Reverse Logistics And Reverse Flows In Supply Chain

Hasna C. K.
School of Management Studies

CUSAT,Kochi – 22

Email: hasnaharis.f@gmail.com

Abstract: Reverse logistics is for all operations related to the reuse of products and
materials. It is the process of moving goods from their typical final destination for the
purpose of capturing value. Remanufacturing and refurbishing activities also may be
included in the definition of reverse logistics. This paper provides a basic introduction to
the concept of reverse logistics and also explains how reverse logistics is different from
traditional logistics. It also includes various functions of reverse logistics, benefits of an
efficient reverse logistics system, steps involved in a reverse logistics system, various
supply chain analytics for reverse logistics system and also includes a case study.

Key Words: Reverse Logistics, Reverse Flow

1.0 INTRODUCTION

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 logistics, 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.

When a manufacturer’s product normally moves through the supply chain network, it is to reach
the distributor or customer. Any process or management after the sale of the product involves
reverse logistics. If the product is defective, the customer would return the product. The
manufacturing firm would then have to organise shipping of the defective product, testing the
product, dismantling, repairing, recycling or disposing the product. The product would travel in
reverse through the supply chain network in order to retain any use from the defective product.
The logistics for such matters is reverse logistics.

Reuse of products and materials is not a new phenomenon, waste paper recycling, deposit
systems for soft drink bottles, and metal scrap brokers are all examples that have been around
for a long time. However, reverse logistics as a research field is relatively new. A body of
knowledge is beginning to develop around the reverse logistics field which only emerged within
the last two decades or so. Especially during the last decade, reverse logistics has obtained
recognition both as a research field and as a practice. Although reverse logistics has been
gaining more and more attention recent years, many companies haven’t fully realized its
importance and what is reverse logistics. As a matter of fact, reverse logistics is too often
viewed as a headache, an expensive and recurring headache.

Reverse logistics presents one of the biggest operational challenges in the world
of eCommerce freight logistics due to the sheer volume and cost of processing returns.
Effective reverse logistics is believed to result in direct benefits, including improved customer
satisfaction, decreased resource investment levels, and reductions in storage and distribution
costs. The amount of returned goods going backwards along the supply chain from the end
point (customers) is usually much more than people normally think. As an example, the sheer
volume of returns generated in many companies, ranged from 3% to as high as 50% of total
shipments across all industries. Many other studies indicated the real costs of the returns take
up roughly 3%-5% of total revenue. Surprisingly, for the traditional bricks-and-mortar retail
operations, returns are 3 to 4 times more expensive than forward (outbound) shipments. In
some industries such as book publishing, catalogue retailing, and greeting card, over 20% of
all products sold are eventually returned to the vendor. What’s more surprising is that some
industries are estimated to have return rates in the range of 30 percent to 50 percent with other
estimates are as high as 60 percent. Given the status quo of the reverse logistics, the neglect
of the importance to the reverse part of the logistics flow opens an opportunity to create and
manage customer relationships and build customer loyalty to the retailer.

2.0 REVERSE LOGISTICS

Reverse logistics is for all operations related to the reuse of products and materials. It 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." Growing green concerns and advancement of green supply
chain management concepts and practices make it all the more relevant. The number of
publications on the topic of reverse logistics have increased significantly over the past two
decades. The first use of the term "reverse logistics" in a publication was by James R. Stock in
a White Paper titled "Reverse Logistics," published by the Council of Logistics Management in
1992. The concept was further refined in subsequent publications by Stock (1998) in another
Council of Logistics Management book, titled Development and Implementation of Reverse
Logistics Programs, and by Rogers and Tibben-Lembke (1999) in a book published by the
Reverse Logistics Association titled Going Backwards: Reverse Logistics Trends and
Practices. 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
logistics, 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
2.1 Key Process

Reverse supply chain refers to the movement of goods from customer to vendor. This is the
reverse of the traditional supply chain movement of goods from vendor to customer. Reverse
logistics is the process of planning, implementing and controlling the efficient and effective
inbound flow and storage of secondary goods and related information for the purpose of
recovering value or proper disposal. Typical examples of reverse supply chain include:

 Product returns and management of their deposition.

 Remanufacturing and refurbishing activities.
 Management and sale of surplus, as well as returned equipment and machines.

In these cases, the resource goes at least one step back in the supply chain. For instance,
products move from customer to distributor or manufacturer. Other instances of products
reversing direction in the supply chain are manufacturing returns, commercial returns (B2B and
B2C), product recalls, warranty returns, service returns, end-of-use returns and end-of-life
returns. There are various types of reverse supply chains, and they arise at different stages of
the product cycle; however, most return supply chains are organized to carry out five key
processes:

 Product acquisition: Obtaining the used product from the user by the reseller or
manufacturer.
 Reverse logistics: Transporting products to a facility for inspecting, sorting and
disposition.
 Inspection and disposition: Assessing the condition of the return and making the
most profitable decision for reuse.
 Remanufacturing or refurbishing: Returning the product to its original
specifications.
 Marketing: Creating secondary markets for the recovered products.

The importance of reverse supply chain is demonstrated through a statistic originating in the
U.S. that suggests nearly 20% of everything that is sold is returned. This number obviously
varies by product and channel type; nevertheless, with the high ratio and challenging economic
conditions, addressing returns within the reverse supply chain can help cut costs, increase
profit margins or both.

2.2 Importance of Reverse Logistics

Reverse logistics (RL) is becoming an important aspect of supply chain management. Many
companies that, previously, did not devote much time or energy to the management and
understanding of reverse logistics have begun to pay attention. Firms have begun to
benchmark return operations with best in-class operators. Third parties specializing in returns
have seen demand for their services greatly increased. The growing environmental concern
worldwide, forced companies to engage in reverse logistics, such as re-use of products and
materials and recycling. Practically, most of the companies deal with returns of some nature
because of issues such as marketing returns, damage or quality problems, overstocks,
refurbishing or remanufacturing. Handling returns present a great challenge for companies,
while in many cases becomes a necessity for keeping customers satisfaction to a certain level.
Reverse logistics operations in a supply chain may be considered as an introduction to
innovative services of a company's portfolio. They may have an important impact on a firm's
strategic performance in terms of market effectiveness, as well as, internal cost efficiency.
Through reverse logistics innovation, it may be possible to expand revenue through market
growth due to account customization, service augmentation, and improved customer
satisfaction. Reverse logistics is becoming an area of competitive advantage. Reverse logistics
is necessary for the following reasons:

 Positive environmental impact: legislations acts, also called “producer responsibility

laws,” require manufacturers to develop a policy for the collection and reuse of products
at the end of their life cycle.
 Competitiveness advancement: efficient handling of returns leads to reduced costs,
increased profits and improved customer service.
 Regaining value: efficient reverse logistics can capture values from reusing products
or parts or recycling materials.

2.3 Reverse Logistics Flow And Traditional Logistics Flow

For reference, the traditional logistics flow is defined by the Council of Supply Chain
Management Professionals glossary, as “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 origin to the point of consumption for the purpose of
conforming to customer requirements”. The same glossary defines reverse logistics as “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.”

Reverse logistics is quite different from the traditional logistics, or forward logistics, activities.
The below figure is a traditional logistics flow:

Fig.1 Traditional Logistics Flow

Sales forecast is used to project sale requirement, when certain amount product is required,
they will be shipped to the DC (distribution centre) and then shipped to the retail stores from
DC. At every single level of the supply chain, ASNs (Advanced Shipping Notices) will be
assisting the useful information as the products flow.
Reverse logistics flow, however, is a different story. Shippers generally do not initiate reverse
logistics activity as a result of planning and decision making on the part of the firm, but in
response to actions by consumers or downstream channel members. Here is the figure
outlining what is reverse logistics flow:

Fig.2 Reverse Logistics Flow

When a return occurs, the returned product will be collected (in many different ways) and will
be sent to the distribution centre. At the same time the relevant information about the
return item description, condition at return, customer information etc., will be transferred to the
return processing center, but unfortunately, given the current state of the reverse logistics
status quo, this information capture process rarely occurs, or occurs with less accuracy.

2.4 How Reverse Logistics Works

The reverse logistics process is fairly easy to understand once you have broken down the 6
steps companies follow to carry out this specific management strategy. The various steps
involved in reverse logistics of direct drive logistics is explained below:
 Fig.3 Reverse logistics process flow chart

The six major steps involved in the reverse logistics of direct drive logistics are the following:

Step 1: Package and product retrieval

The very first step involved in this process is taking responsibility for retrieving unused or
returned packages and products from either a warehouse or a customer. Taking a direct
approach to the return shipping process allows to take advantage of the amount of the returned
goods in various industries.

Step 2: Take over return shipping

No one likes returning their shipment or deliveries themselves. Reverse logistics gives you the
opportunity to improve the customer experience and loyalty when you hand return shipping
responsibilities.

Step 3: Repairing, refurbishing and fixing

Not only this step is environment friendly, but by repairing old packages to be used again, you
can effectively cut down future packaging costs. The third step of reverse logistics is one of the
most valuable part of the process and is the most attractive to the companies around the globe
because of the revenue it promises to save you in the long run.

Step 4: Screening and inspecting collected items

During the screening of packaging, safety and regulations are checked. Although, the company
can do their best to refurbish broken products or packaging, they can’t send you a shipping box
irreversibly damaged to be used for another shipment. The inspection aspect of reverse
logistics is like a comprehensive quality check.
Step 5: Processing, organising and sorting

The fifth step of reverse logistics gets everything prepared for shipment. Instead of throwing
thousands of collected and approved products and packaging at your workers to organise, the
company does it themselves. The company follow every process to the end to ensure that the
customer is satisfied with supply chain that they have provided.

Step 6: Recycling, discarding and reselling

Reverse logistics truly comes together once we have reached at the end of the process. The
final step includes either recycling, reselling or even discarding the repurposed packaging and
products they have collected, repaired and organised for the customer.

3.0 REVERSE LOGISTICS AND SCM

3.1 Return of Goods Sold

Most supply chains will stop measuring the success of their goods once the product is shipped
and is delivered on time. While this is can be an accurate measurement of customer satisfaction
and profit, it doesn’t account for all cases. The different phases a product return goes are the
following:

 The physical shipping of the returned product.

 Quality testing the returned product to replicate the error or identify the flaw.
 Documenting any problems with the returned item.
 The disassembling, repairing, recycling, or restocking of the returned item.

Managing the reverse travel of your product back into the supply chain can help you avoid
making the same mistake twice and allow you to reutilize as many components of your products
as possible.

3.2 Monitoring the Flow of Reverse Logistics in Your Supply Chain:

There are four key supply chain analytics that can help you understand the flow of returned products
entering your supply chain. They are as follows:

1. Volume. Are the same items being returned over and over is one important question to deal
with. Is this happening in large volumes is yet another question to deal with. Answer yes to
either of these questions and you’ve probably got a larger problem than just a few faulty units.
You may need to consider a recall or an overhaul of your production process.

2. Percent of Sales. What percentage of your sales are lost to product returns? And how many
of these products can be reincorporated into your supply chain via reverse logistics? According
to a study by the Aberdeen Group, the average manufacturing company will spend 9% to 15%
of total revenue on the returns process. What can you do to minimize these losses of revenue?
How can you turn a profit on a loose?

3. Condition the Product is Returned In. Is the product failing after a specific operation? Can
you determine any patterns of failure among the returned product? This is where quality
assurance (QA) and error reproduction are important. You want to figure out what went wrong
so you can adapt and correct the problem before it happens again.

4. Financial Value. Without monitoring and managing your reverse logistics, your company
could be losing millions of dollars in potential value. Consider failed electronics that are returned
to their manufacturer. According to Recovering Lost Profits by Improving Reverse Logistics,
electronics sold in secondary-markets represent an estimated $15 billion (sold) in the United
States. These electronic companies manage to turn product failure into new profits by utilizing
reverse logistics.

3.3 Benefits of an Efficient Reverse Logistics System

While many companies consider the return process to be a necessary evil that shouldn’t be
noticed, companies that implement an effective reverse logistics workflow can reap several
benefits. Some of these benefits are:

 Reduced costs. By planning ahead for returns and making the return order right, you can
reduce related costs (administration, shipping, transportation, tech support, QA, etc.)
 Faster service. This refers to the original shipping of goods and the return / reimbursement
of goods. Quickly refunding or replacing goods can help restore a customer’s faith in a brand.
 Customer retention. Dealing with errors is just as important as making sales. If a customer
had a bad experience with your product, you have to make it right. Fulfilment blunders can
create educational opportunities. Learn how to keep your customers happy and engaged
with your company - even after you’ve made a mistake.
 Reduced losses and unplanned profits. Recover the loss of investment in your failed
product by fixing and restocking the unit, scrapping it for parts, or repurposing it in a
secondary market. With a good reverse logistics program in place, you don’t have to leave
money on the table. Take a product that would otherwise just cost your company money and
turn it into an unforeseen asset.

3.4 Reverse Logistics as a Strategic Option

For any company, strategic variables are those that have a long-term bottom-line impact. These
variables must be managed effectively, efficiently and proactively not tactically or reactively for
the viability of the company. Until recently, most companies concentrated only on business
functions such as finance or marketing as strategic variables. Logistics capabilities were looked
at as a strategic variable during the late 1970s and 1980s. Most companies now look at reverse
logistics as holding an important strategic role, but this function has yet to gain the status of a
strategic variable. The importance of reverse logistics is increasing for a number of reasons:
  Companies are seeing tangible benefits from the value that can be recaptured from
unproductive assets resulting from returned merchandise, such as significant
reductions in inventories, improvement in cash flow, reduced labor and improved
customer satisfaction.
 There is an increase in competitive pressure to provide an effective, efficient returned
goods process. The increase in catalog and e-business shopping has resulted in a
liberalization of return policies in order to gain customer trust and reduce risk
 Product lifecycle compression and an increased emphasis on introducing new products
and product “freshness” has created a need to clear the distribution channel more
frequently, requiring an efficient means to bring back obsolete, outdated or clearance
items.
 Increased regulatory requirements regarding recycling and product disposition
especially around products having environmental hazards has increased the need for
precision record keeping and tracking.

3.5 Case Study: Reverse Logistics Operations of Apple Inc.

Previously their take-back (reverse logistics) program comprised of 2 methods:

 Customer drop-off

 Direct shipment to their centralized return centre

When customers drop off the products at the service centres the products are merged before
being shipped to the centralized return centre and customers do not have to pay for shipping
and handling.

In recent times Apple has added an online return system, in which a customer fills out the return
form and once the application is completed successfully and it meets all required criteria Apple
Inc sends a packaging box for the customer to ship the product back to them for either trade-in
or whatever the case maybe.

A case was published in an SC Digest about a customer who requested for his defective iPod
to be returned online at the Apple website. He keyed in relevant information asked and within
12hours he got a mail from Apple confirming that the product was still under warranty and
approving the return. Within 2days Apple delivered via express package service a box for
shipping the product back to one of its source centres, within weeks a new iPod was delivered
to him.( SC digest, 2009)

Basically even if a customer goes to a service and support centre of one of the retail centres
and asks for a take back or replace, the product is checked and if it is still under warranty or
has a defect it is taken and shipped to the testing and disassembling centre for testing,
remanufacturing, recycling or disposal if necessary and the customer does not have to pay for
shipment. A personal case happened that a customer went to an Apple retail shop with a
defective product for a trade-in, the product was tested and within 1week a new phone was
sent to the customer.
3.6 Environmental Issues and Means of Improving

For many years Apple has been working on means to minimize the impact their products have
on the environment. Their first policy was developed in 1990, since then they have been
designing new means of energy efficiency, reducing environmental impact via digital
consumption. In 2010 Apple introduced the Apple Battery charger for recharging batteries,
instead of the disposal alkaline batteries and this reduces waste by 78%. (Apple Inc, 2012).

In recent times Apple faced an enormous number of concerns about toxic pollution and
industrial unit accidents at an overseas suppliers’ factory in China, and that environmental
examinations would be separate from an independent investigate of working conditions at the
overseas factory of the supplier. Apple Inc reviewed this problem and hopes to make public the
results of the review. (Kathy, 2012)

Greenpeace international campaigned against Apple on various environmental issues

regarding a particular chemical called polyvinyl chloride (PVC) and brominated flame retardants
BFRs toxins in their products, on the 2nd of May 2007 Steve Jobs released a statement
announcing the policy to eliminate the toxins by the end of 2008 (Apple Inc, 2008), the
enterprise has since eliminated the toxins from their products becoming the first laptop
manufacturer to do so. (ABC News, 2007)

Because of the issues about landfill sites Apple has devised a means to meet the energy
requirements of their landfill site in Carolina using renewable resources. The energy efficient
design element of Apple’s facility will include a construction process that utilizes 14% recycled
materials diverted 93% of construction waste from landfill and sourced 41% of purchased
materials within 500 miles of the site (Apple,2012). Apple is devoted to protecting and shielding
the environment, health and safety of employees, customers; in fact the whole planet from
environmental hazards and this is stated in their environment health and safety policy
statement.

Apple Inc has a life cycle assessment process that evaluates the effect a product has on the
environment throughout its life cycle and the objective of the assessment does is to improve
resource efficiency while trying at the same time to reduce the impact the product has on the
environment during the activities of recycling, manufacturing, re-manufacturing, distribution,
usage and disposal.

Apple is market driven, has strong leadership, strong direction, and great software support, has
a good financial analysis report so the basic implementation issues like financial issues, lack of
knowledge of reverse logistics, misconception etc are not factors for Apple as compared to
some other companies.

3.7 Success and Benefits of Implementation

Apple has mastered the act of reverse logistics and they have success stories in the following
fields: impact on supply chain management, relative price performance, product quality,
reliability, design innovation, marketing and distribution capacity, service and support, corporate
reputation, constant development etc (John, 2010)

A previous challenge that Apple had was the consumer mindset about environmental issues
but the public have a better opinion about Apple products in recent years because of the extent
on how Apple has gone to tackle and improve the environmental issues they had in the past.
Reverse logistics has helped to improve expertise and also helped to satisfy customers.
4.0APPLICATION OF REVERSE LOGISTICS ACROSS INDUSTRIES

4.1 Computer/Electronics Industry:

The computer and electronics industry is known for short product lifecycles. A big market has
emerged for used PCs — both in developing and developed countries. According to Gartner,
37 million secondary PCs were refurbished and exported to emerging markets in 2008, and the
market research firm predicts that this number will rise to 69 million by 2012.1 In 2007, nearly
68 million secondary PCs had to be discarded worldwide. In emerging countries, approximately
15 million secondary PCs had to be discarded in 2007. Gartner estimates that by 2012,
emerging countries will need to dispose of a total of 30 million secondary PCs annually. The
need and opportunities for reuse of obsolete products cannot be over emphasized. Building to
order is an effective way to minimize the return chain, as it allows manufacturers to postpone
final transformation of the product until the end of the channel and configure the exact computer
that the customer wants. The inventory holding period decreases sharply with this approach.
This is in sharp contrast with the rest of this industry, which typically will have 30 to 60 days of
inventory pre-sold into the channel. Manufacturers/retailers that sell directly to the customer
and build to order have significantly lower return rates than the rest of the industry. Statistics
indicate that return rates for these companies are around 5%, about half of what the rest of the
industry experiences. In the words of one executive interviewed, “We send out a million
computers. Pretty soon, most of them come back.” The build-to-order model, combined with
direct sales, eliminates this problem. Manufacturers also contract with remanufacturing
specialists to develop solutions to this problem. These specialists work with manufacturers to
evaluate the root cause of returns, excess and obsolete machines, and develop methods to
control cost and return rates. These companies test, recondition, repair, repack and then resell
the machines. The functions of service center, warranty repair and other servicing are often
outsourced to a third party that specializes in this business. These programs have led to lower
returns.

4.2 Automobile Industry

The automobile industry is one of the largest industries in the world and deals with the most
expensive of consumer goods. Therefore, it is not surprising that reverse logistics is an
important subject for this industry. The three primary areas in which reverse logistics plays a
significant role are:
 Salvage of parts and materials from end-of-life vehicles.
 Remanufacturing of used parts.
 Stock-balancing returns of new parts from dealers.
The big three automakers in the U.S. have joined together to form the Vehicle Recycling
Development Center (VRCD) in order to increase the recyclability of cars. At VRDC, the focus
is on learning to build vehicles that can be disassembled more easily. The center is investigating
one of the newest trends in engineering, Design for Disassembly (DFD). With DFD, product
disassembly is made easier by reducing the number of parts, rationalizing the materials and
snap-fitting components instead of using chemical bonds or screws. Unlike other environmental
initiatives for manufacturing, DFD offers the possibility of many unintended positive effects,
such as remanufacturing. The automobile industry may be the industry with the longest history
of making use of old products. According to the Auto Parts Remanufacturers Association
(APRA), the market for remanufactured auto parts is estimated at $34 billion, annually. The
APRA also estimates there are 12,000 remanufacturing firms (including large-scale companies)
involved in the auto parts industry. One particular company remanufactures more than four
million alternators, starters and water pumps every year. Between 90% to 95% of all starters
and alternators sold for replacement are remanufactured. Automakers want to maintain a
closed-loop system with their parts. When a vehicle needs a new transmission, it is their hope
that the consumer will bring the car to a dealer that will replace the old transmission with a
remanufactured one. The dealer will send the old transmission (now called a transmission
“core”) to the automaker for remanufacturing. In this way, the automaker will maintain a stable
supply of transmission cores. The estimated cost of reverse logistics in the Indian auto and auto
components industry is around 0.5% to 1% of total sales. The reverse logistics segment has
been growing at the same rate for both the auto and auto components industries during the
same period.

4.3 Information Technology in Reverse Supply Chain

Information technology can be used in various ways to improve the reverse logistics in
industries. One of the main uses of IT is to enable item tracking in the supply chain, enabling
vendors to see the travel history of the item. This can help in quickly discerning whether
products are as good as new and should be put back into the forward supply chain. This tracing
ability also enables forecasting of product returns based on historic linkage between product
returns and sales. Reverse logistics also involves refurbishing/testing facilities at multiple
locations, routing of vehicles between retailers and these facilities, as well as scheduling of
operations, all of which can be aided by information technology. It was found that a German
recycling network could reduce its transport volume by 20% based on software optimization. In
high-tech products, the customer often ends up ordering parts that may not fulfill the product’s
technical specifications (e.g., printer cartridges) and thus end up returning the product unused.
If the transaction takes place online, the company can allow/disallow parts ordering based on
the model specification (e.g., printer) that the user enters on the Web site. Again, complicated
electronics items like VCRs, PCs, etc. require complex set-up specifications, and so, in addition
to a simplified user manual, remote online support for fault detection can greatly reduce the
number of product returns. Technology can also be embedded in high-value products such as
heavy engineering machines, auto engines, etc. to keep track of the usage the machine was
subjected to during the time it was used by the customer. For example, Bosch uses an
inexpensive “data logger” chip in the electric motor of its power tools, which records the number
of hours of use and the speed at which the tool has been operated. This enables the company
to determine if it should send the tool for remanufacturing or recycling based on the number of
hours used and the speed at which the tool was run.

4.4 Environmental Concerns

Increased regulations by U.S. and European governments are causing manufacturers to invest
in reverse logistics processes to ensure proper disposition of their products. Computer
manufacturers such as Dell and Hewlett-Packard have received criticism for not properly
disposing of the e-waste they generate. Land-filling practices are being overhauled due to stiffer
disposal regulations, which have increased operating costs. Some companies are trying to
apply internal research to establish environmentally friendly measures; however, the truth is
that no company will implement processes that are not sustainable to them in the long run. If
legislation forces them to do so, they will have to pass on the increased manufacturing costs
to customers. Challenges persist across the manufacturing value chain for managing the
reverse logistics process. Chief among them are:

 Meeting consumer needs: Customers want the best price and completely flexible and
hassle-free returns policies.

 Volume management: Retail returns are around $60B+ annually, and total returns
across the U.S. high-tech service industry are forecast at $818B+ through 2008.
Especially during peak seasons, most of these returns are time-sensitive to process
and restock for resale.

 Management of costs: Expense management can represent up to 7% to 8% of the

cost of goods. The process is labor intensive with very little automation.

 Data management: Having accurate data is important, but it is very difficult to obtain
and manage relevant information. An organization should understand the data source,
know how to analyze it and should use third-party experts if possible.

 Disposition of product: Knowing the best location to handle, destroy, salvage and
even where to donate products is critical. So is the ability to handle a supplier return,
whether it is defective or working with overstock balancing.

 Regulatory compliance: Organizations require complete understanding of waste

management laws, regulations and processes, including the company’s corporate
social responsibility.

 Partnership throughout the product lifecycle: Having the right partner throughout
the product lifecycle is key. Creating a strong and cohesive supplier agreement, jointly
determining the best approach, cost sharing and having a positive relationship will help
improve the bottom line for everyone.

4.5 Barriers to Reverse Logistics

There are several reasons and explanations why companies in the past did not accept and
introduce reverse logistics but today a change in the perception and understanding of RL has
been noticed as several companies have not only embraced but also implemented this idea.
Change for the better they say is always met with obstacles and barriers, little wonder that such
a great idea that would frontier a major positive change production and manufacture has been
faced with barrier and implementation issues, it is important to differentiate between these two
issues, the main difference being Barriers are legal related whilst implementation issues
pertains to issues relating to the company and organization. Some of these barriers are as
follows:
  Legal issues: The government has strict rules and regulations about recycling sites
and also companies do not want to have to carry the extra burden of paying tax for
recycling sites.
 Environmental issues: The major proof of environmental problems comes from the
rapid need of waste disposal. Previously the majority of the public wastes disposal was
land filled, and this however poses an unacceptable environmental risk because of
location of the landfill, which in hindsight have posed hazardous risks to human health
through ground water contamination and toxic air emissions. Landfill sites have become
a major issue as it pertains to the environment and human health because it has played
out that the cons of having a landfill far outweighs its pros, strains on the natural
environment as well as sickness from contamination became the order of the day.
Hence the government, environmental bodies and individual are very skeptical about
Landfill sites.

4.6 Issues of Implementation and Risks

 Lack of publicity and knowledge of Reverse Logistics

 Under-development of recycling technology
 Misconception
 Lack of management attention and company policy
 Companies with little or no knowledge of reverse logistics think that reverse logistics
has a high cost of operation and most of these companies have low financial resources.
 Many companies are of the opinion that returns compared to sales generate little or no
money but with the introduction and initiative of the internet, sales returns of goods
&products by customers have improved.
 Forward logistics systems are not designed for reverse logistics system, some
companies do not understand this fact and it leads to poor services and eventually to
failure.
 Poor inventory deployment is also a factor because if the inventory is not managed and
organised properly then companies would not know what is in their inventory and what
parts they need to ask their suppliers for, when there is lack of knowledge of reverse
logistics then there is bound to be risks of failure. But these issues of implementation to
reverse logistics were a traditional way of thinking because these days’ companies have
embraced the practice of reverse logistics.
 Financial risks are also involved when a company does not have the means and
financial status to run a reverse logistics practice, practicing a good and organised
forward logistics does not necessarily mean that the same company can manage a
successful reverse logistics scheme without adequate knowledge and top management
planning.
 Another issue of implementing reverse logistics is the decision to carry out the operation
in-house or to outsource, this decision can be based on a number of factors;
 Volume: if returned goods are low in number then the need to outsource isn’t necessary.
 Cost-control: if the subcontract can perform the tasks more cost effective then the
enterprise in question then the need to outsource can be considered.
 Complexity of Task: if there are varieties of tasks like inspection, testing, repair,
repackaging, recycling, refurbishing etc, all these are time consuming for an enterprise
that isn’t well into the reverse operation then the enterprise can decide to outsource.
5.0 CONCLUSION

While many companies have yet to recognize the strategic potential of efficient reverse
logistics, it is clear that the tide is beginning to turn. There is more interest in reverse logistics
now than ever before. Firms are beginning to make serious investments in their reverse
logistics systems and organizations. One clear indication of the strategic importance of a
business element is the amount of money spent on managing that element. Reverse logistics
will be one way to reduce costs, increase revenues and customer service levels and help to
obtain market advantage. To accomplish this task, metrics that measure various aspects of the
reverse logistics process must be developed and implemented. These metrics across the
supply chain are equally important in forward or reverse logistics (although common metrics
are much less evident in reverse logistics). This reverse distribution activity can be crucial to
the survival of companies, because the permanent goodwill of the company is at stake.
Businesses succeed because they respond to both external and internal changes and adjust
in an effective manner to remain competitive. To achieve its business objectives, a company
must respond to increasing customer demand for ‘‘green’ ’ products, comply with strict
environmental regulations, and implement environmentally responsible plan as a good
corporate citizen.

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