How to Succeed in Reverse Logistics

Reverse logistics — defined as the return/exchange, repair, refurbishment, remarketing and disposition of products — has become an important way for companies to improve visibility and lower costs across the supply chain. In addition, for many organizations, reverse logistics (also known as returns management) can represent a significant source of untapped profitability. Few companies, however, have successfully automated returns operations. Instead, many continue to rely on outdated processes that contribute to supply chain inefficiencies and excessive inventory and costs.

Manufacturers and distributors today must sustain rapid market flexibility and adaptability to compete; those with processes in place to remanufacture or refurbish products and parts can convert damaged inventory into salable goods and recapture value that would otherwise be lost. This is one key reason the focus has shifted to improving reverse logistics to recapture revenue, better service and retain customers, comply with environmental regulations, reduce operating costs and improve product uptime and quality.

Outsource the Process, Not Data

As more companies move to the virtual world of contract manufacturing, new opportunities exist to sustain long-term growth and competitive advantage. But, the increasing globalization of the contract manufacturing market can strain a brand owner's ability to manage and control supply chain operations. By automating returns, companies can create visibility throughout the entire supply chain. And it is this visibility that enables decision makers across the enterprise to become more strategic and effective in their critical thinking.

Supply chain executives and managers should beware, though, of outsourcing reverse logistics. It is one thing to outsource the process but yet another to outsource the data. By simply turning over returns and not leveraging the intelligence that can be gained from automating the processes, companies can lose a critical competitive advantage that comes from data that can, for instance, help detect or prevent product quality and design issues or provide better understanding of customer buying patterns. Taking products to secondary markets to extend end of life also comes into play.

Getting Started

Let's look at four important steps for getting started with integrating reverse logistics operations into your supply chain:

1. Acknowledge that you may have a problem, from a financial standpoint

   Collect information and evaluate your financial metrics, such as days-on-hand inventory and sales outstanding. Often, people have no idea what these numbers look like nor how much money these idle items cost in terms of lost revenue. One of the best ways to do this is to physically walk through your warehouse. Look for dust in your warehouses and your 3PL's facilities. Take inventory of items sitting around rather than being restored, refurbished or recovered. This will give you an idea of the effectiveness of current processes and opportunities for improvement.

2. Examine your freight and warehouse costs, including labor and time spent managing returns

   What types of returns does your company typically handle? Do you typically return a whole system, or rather just a subset of components, and where should the items go next (a 3PL facility versus a repair facility)? A sophisticated system can make rapid dynamic decisions (based on rules input into the system) in the field based on each particular situation, translating into potential savings of tens of thousands of dollars in labor and inventory.