Praveen Singh Bhandari

To start - Definition
Reverse Logistics 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
- Rogers and Tibben-Lembke

Reverse logistics may be defined as a process of moving goods from their place of use, back to their place of manufacture for re-processing, re-filling, Repairs or recycling / waste disposal.

Reverse Logistics Activities

Handling of returned merchandise Damage Seasonal inventory Resell via outlet Salvage of outdated products Stockbalancing returns Recycling and reuse Material reuse Remanufacturing / refurbishing

Hazardous materials disposition

Forward Vs Reverse Logistics

Forward Logistics
Straightforward forecasting

Reverse Logistics
Forecasting more difficult

One to many distribution point

Many to one distribution point

Destination / Routing clear

Destination routing unclear

Uniform pricing

Pricing depends on many factors Inventory management not consistent Negotiation complicated by additional consideration

Consistent inventory management

Negotiation between parties straightforward

Publishing Industry
Highest rate of unsold copies (28% on average) Growth of large chain stores: More square footage requires more books

To secure a prominent display in superstores, publishers must supply large quantities of books
Superstores sell less than 70% of books they order Shorter shelf life

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Computer / Electronic Industry

Shorter life cycles Approximately 325 million PCs became obsolete in the US between 1985 and 2005

Opportunities to reuse and create value out of a nearly omnipresent asset

How to recover and reuse materials contained within E-waste?

Lead, copper, aluminum gold, plastics and glass

E-waste includes computers, televisions, cell phones, audio equipment and batteries Remanufacturing of toner cartridges: 12,000 remanufacturers, employing 42,000 workers, sell nearly $1 billion annually

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Automotive Industry
Three primary areas: Components in working order sold as is Other components, such as engines, alternators, starters, and transmissions are refurbished before they can be sold Materials are reclaimed through crushing or shredding Automotive recyclers handle more than 37% of the nations ferrous scrap Remanufactured auto parts market is estimated at $34 billion, annually

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Retail Industry
Profit margins are so slim that good return management is critical Returns reduce the profitability of retailers marginally more than manufacturers Returns reduce the profitability of retailers by 4.3% The average amount that returns reduce profitability among manufacturers is 3.80%

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Drivers in Reverse Logistics

The success of reverse logistics system depends on the efficiency and effectiveness of following sub-systems 1. PRODUCT LOCATION The first step in the call back process is to identify the product location in the physical distribution system of the firm.

Product location becomes more difficult after it is sold and handed over to the customer.
Tracing the product location becomes easier if proper documentation is maintained at each channel level.

2. PRODUCT COLLECTION SYSTEM Once the product location is identified, the collection mechanism gets into operation.
This Can Be Done Either Through Companys Field Force, channel members or third party.

Proper instructions have to be given to motivate the customer for returning the products.

Drivers in Reverse Logistics Product Location

3. RECYCLING / DISPOSAL CENTRES These may be the companys plant/ warehouses or some fixed location in the reverse logistics network. The called back products are inspected before they are further processed for further repairs, refurbishing, remanufacturing or waste disposal.

4. DOCUMENTATION SYSTEM Tracing the product location becomes easier if proper documentation is maintained at each channel level.
However, at the time of handing over the product to the customer, the detailed information if collected through proper documentation, can form a good database that can be used in case of product call backs.

Strategic use of reverse logistics

Strategic Weapon o Reduce the risk of buying products that may not be hot selling items. o Increase the switching costs of changing suppliers.

Competitive Reasons o Liberal return policies over the last few years due of competitive pressures. o Taking back unwanted products or products customers believe do not meet needs.
Good Corporate Citizenship o Use reverse logistics capabilities for altruistic reasons, such as philanthropy. o These activities enhance the value of the brand and are a marketing incentive to purchase their products.

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Strategic use of reverse logistics

Clean Channel o Clean out customer inventories, so that they can purchase more new goods. o Fresher inventories can demand better prices, which in turn, protects margin.

Recapture Value and Recover Assets o Large portion of bottom-line profits is derived from asset recovery programs. o Profit derived from materials that were previously discarded.
Legal Disposal Issues o As landfill fees increase, and options for disposal of hazardous material decrease, legally disposing of non-salvageable materials becomes more difficult.

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998

Strategic use of reverse logistics

Operational Factors in Reverse Logistics Systems
A holistic view of reverse logistics is essential for a profitable and sustained business strategy.

Source: Dowlatshahi S. Developing a theory of reverse logistics. Interfaces; May/Jun 2000

Reverse Logistics Cost Implications

The reverse logistics system is a cost centre. However, these costs are incurred for achieving companys certain objectives and can be attributed to the following activities: 1. Product location (investment & operating costs)

2. Transportation
3. Product collection (customers > retailers > plant) 4. Disposal (Plant > Suppliers / Disposal) 5. Refilling, repairs, refurbishing, remanufacturing, recycling 6. Documentation (for product tracking and tracing during entry, exit and flow in the system) .

Reverse Logistics Barriers

Legal issues o Under Indian regulations excise paid goods once sold by the manufacturer cannot be brought back to the plant without proper documentation and declaration to excise authorities. o This is a very cumbersome & time consuming process and non-compliance may mean that the manufacturer will have to face legal action. o Many organizations term reverse goods as junk and they dont want to waste their resources on these junks The goods are considered unworthy of any investment