REVERSE

LOGISTICS

Praveen Singh Bhandari

To start - Definition

 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 –

Reverse logistics may be defined as a process of moving goods from

their place of use, back to their place of manufacture for re-processing,
re-filling, Repairs or recycling / waste disposal.
Reverse Logistics Activities

Handling of returned merchandise

 Damage
 Seasonal inventory
 Resell via outlet
 Salvage of outdated products
 Stock–balancing returns

Recycling and reuse

 Material reuse
 Remanufacturing / refurbishing

 Hazardous materials disposition

Forward Vs Reverse Logistics

Forward Logistics Reverse Logistics

Straightforward forecasting Forecasting more difficult

One to many distribution point Many to one distribution point

Destination / Routing clear Destination routing unclear

Uniform pricing Pricing depends on many factors

Consistent inventory management Inventory management not

consistent

Negotiation between parties Negotiation complicated by

straightforward additional consideration
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

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Computer / Electronic Industry
 Shorter life cycles
 Approximately 325 million PC’s 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

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
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 nation’s ferrous scrap

 Remanufactured auto parts market is estimated

at $34 billion, annually

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
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%

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
Drivers in Reverse Logistics
The success of reverse logistics system depends on the efficiency and effectiveness of
following sub-systems
1. PRODUCT LOCATION
 The first step in the call back process is to identify the product location in the physical
distribution system of the firm.
 Product location becomes more difficult after it is sold and handed over to the
customer.
 Tracing the product location becomes easier if proper documentation is maintained at
each channel level.

2. PRODUCT COLLECTION SYSTEM

 Once the product location is identified, the collection mechanism gets into operation.
 This Can Be Done Either Through Company’s Field Force, channel members or third
party.
 Proper instructions have to be given to motivate the customer for returning the
products.
Drivers in Reverse Logistics – Product Location
3. RECYCLING / DISPOSAL CENTRES
 These may be the company’s plant/ warehouses or some fixed location in the reverse
logistics network.
 The called back products are inspected before they are further processed for further
repairs, refurbishing, remanufacturing or waste disposal.

4. DOCUMENTATION SYSTEM
 Tracing the product location becomes easier if proper documentation is maintained at
each channel level.
 However, at the time of handing over the product to the customer, the detailed
information if collected through proper documentation, can form a good database that
can be used in case of product call backs.
Strategic use of reverse logistics
 Strategic Weapon
o Reduce the risk of buying products that may not be “hot selling” items.
o Increase the switching costs of changing suppliers.

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

 Good Corporate Citizenship

o Use reverse logistics capabilities for altruistic reasons, such as philanthropy.
o 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
Strategic use of reverse logistics
 Clean Channel
o Clean out customer inventories, so that they can purchase more new goods.
o Fresher inventories can demand better prices, which in turn, protects margin.

 Recapture Value and Recover Assets

o Large portion of bottom-line profits is derived from asset recovery programs.
o Profit derived from materials that were previously discarded.

 Legal Disposal Issues

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

Source: Rogers and Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, 1998
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

Reverse Logistics – Cost Implications
The reverse logistics system is a cost centre. However, these
costs are incurred for achieving company’s certain
objectives and can be attributed to the following
activities:
1. Product location (investment & operating costs)
2. Transportation
3. Product collection (customers > retailers > plant)
4. Disposal (Plant > Suppliers / Disposal)
5. Refilling, repairs, refurbishing, remanufacturing,
recycling
6. Documentation (for product tracking and tracing during
entry, exit and flow in the system) .
Reverse Logistics – Barriers
 Legal issues
o Under Indian regulations excise paid goods once sold by the manufacturer cannot
be brought back to the plant without proper documentation and declaration to
excise authorities.
o This is a very cumbersome & time consuming process and non-compliance may
mean that the manufacturer will have to face legal action.
o Many organizations term reverse goods as ‘junk’ and they don’t want to waste
their resources on these ‘junks’

 The goods are considered unworthy of any investment

Thank
You