How to Succeed in Reverse Logistics

Aug. 1, 2009
Reverse logistics offers an opportunity for improving visibility and profitability while lowering costs across the supply chain.

Reverse logistics — defined as the return/exchange, repair, refurbishment, remarketing and disposition of products — has become an important way for companies to improve visibility and lower costs across the supply chain. In addition, for many organizations, reverse logistics (also known as returns management) can represent a significant source of untapped profitability. Few companies, however, have successfully automated returns operations. Instead, many continue to rely on outdated processes that contribute to supply chain inefficiencies and excessive inventory and costs.

Manufacturers and distributors today must sustain rapid market flexibility and adaptability to compete; those with processes in place to remanufacture or refurbish products and parts can convert damaged inventory into salable goods and recapture value that would otherwise be lost. This is one key reason the focus has shifted to improving reverse logistics to recapture revenue, better service and retain customers, comply with environmental regulations, reduce operating costs and improve product uptime and quality.

Outsource the Process, Not Data

As more companies move to the virtual world of contract manufacturing, new opportunities exist to sustain long-term growth and competitive advantage. But, the increasing globalization of the contract manufacturing market can strain a brand owner's ability to manage and control supply chain operations. By automating returns, companies can create visibility throughout the entire supply chain. And it is this visibility that enables decision makers across the enterprise to become more strategic and effective in their critical thinking.

Supply chain executives and managers should beware, though, of outsourcing reverse logistics. It is one thing to outsource the process but yet another to outsource the data. By simply turning over returns and not leveraging the intelligence that can be gained from automating the processes, companies can lose a critical competitive advantage that comes from data that can, for instance, help detect or prevent product quality and design issues or provide better understanding of customer buying patterns. Taking products to secondary markets to extend end of life also comes into play.

Getting Started

Let's look at four important steps for getting started with integrating reverse logistics operations into your supply chain:

  1. Acknowledge that you may have a problem, from a financial standpoint

    Collect information and evaluate your financial metrics, such as days-on-hand inventory and sales outstanding. Often, people have no idea what these numbers look like nor how much money these idle items cost in terms of lost revenue. One of the best ways to do this is to physically walk through your warehouse. Look for dust in your warehouses and your 3PL's facilities. Take inventory of items sitting around rather than being restored, refurbished or recovered. This will give you an idea of the effectiveness of current processes and opportunities for improvement.

  2. Examine your freight and warehouse costs, including labor and time spent managing returns

    What types of returns does your company typically handle? Do you typically return a whole system, or rather just a subset of components, and where should the items go next (a 3PL facility versus a repair facility)? A sophisticated system can make rapid dynamic decisions (based on rules input into the system) in the field based on each particular situation, translating into potential savings of tens of thousands of dollars in labor and inventory.

  1. Solicit outside help

    Chances are, those within your organization with vast logistics and supply chain experience lack the necessary reverse logistics expertise to put forth strategies and tactics that will have a major impact. Engaging with a partner specializing in returns will enable you to produce a true situational analysis and implement a plan to improve operations and profits with returns automation.

  2. Identify who is responsible for returns

    Until a single department or individual (senior director or higher) owns the entire costs and inefficiencies of poor reverse logistics, no executive emerges as the natural champion to assemble the resources necessary to address the problem and take advantage of the opportunities. By separating reverse logistics functions from overall forward distribution, you can give reverse logistics the attention it deserves without drawing from resources in the supply chain to operate returns processing and repair/refurbishment activities.

Success Strategies

Know the Three Vs — visibility, velocity and value

By automating returns, you will find new ways to improve visibility, velocity and value recapture. And, by enabling rapidly moving goods across both ends of the supply chain, you'll better understand the flow of goods, resulting ultimately in lower costs and better efficiencies across your entire supply chain.

Realize revenue potential

Returns provide a revenue-generating opportunity via value recapture (return, refurbish, recycle). Sophisticated returns automation systems enable you to leverage a product's remnant value by quickly placing it in another product for resale before values depreciate.

Design to deploy

A reverse logistics system will enable you to plan in advance (often as early as the design process) how to best handle returns and ways this can most effectively feed into your product design plan. To be most effective, returns must always work in conjunction with forward flow.

Prevent the gray market and ensure brand protection

Gray market contamination of returned inventory is a risk to your brand. In a highly manual process where large return volumes are in play, the process quickly fails and you, as the brand manager, are no longer managing your brand. Sophisticated systems will verify the authenticity of all returns. Of course, you will be responsible for developing proper rules for each process to ensure all steps and conclusions are appropriate, based specifically on your products, processes and requirements.

Remember customer service

Effective reverse logistics processes will create far more visibility across the entire supply chain, controlling the flow of returned goods so the right orders go to the right customers.

Control product recalls

Without a proper reverse logistics system in place, your company may accept returns on the wrong lot number cited for recall. If this happens, do you scrap these items or ship them off for inspection? Reverse logistics technologies can help with these decisions and allow you to put hands on products and lots, enabling you to save possibly millions of dollars by appropriate disposition.

Go green

Reverse logistics can be part of an overall green initiative. If you can more easily and accurately determine the plight of returned items, you will reduce your overall footprint by significantly reducing the number of shipments items make across their lifetime.

Opportunities Abound

While supply chain executives traditionally viewed returns as a necessary evil, today, they have become not only a potential profit center but also a critical component of every company's overall supply chain. Companies must recognize that reverse logistics has become an important source of opportunity for improving visibility and profitability and lowering costs across the supply chain. And, those who recognize and take advantage of the opportunities that result from automating reverse logistics processes can transform their supply chains into highly profitable, streamlined business operations.

Pat Anderson is solution architect with TAKE Supply Chain, formerly known as ClearOrbit, a provider of supply chain visibility and execution software.

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