Problems of Reverse Logistics in Electronic Commerce - Essay Example

Reverse logistics is the removal of returned or unused products and redistributing of these products in order to attain maximum profit. It can also be referred to all the "activities associated with a product/service after the point of sale" (Reverse Logistics Association, n.p, 2008). According to an estimate almost one-half of almost 1% of total United States GDP is due to logistics costs (Reverse Logistics Executive Council, n.p, 2008). Hence we can see that reverse logistics is an important part of any business.

An efficient reverse logistics can lead to more profitability and hence a better competitive position. Reverse logistics is quite different from forward logistics. Forecasting forward logistics is easier than forecasting reverse logistics. In forward logistics the packaging, pricing and routings are clear and uniform whereas in reverse logistics the packaging might be damaged, uneven pricing and undetectable routings can lead to increased costs and hence reduced profits (Pablo Soto & Lourenco, 5 & 6, 2003).

As more and more companies are now selling online, businesses now have to focus on their reverse logistics in order to maintain profits and satisfy customers. This increase in e-commerce or business on the internet has lead to more returned goods. However, most of the time the managers are trying to move the products out of the warehouse and lesser energy is consumed in developing proper reverse logistics (Porolec, 68 & 69, 2000). There can be several different reasons for product return such as: unsatisfied customer, installation or usage problems, warranty claims, faulty order processing, retail overstock, end of product lifecycle or product replacement, manufacture recall programs etc.

A proper study of reverse logistics can help in dealing with all the above problems and even help in reducing them (Schatteman, 267-270, n.d). Some e-retailers have calculated that almost 50% of their products sold are returned. Even though the advent of internet and e-commerce has certainly made life easier, however without proper reverse logistics the online businesses instead of making money incur huge losses. Some products sold online have a higher rate of return than the other products. For e.g.

electronic products have almost 80% rate of return. Hence we can see that different companies have different reverse logistics. (Graeml et al, 1-9, 2001) Companies providing services like ISPs, Jobs and E-mail accounts have lower rate of return and even if some of their products do come under the term 'reverse logistics', they will not incur much loss. However, if we look at companies selling apparel, electronics, shoes, jewelry and other similar items, we can notice a higher rate of return. Such companies usually suffer more in terms of reverse logistics.

With more companies coming into e-commerce, companies now need to redesign their entire reverse logistics, in order to have a competitive edge (Graeml et al, 1-9, 2001). There are several problems associated with reverse logistics. Forecasting reverse logistics is more difficult than forecasting forward logistics. A company can never know which product will come back