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Reverse Logistics: Business Implications

Reverse logistics involves the reuse of products and materials and the efficient flow of items from the point of consumption back to the origin. It includes remanufacturing, refurbishing, and the proper disposal of goods. The goal is to recapture value. Reverse logistics manages the sale of surplus equipment returned from leasing businesses. It is important for companies to efficiently process returns to provide good customer service while controlling costs. Integrating reverse logistics across business functions can help companies plan for external factors and improve competitive positioning. Third-party logistics providers typically earn profits of 12-15% on reverse logistics contracts.

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135 views2 pages

Reverse Logistics: Business Implications

Reverse logistics involves the reuse of products and materials and the efficient flow of items from the point of consumption back to the origin. It includes remanufacturing, refurbishing, and the proper disposal of goods. The goal is to recapture value. Reverse logistics manages the sale of surplus equipment returned from leasing businesses. It is important for companies to efficiently process returns to provide good customer service while controlling costs. Integrating reverse logistics across business functions can help companies plan for external factors and improve competitive positioning. Third-party logistics providers typically earn profits of 12-15% on reverse logistics contracts.

Uploaded by

albert
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Reverse logistics

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."[1] 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.[2]

Business Implications
In today's marketplace, many retailers treat merchandise returns as individual, disjointed
transactions. "The challenge for retailers and vendors is to process returns at a proficiency
level that allows quick, efficient and cost-effective collection and return of merchandise.
Customer requirements facilitate demand for a high standard of service that includes accuracy
and timeliness. It’s the logistic company's responsibility to shorten the link from return
origination to the time of resell."[3] By following returns management best practices, retailers
may achieve a returns process that addresses both the operational and customer retention
issues associated with merchandise returns.[4] Further, because of the connection between
reverse logistics and customer retention, it has become a key component within Service
Lifecycle Management (SLM), a business strategy aimed at retaining customers by bundling
even more coordination of a company's services data together to achieve greater efficiency in
its operations. Reverse logistics is more than just returns management, it is "activities related
to returns avoidance, gatekeeping, disposal and all other after-market supply chain issues". [5]
Returns management – increasingly being recognized as affecting competitive positioning –
provides an important link between marketing and logistics. The broad nature of its cross-
functional impact suggests that firms would benefit by improving internal integration efforts.
In particular, a firm's ability to react to and plan for the influence of external factors on the
returns management process is improved by such internal integration.[6] Third-party logistics
providers see that up to 7% of an enterprise's gross sales are captured by return costs. Almost
all reverse logistics contracts are customized to fit the size and type of company contracting.
The 3PL's themselves realize 12% to 15% profits on this business.[7]

Return of unsold goods


In certain industries, goods are distributed to downstream members in the supply chain with
the understanding that the goods may be returned for credit if they are not sold. Newspapers
and magazines serve as examples. This acts as an incentive for downstream members to carry
more stock, because the risk of obsolescence is borne by the upstream supply chain members.
However, there is also a distinct risk attached to this logistics concept. The downstream
member in the supply chain might exploit the situation by ordering more stock than is
required and returning large volumes. In this way, the downstream partner is able to offer
high level of service without carrying the risks associated with large inventories. The supplier
effectively finances the inventory for the downstream member. It is therefore important to
analyze customers’ account for hidden cost.

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