REVERSE LOGISTICS: BENEFITS AND IMPLICATIONS


By
Prof. R K Gupta
Director
S.A. Jain Institute of Management & Technology
Ambala City
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
Phone : 0171-2518670/409
 


This is concerned with return of goods to supplier for whatever reasons and efficient handling of the same through application of logistics systems with or without use of software. In competitive environment reverse logistics viz. accepting product returns, product recall, product disposal and product recycling not only result in competitive advantage and differentiation but also increase profitability of organizations and compliance to ever-stringent environmental protection requirements. These are bound to take place in Indian economy too as the markets heat up and margins thin out with Environmental regulations clawing down upon the Industry in near future.

Reverse logistics, the handling and disposition of returned goods, "used to be something that happened in the back room and wasn't considered strategic," says John Corrigan, VP and CIO at Estče Lauder. "It's now being brought to senior management's attention and viewed as an addressable and important part of the business."

For a number of reasons, companies including General Motors; Sears, Roebuck; 3M; and a handful of online retailers have seen reverse logistics emerge from the shadows of the back room to the bright light of the boardroom. At the simplest level, the disposition of returned goods consists of junking them or giving them away. But with more sophisticated systems and processes, returned goods can be put back into inventory, sold at liquidation centers, or broken down to component parts--steps that can cut costs, increase profits, and improve customer service. Says Gus Pagonis, executive VP of logistics at Sears, "Logistics is the last frontier for cost reductions."

The logistics design objectives include reverse material flow system to support the life cycle of the product. In fact, reverse logistical competency is the result of worldwide attention to environmental concerns. Reverse logistics network can be used for various purposes such as refilling, repairs, refurbishing, remanufacturing etc. Depending upon the nature of the product, unit value, sales volume, and distribution channel, reverse logistics can be organized and the system designed in various situations.

Let see for example a few applications:

1. Refilling of LPG gas cylinders by petroleum companies like IOC, HP etc.

2. Refilling of Glass bottles for cold drinks like Coca Cola, Pepsi etc

3. Product recall like in case of Glaxo Laboratories, Mumbai ,I remember, in 1977 they had to recall Baby Milk food packs from market due to some variations in formula.

4. In case of Alloy Steel bars supplied to auto and engineering industries, the manufacturing plants have to frequently take the goods back on account of composition variations or internal defects in product and reprocess or resale to other types of users from warehouses or taking these right back to Manufacturing facility.

5. Occasional recall of cars by major Auto suppliers when some defects are found in transmission, chassis or other parts of automobiles for repair or refurbishing.

6. Waste and packing material recycling is now being strictly enforced in many countries led by Germany. Here the FMCG manufacturers have jointly promoted the Dealers System Deutschland (DSD), with common funding, for collection packaging waste of FMCG Products. Same ways in US old batteries have to be taken back.

One can think of disposal of old computer CPUs and Monitors in US Markets; a phenomenal environmental concern.

7.  Sony, a consumer electronics giant operating in USA uses its regular dealer network for reverse flow of video and audio systems returned by customers within the warranty period.

We can thus see that reverse logistics addresses several issues in supply chain management and overall economics and social responsibilities of businesses. Often a successful and well-managed system can result in improved profitability and Brand image of the companies.

After the Japanese Government passed The Electric Home appliances Recycling Law in April 2001, the Matsushita group, having brand names National and Panasonic, set up a recycling plant in 2002 for processing of one million units of various consumer durables (including White goods & Electronics)

8. In second hand item exchange offers now very popular in India, although. The items are normally refurbished in local areas only, like television sets and Maruti True Value dealers, still these can be considered as part of reverse logistics system.

The Logic Chart:

(Courtesy: Logistics Europe: April 2004; Steve Butler)


One of the important issue in reverse logistics design is Cost implications in pick up, transport, handling and processing and also product breakages like in case of empty bottle returns for soft drinks and beer (as high as 5%). Same way laws regarding excise and sales tax on resale of processed goods also have to be taken into account. The manufacturer can consider regional warehouses for such system or bring back material to its Main facility depending upon nature of defects or work required.

One of the major bottlenecks in reverse flow of goods is comparatively small consignment size requiring cargo consolidation at intermediate points or part shipment, which may escalate costs.

In competitive markets, to retain existing customers, Organisations may create brand-switching barriers by extending value added service to their customers.

The efficiency and effectiveness in logistics operations enhances the service capability of the firms in satisfying the customer. To remain competitive and differentiated (It is now very difficult to differentiate on product parameters or advertising alone), more and more firms across the world are showing speed and reliability in service offering such as:

Replacing defective goods
Repairing used products
Refurbishing return products
Calling back substandard or harmful products
And disposing product waste

These services add to the competitiveness of the company operating in a regulatory environment and create customer value by providing a clean environment through reverse logistics service without any extra cost to customers.

Outside Help

Despite the proprietary innovation of some, most companies that have seriously tackled reverse logistics have done so using a third-party service provider. Sears, for example, contracted with Genco more than five years ago to handle the reverse flow of goods. When executive VP of logistics Pagonis arrived at Sears in 1993 the product returns were handled individually by retail stores. Pagonis worked with Genco to set up three central returns centers to reduce the time involved with returned goods at individual stores to a minimum. To increase economies of scale, Pagonis consolidated 68 liquidation centers for appliances to 38. "We used to lose a lot of money when we destroyed goods at stores or didn't get proper credit from vendors," Pagonis says.

Following is the Logistics services examples of ROADWAY Reverse Logistics, Inc given on their website:
 

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Prof. R K Gupta
Director
S.A. Jain Institute of Management & Technology
Ambala City
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
Phone : 0171-2518670/409
 

Source : E-mail January 10, 2005

 

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