned goods that are sold “as is” and the returned goods that are sold with a warranty. In addition, Philips tracks the performance of the refurbished products to ensure quality standards are maintained.
Improve Your KPIs
Gate keep to ensure only authorized returns are handled. . Obtain good product data to find out why goods are being returned. Get the highest Asset Recovery rate possible. These are the three key areas and some of the related Reverse Logistics Key Performance Indicators that Tony Sciarrotta uses at Philips to help organize, monitor and manage product returns. Use his insights to get started with improvements to your KPIs.
Pros & Cons of Reverse Logistic:
Buyer is happy when he/she receives money back
Buyer Authorization required Pack everything up again.
Insure it wait up to 2 billing cycles for a credit.
Law, Policy and reverse logistic
Reverse Logistics and the management of returned or used merchandise is a growing problem among manufacturers today. In this study we will be presenting the nature and magnitude of the reverse logistics problem in the industry and a literature survey of the previous research in this area. Reverse Logistics deals with the processes associated with the reverse stream from users/owners to re-users. This paper provides content analysis of scientific literature on reverse logistics.
Reverse logistic Policy and Legislation
In direct sales supply chain, the customers buy direct from the manufacturer sacrificing the benefit of physical inspection of the product. This increases the likelihood that customers will have some dissatisfaction with the product and would like to return it. A clearly explained and generous return policy, then, will be welcome by the customers and therefore will enhance sales. However, this reversed flow merchandise has always been a problem for all parties in the supply chain due to the disruption in operations and headache in processing returned merchandises. We are interested to examine the roles of return policy in reverse logistics from various angles. First, we survey the existing literature on the area of reverse logistics. We offer a new literature classification that will close the research’s gap in the area. We then look into specific problems of return policy namely the relationship between price and return policy, the effect of product’s quality on the return policy, and the effect of uncertainty in the returned merchandise to the return policy. We obtain a number of managerial guidelines for using marketing and operational strategy variables to influence the reaction parameters so as to obtain the maximum benefit from the market for each problem. We here also disprove that return policy is all about cost. We show that return policy is a powerful tool to increase firm’s profit.
Principles for a Functional reverse logistic system.
Reverse Logistics Management automates returns across multiple channels to ensure you know what’s coming back, from whom and why. The system is based on a rules engine that can automate the application of return rules. It also houses vendor return policies and automates the return-to-vendor credit process. Reverse Logistics Management can manage returns both coming and going-from the consumer and to the vendor.
By capturing the reasons for returns, you can better monitor quality and vendor performance, and learn more about your customers’ purchase and return behavior. In addition, by returning goods to your supply chain quickly, you can minimize the cost of obsolete goods, and meet customer demand elsewhere.
Reverse Logistics Management transforms the returns process by:
Automating every step: Online or at returns centers, easily differentiate between tiers of customers based on their purchasing patterns. Generate authorizations based on pre-established internal or vendor rules, and apply credits quickly to keep your customers happy.
Centralizing return programs: Streamline returns and staff training by running manufacturer and extended warranty programs all in one automated process.
Consolidating shipments to vendors: Reduce costs and maximize credits by accurately and consistently applying return-to-vendor policies.
Increasing visibility: Reduce inventory holding costs and improve net asset recovery by integrating with Warehouse Management, so products can be reshelf quickly or routed for liquidation.
What happens to products returned?
Most industries today have liberal returns policies that can quickly tax distribution networks when large quantities of items go through the reverse logistics process. Often the distributing warehouse bears the brunt of these costs and efforts associated with returns. Thankfully, this area is also where a properly organized process, supported by latest hardware and software technologies, can produce a competitive advantage, attract new suppliers and control the returns process. In this article we will review common problems that plague returns operations in the warehouse and suggest remedies drawn from best practices.
The returns area of a warehouse is commonly full of a mix of open cartons from many different SKU’s that need to be identified and sorted according to disposition. Through this sorting process, credits must also be issued and return-to-vendor tracking created. The combination of process complexity and low priority of reverse logistics typically means little attention is given to improving the returns process. As a result, warehouse managers tend to treat it as a necessary evil.
Problems affecting returns processing in the warehouse include:
The work area is too small or poorly laid out;
The process is paper intensive in order to describe and track reasons for returned product;
Lack of real time tracking of incoming merchandise does not permit quick put away or cross docking;
Poor process integration into the warehouse does not allow returned merchandise to be immediately allocated and shipped. Orders are often shipped short, while saleable inventory is present on the returns dock;
Lack of tracking and accountability for un-saleable merchandise that is used to bill back the vendor.
The problems in the customer service department include:
Slow, error prone data entry and credit processing based on a multitude of papers delivered from the returns dock;
No link between data collection and credit processing, allowing over-credit given to the customer;
It is difficult to segregate problems by customer, salesperson, truck driver or warehouseman to eliminate misconduct.
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