REVERSE LOGISTICS

1
REVERSE LOGISTICS

• Henrique Mendonca
• Bouchra Mrabet
• Daniel Restrepo
• Mario Velez

2
Definitions

• Logistics (Forward)
• 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
  origin to the point of consumption for the
  purpose of conforming to customer requirements
• - Council of Logistics, 1988 -
• Reverse Logistics
• 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
• - Rogers and Tibben-Lembke -

3
Reverse Logistics Activities

• Handling of returned merchandise
• Damage
• Seasonal inventory
• Resell via outlet
• Salvage of outdated products
• Stockbalancing returns
• Recycling and reuse
• Material reuse
• Remanufacturing / refurbishing
• Hazardous materials disposition

4
The Reverse Logistics Process
Source http//www.rlmagazine.com/img/edition04_up
s.jpg
5
Size of Reverse Logistics

• Reverse logistics costs in the United States are
  estimated to be approximately 4 of total U.S.
  logistics costs
• - ROGERS, D., Reverse Logistics Challenges, 2002
  -
• - Roughly 47 billions in 2006
• It is estimated that reverse logistics costs
  account for almost 1 of the total United States
  gross domestic product
• MOORE, R., Reverse logistics The least used
  differentiator, 2006.
• - Roughly 132 billions in 2006
• The Center for Logistics Management at the
  University of Nevada conservatively estimates
  that 6 of all goods may be returned, but
  concedes that the true number may be closer to
  8
• MOORE, R., Reverse logistics
• The least used differentiator, 2006.

6
Return Percentages
Source Rogers and Tibben-Lembke, Going
Backwards Reverse Logistics Trends and
Practices, 1998
7
Publishing Industry

• Highest rate of unsold copies (28 on average)
• Growth of large chain stores More square footage
  requires more books
• To secure a prominent display in superstores,
  publishers must supply large quantities of books
• Superstores sell less than 70 of books they
  order
• Shorter shelf life

8
Computer / Electronic Industry

• Shorter life cycles
• Approximately 325 million PCs became obsolete in
  the US between 1985 and 2005
• Opportunities to reuse and create value out of a
  nearly omnipresent asset
• How to recover and reuse materials contained
  within E-waste?
• Lead, copper, aluminum gold, plastics and glass
• E-waste includes computers, televisions, cell
  phones, audio equipment and batteries
• Remanufacturing of toner cartridges 12,000
  remanufacturers, employing 42,000 workers, sell
  nearly 1 billion annually

9
Automotive Industry

• Three primary areas
• Components in working order sold as is
• Other components, such as engines, alternators,
  starters, and transmissions are refurbished
  before they can be sold
• Materials are reclaimed through crushing or
  shredding
• Automotive recyclers handle more than 37 of the
  nations ferrous scrap
• Remanufactured auto parts market is estimated at
  34 billion, annually

10
Retail Industry

• Profit margins are so slim that good return
  management is critical
• Returns reduce the profitability of retailers
  marginally more than manufacturers
• Returns reduce the profitability of retailers by
  4.3
• The average amount that returns reduce
  profitability among manufacturers is 3.80

11
Forward vs. Reverse Logistics
12
STRATEGIC USE OF REVERSE LOGISTICS

• Reverse Logistics as a Strategic Weapon
• Many firms have not yet decided to emphasize
  reverse logistics as a strategic variable.
• The handling of reverse logistics challenges is
  an strategic capability.

• Reverse logistics is strategically used to
• Reduce the risk of buying products that may not
  be hot selling items.
• Increase the switching costs of changing
  suppliers.

Source Rogers and Tibben-Lembke, Going
Backwards Reverse Logistics Trends and
Practices, 1998
13
STRATEGIC USE OF REVERSE LOGISTICS

• Competitive Reasons
• Liberal return policies over the last few years
  due of competitive pressures.
• Taking back unwanted products or products
  customers believe do not meet needs.

• Good Corporate Citizenship
• Use reverse logistics capabilities for altruistic
  reasons, such as philanthropy.
• These activities enhance the value of the brand
  and are a marketing incentive to purchase their
  products.

Source Rogers and Tibben-Lembke, Going
Backwards Reverse Logistics Trends and
Practices, 1998
14
STRATEGIC USE OF REVERSE LOGISTICS

• Clean Channel
• Clean out customer inventories, so that they can
  purchase more new goods.
• Fresher inventories can demand better prices,
  which in turn, protects margin.

• Recapture Value and Recover Assets
• Large portion of bottom-line profits is derived
  from asset recovery programs.
• Profit derived from materials that were
  previously discarded.

• Legal Disposal Issues
• As landfill fees increase, and options for
  disposal of hazardous material decrease, legally
  disposing of non-salvageable materials becomes
  more difficult.

15
STRATEGIC USE OF REVERSE LOGISTICS

• Operational Factors in Reverse Logistics Systems
• A holistic view of reverse logistics is essential
  for a profitable and sustained business strategy.

Source Dowlatshahi S. Developing a theory of
reverse logistics. Interfaces May/Jun 2000
16
REVERSE LOGISTICS CHALLENGES

• Retailer Manufacturer Conflict
• Inefficiencies that lengthen the time for
  processing returns
• Condition of the item
• Value of the item
• Timeliness of response
• They have to develop a working partnership to
  derive mutual benefit.

• Problem Return Symptoms
• Lack of information about the process.
• If you arent measuring it, you arent managing
  it.

Source Rogers and Tibben-Lembke, Going
Backwards Reverse Logistics Trends and
Practices, 1998
17
REVERSE LOGISTICS CHALLENGES

• Cause and Effect
• Poor data collection leads to uncertainty about
  return causes.
• Improving the return process decreases costs.
• Being able to see defective products and to track
  return issues.

• Reactive Response
• Government regulation or pressure from
  environmental agencies .
• It has not been possible to justify a large
  investment in improving reverse logistics systems
  and capabilities.

18
BARRIERS TO GOOD REVERSE LOGISTICS

• Numerous barriers to good reverse logistics exist
  
• Management inattention and the lack of importance
  of reverse logistics.
• Corporate strategy for handling returns and
  non-salable items.
• Legal issues do not appear to be a major problem.

• Companies can not continue to overlook the
  necessity of good reverse logistics management.

Source Rogers and Tibben-Lembke, Going
Backwards Reverse Logistics Trends and
Practices, 1998
19
Key Reverse Logistics Management Element

• Avoidance

Goal design its merchandise and systems in a
manner that will minimize returns since the
impossibility of fully prevent customers from
sending purchased products back
Preventive Measures

• To increase Quality minimize returns by
  defective products
• Return agreements with retailers / distributors
• Customer Service providing toll-free numbers
  that customers can call before returning products

20
Key Reverse Logistics Management Element

• GATEKEEPING

The screening of defective and unwarranted
returned merchandise at the entry point into the
reverse logistics process Rogers, Dale, and Don
Tibben-Lembke
The Nintendo example - Rebate retailers if
they register the game player sold to the
consumer at the point of sale -
Nintendo/retailers can determine if the product
is under warranty, and also if it is being
returned inside the allowed time window - The
impact from this new system on their bottom line
was substantial 80 drop in return rates
21
Key Reverse Logistics Management Element

• Compacting Disposition Cycle Time

Goal to reduce the amount of time to figure out
what to do with returned products once they arrive

• Important to know beforehand what to do with
  returned goods
• When material often comes back in to a
  distribution center, it is not clear whether the
  items are defective, can be reused, or
  refurbished, or need to be sent to a landfill
• The challenge of running a distribution system
  in forward is difficult employees have
  difficulty making decisions when the decision
  rules are not clearly stated and exceptions are
  often made

22
Key Reverse Logistics Management Element

• Reverse Logistics Information Systems

One of the most serious problems that the
companies face in the execution of a reverse
logistics is the dearth of a good information
systems. To work well, a flexible reverse
logistics information system is required.

• The system should create a database at store
  level so that the retailer can begin tracking
  returned product and follow it all the way back
  through the supply chain
• Information system should also include detailed
  information programs about important reverse
  logistics measurements, such as returns rates,
  recovery rates, and returns inventory turnover
• Useful tools such as radio frequency (RF) are
  helpful. New innovations such as two-dimensional
  bar code and radio frequency identification
  license plates (RFID) may soon be in use
  extensively

23
Key Reverse Logistics Management Element

• Centralized Return Centers (CRC)

• Consistency in disposition decisions and
  minimizations of errors
• Space saving advantage for retailers who want to
  dedicate as much of the shop floor to salable
  merchandise as possible
• Labor cost reduction due to specialization, CRC
  employees can typically handle returns more
  efficiently than retail clerks can
• Transportation cost reduction empty truckloads
  used to pick up return merchandise
• A selling tool the easy disposition of returned
  items represent can be an appealing service to
  retailers, and may be a deal-maker for obtaining
  or retaining customers

• Faster disposition times it allows the company
  to obtain higher credits and refunds stay idle
  for smaller periods of time, thus losing less
  value
• Easier to identify trends in returns an
  advantage to manufacturer who can detect and fix
  quality problems sooner than if these returns
  were handled entirely by customer service
  personnel

24
Key Reverse Logistics Management Element

• Zero Returns

• A program where the company in question does not
  accept returns from its customers. Rather, it
  gives the retailer an allowable return rate, and
  proposes guidelines as to the proper disposition
  of the items. Such policies are usually
  accompanied by discounts for the retailer
• It passes the returns responsibility onto the
  retailer, while reducing costs for the
  manufacturer or distributor
• The drawback the manufacturer losses control
  over its merchandise

25
Key Reverse Logistics Management Element

• Remanufacture and Refurbishment

The advantage to using reworked parts is felt
through cost saving

• Five categories of remanufacture and
  refurbishment

Make the product reusable for its intended purpose
Retrieving reusable parts from old or broken
products
Reusing parts of products for different purpose
1) Repair 2) Refurbishing 3) Remanufacturing
4) Cannibalization
5) Recycling
26
Key Reverse Logistics Management Element

• Asset Recovery

Asset recovery is the classification and
disposition of returned goods, surplus, obsolete,
scrap, waste and excess material products, and
other assets, in a way that maximizes returns to
the owner, while minimizing costs and liabilities
associated with the dispositions Rogers, Dale,
and Don Tibben-Lembke
the objective of asset recovery is to recover as
much of the economic (and ecological) value as
reasonably possible, thereby reducing the
ultimate quantities of waste. Rogers, Dale, and
Don Tibben-Lembke

• This is a good cash generating opportunity for
  companies who can sell these goods that would be
  otherwise end up in landfills

27
Key Reverse Logistics Management Element

• Negotiation

• Negotiation is a key element for all parties of
  the reverse logistics process. Because of the
  inherent lack of expertise on product returns,
  negotiations usually are informal and approached
  without formal pricing guidelines. Firms often do
  not maximize the residual value of returned
  product

• Financial Management

• Probably the most difficult part of reverse
  logistic and also one of the most important
• Returns are sometimes charged against sales.
  People in the sales department may tend to fight
  returns and delay them as much as possible.
  Furthermore, accounts receivables are impacted by
  returns

• Outsourcing

• Reverse logistic is usually not a core
  competence of the firm. In many cases, however,
  it makes more sense for the firm to outsource
  their reverse logistics functions than keep those
  in-house.

28
Reverse Logistics and the Environment

• Environmental considerations have a greater
  impact on many logistics decisions.
• For example
• Many products can no longer be placed in
  landfills
• Firms forced to take back their products at the
  end of their useful lifetime.
• Decrease of landfill availability and increase in
  Landfill costs.

29
Green Logistics and Reverse Logistics

• Reverse Logistics refers to all efforts to move
  goods from their typical place disposal in order
  to recapture value.
• Green Logistics refers to minimizing the
  ecological impact of logistics, for example,
  reducing energy usage of logistics activities and
  reducing usage of materials.

30
Landfill costs and availability

• There is a shortage of landfill space
• Prices of landfill usage have been rising.
• Considering the rate at which Americans generate
  waste, landfill alternatives must be developed.
• New ways are considered to prolong the lives of
  existing landfills by reducing the volume of
  material that goes into them.
• The reduction in material sent to the landfill
  can be achieved through recycling, composting and
  incineration.

31
Disposal Bans and Reverse Logistics

• Products are banned from being placed in a
  landfill either because they present a health
  risk, example the cathode ray tubes (CRTs) in
  computer monitors, or because they take up too
  much space.
• Products banned from landfills are motor oil,
  household batteries, household appliances, paper
  products, tires, and some medical and electrical
  equipment.
• Product ban represents a new reverse logistics
  opportunity.

32
Product Take-Back

• A number of societal changes regarding the
  environment are having a profound impact on
  reverse logistics.
• Firms are forced to take their products back when
  they are banned this benefits the firms in two
  ways. They reuse the products and recapture their
  value. The firm is exposed as an environmentally
  friendly company.

33
Product Take-Back

• Companies have begun to examine new ways to
  regain value from products once they have reached
  the end of their useful lives.
• Companies have begun to realize the potential
  marketing benefits of a take-back program.

34
Product Take-Back

• Many companies such as Compaq, Hewlett-Packard,
  and Xerox have adopted the Extended Product
  Responsibility (EPR) program. EPR focuses on the
  total life of the product, looking for ways to
  prevent pollution and reduce resource and energy
  usage through the products life cycle.

35
CONCLUSIONS

• More firms will give considerable attention on
  reverse logistics
• Efficient handling and disposition of returned
  product can make a competitive difference.
• Excellent reverse logistics practices add to the
  companys bottom line.

• Aspects to reduce the cost of reverse logistics
• Improved Gatekeeping technology
• Partial returns credit
• Earlier disposition decisions
• Faster processing / shorter cycle times
• Better data management

36
CONCLUSIONS

• Within reverse logistics, maintaining the
  environment and making profits are complementary.
• Fewer disposed products can benefit companies and
  the environment.
• Alternate uses of resources by extending
  products normal life cycles.
• Cost effective and ecologically friendly
  solutions.

• Video

http//www.youtube.com/watch?vLh5Vft8Q0FY
Reverse logistics is not simply a matter of
driving the truck the opposite way.