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• Definition
• Sectoral Returns Percentage
• The Network Process
• Reverse Logistics Process
• Elements
• Challenges
• Barriers
 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
• Rising competition
• Increasing expectations from the
• To extract max efficiencies
• To get max value out of returns, bad
products and defectives.
• To reduce operating costs by
reusing products and components
• Operational Factors in Reverse Logistics
– A holistic view of reverse logistics is essential for a profitable
and sustained business strategy.
Return Percentages
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
 Superstores sell less than 70%
of books they order
Computer / Electronic
• Shorter life cycles
 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
Automotive Industry
 Three primary areas:
– Components in working order
sold as it is
– Other components, such as
engines, alternators, starters,
and transmissions are
refurbished before they can be
– Materials are reclaimed
through crushing or shredding
Retail Industry
 Profit margins are so slim
that good return
management is critical
 Returns reduce the
profitability of retailers
marginally more than
 Returns reduce the
profitability of retailers by
 The average amount that
returns reduce profitability
among manufacturers is
• The ‘Reverse’ for an apparel return
is that the merchandise finds its way
back in the supply chain, is restocked
in the warehouse, resent for finishing
and then supplied back to either
multi brands discount outlets,
departmental stores or end-of-season
U.S. Reverse Logistics Costs
Total U.S. Logistics Costs

Approximate RL cost %


Estimated U.S. RL Costs

Forward vs. Reverse
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

The Network of Reverse Logistics

Reverse Logistics Steps production

4. disassembling
and crushing

5. transport

3. transport


collecting point

1. Collecting 2. selection
and sorting
The Reverse Logistics
• GATEKEEPING – “Screening of
defective and unwarranted returned
merchandise at the entry point into
the reverse logistics process”
• To limit the no of items.
• To control & reduce the rate of
returns without damaging customer
• “ The stage at which the products for
return are assembled and directed
towards the reverse logistics system”
• The stage of SORTATION is the point
where what is to be done with the
product is decided.
• 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”
• “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.”
• 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
• Outsourcing
• Reverse logistic is usually not a core competence of the firm. In
many cases, however, it makes more sense for the firm to
• The disposition choice is determined by
the most profitable alternative:
– Reconditioning – when a product is cleaned and
repaired to return it to a “like new” state.
– Recycle – when a product is reduced to its basic
elements, which are reused.
– Refurbishing – similar to reconditioning, except with
perhaps more work involved in repairing the
– Remanufacturing – similar to refurbishing, but
requiring more extensive work; often requires
completely disassembling the product.
– Resell – when a returned product may be sold again
as new.
• 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

 Problem Return Symptoms
o Lack of information about the process.
• Cause and Effect
– Poor data collection leads to uncertainty
about return causes.
– Improving the return process decreases

 Reactive Response
o Government regulation or pressure from
environmental agencies .
o It has not been possible to justify a large
investment in improving reverse
logistics systems and capabilities.
• Numerous barriers to good reverse logistics
– Management inattention and the lack of importance of reverse
– 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
• 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
• 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
• 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
• Centralized Return Centers
• 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
• 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
• 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

• Remanufacture and Refurbishment
• The advantage to using reworked parts is felt through cost saving.

• Five categories of remanufacture and refurbishment :

Retrieving reusable parts from old Reusing parts of products
Make the product reusable for its for different purpose
intended purpose or broken products

1) Repair 4) Cannibalization 5) Recycling

2) Refurbishing
3) Remanufacturing
• Web based information systems
Product Recovery Model
• Web browsers
• Supplier
• Manufacturer
• User
• Collector
• Recoverer
• Re-distributor
• More firms will give considerable attention on reverse
• Efficient handling and disposition of returned product can
make a competitive difference.
• Excellent reverse logistics practices add to the company’s
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
 Within reverse logistics, maintaining the environment and
making profits are complementary.
– Fewer disposed products can benefit companies and the
– Alternate uses of resources by extending products’ normal
life cycles.
– Cost effective and ecologically friendly solutions.
“Reverse logistics is not simply a matter of
“driving the truck the opposite way”.