Impact of Reverse Logistics on Supply Chain Performance - Essay Example

s Impact of Reverse Logistics on Supply Chain Performance ID 16th April Table of Contents University’s Name 1 1 Impact of Reverse Logistics on Supply Chain Performance 1 Student’s Name 1 Student’s ID 1 Course 1 Date: 16th April 2013 1 Impact of Reverse Logistics on Supply Chain Performance 3 Impact of Reverse Logistic on Supply Chain Management 5 Reverse Logistics – Impacting the Bottom Line 7 Works Cited 10 List of Tables and Figures 11 Impact of Reverse Logistics on Supply Chain Performance Reverse logistics refer to backward flow of products which we wish to move in a forward-only process. It is not possible that a company expects zero product returns. Given the upsurge of direct-to-home shipments, direct-to-store shipments, online shopping and intricacy of global sourcing, mistakes in the delivery process are growing exponentially. Hence, the importance of reverse logistics is becoming an integral point of consideration in corporate sector. Mastering the process of reverse logistics can have a direct impact on company’s ROI, operating cost and the level of customer service needed to compete in today’s economy. Competitive prices, product quality, on time deliveries, consistent order cycle times and low damage rates have always been important and will stay to be so in the future as well. As a procedure, Reverse Logistics can be referred to as those activities, which are related to getting goods (packaging, materials, products) back from the point of use so that they can be resold, refurbished, disposed or reused properly. Activities that are involved in the process of reverse logistics include collecting goods, sorting them out, establishing logistic providers’ network to return and transport good, remanufacturing or refurbishment of selected goods, reuse or resale and finally disposing of. For a practitioner, the choice can be determined by the most lucrative alternative. Reconditioning – is an activity in which a product is repaired and cleaned to bring it to a new state. Refurbishing – involved in overhauling of the product, refurbishing is similar to reconditioning. Remanufacturing – it requires more extensive work, in often cases, a product is completely disassembled and then prepared all over again Resell – it refers to selling the product again as a new product or to a new market Recycle – also called as asset recovery, in recycling the product is reduced to basic elements which can be used again The core purpose of reverse logistics is to plan and process effectively in order to reverse the supply chain. By doing so, firms can properly determine and allocate returned products for disposition. Disposition can be referred to as that area which offers several opportunities of supplementary revenue to business. Reverse logistics is not about just counting defective or returned goods from customers. The purpose of reverse logistics include repairs processing, product recall protocols, return policy administration, parts management, product repackaging, maximizing value of liquidation, product disposition management, recycling and much more. Being inattentive to returned or defective goods can be harmful to company not only in terms of losing revenues, but also in terms of losing regular customers. Even the most loyal customers will begin to escape if they find continued offering of defective products. In today’s intense competition, it can become difficult for a firm to survive if it does not consider these minor points and does not choose to alter its supply chain activities as per the demand of the situation. With the passage of time, alterations and modifications are required in each step of supply chain. Failing to do so can cause firms huge loss of time and money. Impact of Reverse Logistic on Supply Chain Management The growth of reverse logistics in assembled products is increasing in direct proportion to the advancements in technology. It is also directly propotional to the subsequent price erosion since new and innovative products appear in the supply chain at faster rate. With such intense competition and thin margins, malpractice in supply chain can be overwhelming. Only those organizations which possess adequate infrastructure based on changes in resale value, refurbishment cost, repair, spare part and overall demand will not only become lucrative but their scalability and flexibiltiy will allow them to ourtperform others and eradicate rivalry. Today’s business environment has become a case of modern Darwinism. It requires integration and collaboration among various stages of supply chain or else appear in the list of endangered species. Technology is now driving at astounding pace. The ability to migrate, capture, facilitate and integrate the data of intelligent analysis is similar to the invention of fire. This is what distinguishes the companies which are walking upright from the ones which are stuck in slow response. At the beginning, reverse logistics were evaluated on the basis of customer accommodations and convenience. The emphasis was on the front end of the process of return, i.e. on the ability of customers to return defective or unwanted goods back to the company. Providing customers the facility to return the goods back was a courtesy which later on turned into a compelling differentiating factor in retail sector. Companies which did not follow this race and did not provide their customers with the support of returning goods back soon found themselves at a competitive disadvantage to those which did. They were forced to adopt this strategy or lose a large chunk of their customers to the competitors. It did not take retailers too long to find out the same discounts and concessions from distribution channels and retailers. Such situations led to making the practice of returning defective merchandise a standard practice. Though, it is commonly accepted nowadays, but this has not been the case always. Even today, in many countries, product return is disregarded with cultural differences, especially for those products which were not defected and were returned due to ‘customer remorse’. As the modes of transportation became more refined and cost of reverse logistics continued to upsurge, distributors and manufacturers began to find alternatives for saving transportation cost. Consolidating and planning freight for products that were returned was determined as a way to diminish labour and fuel related expenses. Reverse Logistics – Impacting the Bottom Line Many executives spend large sum of money for processing return and believe that investing resources elsewhere will generate higher returns. Therefore, they emphasize only on trying to reduce the processing of cost of returns. In reality, for most of the companies, the costs associated with reverse logistics are less than 4% of the total supply chain expense. Though efficiency maximization is integral, reverse logistics also offer a wide range of opportunities for improving performance, which may include unexpected revenue source, customer service etc. Broadly, there are few key areas where a firm can impact reverse logistics activities in a positive manner. They include: Protecting Profits Managing returns in a proper manner and tracking all the activities are essential to support firms avoid penalties and fines from several government regulatory agencies such as Consumer Product Safety Commission, FDA etc. The largest amount of fine that was imposed by EPA against one of a firm in New Jersey was around $500,000. Customer Loyalty According to a survey conducted in 2005, 95% of the customers prefer not buying from the company from which they had bad post sales experience. This explains why firms need to take reverse logistics into account. Through this, they can enjoy 12% advantage in customer satisfaction and therefore can outperform competitors. Returns to Revenue Smart companies ensure on time delivery and processing of returned goods all by themselves in order to earn more and save more from the products that are returned. From repackaging, refurbishing and reselling to recycling, reclamation, returned products are one of the way to untap revenue sources. Maximize Rate of Recovery Not handling a returned product properly or misplacing it can cause inefficiency in any reverse logistics process. It also means that the returned product may end up in a total loss for the company instead of becoming an opportunity to recycle or resale spare parts. Disposal Benefits Identifying what is returned and managing to deal with it makes it easier for firms in dealing with governing issues and seeking to sell returned goods through other secondary channels of sales. There are also other benefits such as managing staff level, minimizing insurance and taxes, avoiding high inventory costs etc. Reverse logistics has gained more attention after the traditional notion that manufacturers do not feel responsible for the products after they are sold. A large number of used products were incinerated or dumped into garbage causing substantial damage to the environment. Nowadays, regulatory authorities and consumers expect manufacturers to minimize waste that is being generated by their products. Few reasons which have become active contributors in the evolution of reverse logistics are: Environmental laws that oblige firms to take care of wastes that is being produced during production processes and their further treatment. The growing economic and environmental awareness of customers Economic and environmental benefits of using returned products in the manufacturing process instead of paying additional cost for their disposal Manufacturers seldom pay attention to reverse logistics and usually consider it as an ugly process because of the thought that it will not yield anything to a business. Executives are usually unaware of the impact that reverse logistics might have on consumers. It can help in gaining customer loyalty by satisfying them with their products instead of just selling them a product and then getting disappeared. If ignored, precarious functions of reverse logistics can cost companies a loss of millions in terms of profit due to hampered customer relationship. It may also result in external liability that can have huge impact on the profitability of a business. However, if managed effectively, reverse logistics can help companies in seeking hidden profits, minimize liability and improve customer satisfaction. Businesses and their respective supply chain will continue to find out different ways to obtain competitve advantage. Reverse logistics is one of the most widely acknowledged way to reduce cost and increase customers as well as revenues. It can also assist in acquiring market advantage. In order to do so, metrics that quantify various aspects of reverse logistics must be established and implemented. These metrics can be used in reverse as well as forward logistics. Whether goods are in reverse or forward channels, they influence firm’s profitability in similar manner. For instance, product returns increase cost of sales and decrease sales revenue. In short, there are numerous reasons – customer service, costs, revenue - for which reverse logistics has been proved as an increasingly integral part of present and future of supply chain tactics and strategies. It behooves businesses to be on the leading edge for the process development of reverse logistics. Works Cited Greve, Curtis and Davis, Jerry, n.d. Recovering Lost Profits by Improving Reverse Logistics. [online] Available at: < http://www.ups.com/media/en/Reverse_Logistics_wp.pdf > [Accessed 16th April 2013] Heljula, Mike, 2012. Reverse logistics impact the supply chain, says Arrow. [online] Available at: < http://www.electronicsweekly.com/articles/13/04/2012/53424/reverse-logistics-impact-the-supply-chain-says-arrow.htm> [Accessed 16th April 2013] Mehrmann, John, n.d. Reverse Logistics in Supply Chain Management. [online] Available at: < http://www.executiveblueprints.com/tips/070127reverselogistics.htm> [Accessed 16th April 2013] Stock, J. R., 1998. Reverse Logistics in the Supply Chain. [online] Available at: [Accessed 16th April 2013] List of Tables and Figures Fig 1.1 Diagram of Flow of Reverse Logistics Fig. 1.2 Reverse Logistics Flow Chart Fig 1.3 Reverse Logistics Prodct Lifecycle Fig 1.4 Graph showing percentage of repairs required in laptop industry Read More