Reverse logistics

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Reverse logistics encompasses all operations related to the upstream movement of products and materials. [1] It is "the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." [2] Growing green concerns and advancement of green supply chain management concepts and practices make it all the more relevant. [3] The number of publications on the topic of reverse logistics have increased significantly over the past two decades. The first use of the term "reverse logistics" in a publication was by James R. Stock in a White Paper titled "Reverse Logistics," published by the Council of Logistics Management in 1992. [4] The concept was further refined in subsequent publications by Stock (1998) in another Council of Logistics Management book, titled Development and Implementation of Reverse Logistics Programs, [5] and by Rogers and Tibben-Lembke (1999) in a book published by the Reverse Logistics Association titled Going Backwards: Reverse Logistics Trends and Practices. [6] The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer. [7]

Contents

As of 2023, the global reverse logistics market is estimated to be worth approximately $993.28 billion. This value is projected to increase at a compound annual growth rate (CAGR) of 10.34% from 2023 to 2032. [8]

Business implications

In today's marketplace, many retailers treat merchandise returns as individual, disjointed transactions. [9] "The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective collection and return of merchandise. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness. It’s the logistic company's responsibility to shorten the link from return origination to the time of resell." [10] By following returns management best practices, retailers can achieve a returns process that addresses both the operational and customer retention issues associated with merchandise returns. [11] Because of the connection between reverse logistics and customer retention, it has become a key component within Service Lifecycle Management (SLM), a business strategy aimed at retaining customers by bundling even more coordination of a company's services data together to achieve greater efficiency in its operations.[ citation needed ]

Reverse logistics is more than just returns management, it is "activities related to returns avoidance, gatekeeping, disposal, and all other after-market supply chain issues". [12] Returns management—increasingly being recognized as affecting competitive positioning—provides an important link between marketing and logistics. The broad nature of its cross-functional impact suggests that firms would benefit by improving internal integration efforts. In particular, a firm's ability to react to and plan for the influence of external factors on the returns management process is improved by such internal integration. [13] In a firm's planning for returns, a primary factor is the remaining value of the material returning and how to recover that value. [14] "Returned goods, or elements of the product, could even be returned to suppliers and supply chain partners for them to re-manufacture." [15]

Implementing reverse logistics, like other operations and processes, comes with inherent risks. There is limited existing research on the risks associated with reverse logistics operations. Panjehfouladgaran and Lim (2020) addressed this gap by publishing a paper specifically focused on Reverse Logistics Risk Management (RLRM). [16] Third-party logistics providers see that up to 7 percent of an enterprise's gross sales are captured by return costs. Almost all reverse logistics contracts are customized to fit the size and type of company contracting. The 3PL's themselves realize 12 percent to 15 percent profits on this usimajority. Anbrickverage of 8--and-f brick and mortar retail purchases are returned, compared to 20 percent of E-commerce purchases. In the USA alone, it is estimated that return deliveries will cost $550 billion in 2020.[ citation needed ] December is traditionally the busiest month for reverse logistics in the United States, with UPS processing over 1 million returned packages daily through Christmas. [17]

Reverse logistics research has also found that 84.6 percent of companies in the United States use the secondary market and 70 percent see the secondary market as a "competitive advantage." [18] A Taiwanese research paper suggests three influential factors that drive the need for reverse logistics in businesses: economic needs, environmental needs, and social needs. The study, who polled 12 environmental management experts from Taiwanese electronic firms, found that Economic needs are most important with an importance weight of 0.4842, followed by Environmental needs with an importance weight of 0.3728, while Social needs are relatively unimportant with a importance weight of 0.1430. [19]

While the economic need is caused by a company's desire to profit off of the recovery value such as in the US, the Taiwanese study reasons that the importance of Eevironmental needs is due to the concern for waste management shared by the developed countries, such as the countries of the EU, Japan, and the US. For example, in the EU, there exists the "Waste Electronics and Electrical Equipment (WEEE) dDirective, which makes EU producers responsible for collection, treatment, recycling, and recovery of all WEEE; the"Restriction of the Use of Certain Hazardous Substance sin Electrical and Electronic Equipment dDirective, which restricts the use of toxic materials in electronics, and "the Eco-dDsign Requirements for Energy-uUing Products dDirective, which encourage sthe recycling of electronic products. [19]

Return of unsold goods

In certain industries, goods are distributed to downstream members in the supply chain with the understanding that the goods may be returned for credit if they are not sold e.g., newspapers and magazines. This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain members. However, there is also a distinct risk attached to this logistics concept. The downstream member in the supply chain might exploit the situation by ordering more stock than is required and returning large volumes. In this way, the downstream partner is able to offer high level of service without carrying the risks associated with large inventories. The supplier effectively finances the inventory for the downstream member. It is therefore important to analyze customers’ accounts for hidden costs.[ citation needed ]

Reusable packaging

Reusable mineral water bottles in crates Woda.mineralna.w.skrzynkach.jpg
Reusable mineral water bottles in crates

Reusable packaging systems require a closed-loop logistics system.[ citation needed ] Examples include reusable pallets, bulk boxes such as Euro containers, reusable bottles for milk, soda, and beer, compressed gas cylinders, beer kegs, etc. [20]

Refusal of the products in the cash on delivery (COD)

In case of e-commerce business, many websites offer the flexibility of cash on delivery (COD) to their customers. Sometimes customers refuse the product at the time of delivery, as there is no commitment to take the product. Then the logistics service provider follows the process of reverse logistics on the refused cargo. It is also known as Return to Origin (RTO). In this process, the e-commerce company adds the refused cargo to its inventory stock again, after proper quality checks per the company's rules. [21]

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is the part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Inventory</span> Goods held for resale

Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.

Logistics engineering is a field of engineering dedicated to the scientific organization of the purchase, transport, storage, distribution, and warehousing of materials and finished goods. Logistics engineering is a complex science that considers trade-offs in component/system design, repair capability, training, spares inventory, demand history, storage and distribution points, transportation methods, etc., to ensure the "thing" is where it's needed, when it's needed, and operating the way it's needed all at an acceptable cost.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods in distribution channels within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Distribution (marketing)</span> Making products available to customers

Distribution is the process of making a product or service available for the consumer or business user who needs it, and a distributor is a business involved in the distribution stage of the value chain. Distribution can be done directly by the producer or service provider or by using indirect channels with distributors or intermediaries. Distribution is one of the four elements of the marketing mix: the other three elements being product, pricing, and promotion.

A value chain is a progression of activities that a business or firm performs in order to deliver goods and services of value to an end customer. The concept comes from the field of business management and was first described by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

The idea of [Porter's Value Chain] is based on the process view of organizations, the idea of seeing a manufacturing organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources – money, labour, materials, equipment, buildings, land, administration and management. How value chain activities are carried out determines costs and affects profits.

Vendor-managed inventory (VMI) is an inventory management practice in which a supplier of goods, usually the manufacturer, is responsible for optimizing the inventory held by a distributor.

A return merchandise authorization (RMA), return authorization (RA) or return goods authorization (RGA) is a part of the process of returning a product to receive a refund, replacement, or repair to which buyer and seller agree during the product's warranty period.

Service management in the manufacturing context, is integrated into supply chain management as the intersection between the actual sales and the customer point of view. The aim of high-performance service management is to optimize the service-intensive supply chains, which are usually more complex than the typical finished-goods supply chain. Most service-intensive supply chains require larger inventories and tighter integration with field service and third parties. They also must accommodate inconsistent and uncertain demand by establishing more advanced information and product flows. Moreover, all processes must be coordinated across numerous service locations with large numbers of parts and multiple levels in the supply chain.

The beer distribution game is an educational game that is used to experience typical coordination problems of a supply chain process. It reflects a role-play simulation where several participants play with each other. The game represents a supply chain with a non-coordinated process where problems arise due to lack of information sharing. This game outlines the importance of information sharing, supply chain management and collaboration throughout a supply chain process. Due to lack of information, suppliers, manufacturers, sales people and customers often have an incomplete understanding of what the real demand of an order is. The most interesting part of the game is that each group has no control over another part of the supply chain. Therefore, each group has only significant control over their own part of the supply chain. Each group can highly influence the entire supply chain by ordering too much or too little which can lead to a bullwhip effect. Therefore, the order taking of a group also highly depends on decisions of the other groups.

The Supply Chain Operations Reference (SCOR) model is a process reference model originally developed and endorsed by the Supply Chain Council, now a part of ASCM, as the cross-industry, standard diagnostic tool for supply chain management. The SCOR model describes the business activities associated with satisfying a customer's demand, which include plan, source, make, deliver, return, and enable. Use of the model includes analyzing the current state of a company's processes and goals, quantifying operational performance, and comparing company performance to benchmark data. SCOR has developed a set of metrics for supply chain performance, and ASCM members have formed industry groups to collect best practices information that companies can use to elevate their supply chain models.

Merge-in-transit (MIT) is a distribution method in which several shipments from suppliers originating at different locations are consolidated into one final customer delivery. This removes the need for distribution warehouses in the supply chain, allowing customers to receive complete deliveries for their orders. Under a merge-in-transit system, merge points replace distribution warehouse. In today's global market, merge-in-transit is progressively being used in telecommunications and electronic industries. These industries are usually dynamic and flexible, in which products have been developed and changed rapidly.

<span class="mw-page-title-main">FedEx Supply Chain</span> American third-party logistics provider

FedEx Supply Chain, formerly known as GENCO is a major third-party logistics (3PL) provider in the United States and Canada. It serves various industries, including: technology & electronics, retail & e-commerce, consumer & industrial goods, and healthcare industries. The company was founded in the year 1898 by Hyman Shear as H. Shear Trucking Company in Pittsburgh. Currently it is a subsidiary of FedEx.

Sustainable distribution refers to any means of transportation / hauling of goods between vendor and purchaser with lowest possible impact on the ecological and social environment, and includes the whole distribution process from storage, order processing and picking, packaging, improved vehicle loadings, delivery to the customer or purchaser and taking back packaging.

Third-party logistics is an organization's long term commitment of outsourcing its distribution services to third-party logistics businesses.

Hans Ronald "Harold" Krikke is a widely recognized scientist in Closed Loop Supply Chains.

Inventory optimization refers to the techniques used by businesses to improve their oversight, control and management of inventory size and location across their extended supply network. It has been observed within operations research that "every company has the challenge of matching its supply volume to customer demand. How well the company manages this challenge has a major impact on its profitability."

In commerce, global supply-chain management is defined as the distribution of goods and services throughout a trans-national companies' global network to maximize profit and minimize waste. Essentially, global supply chain-management is the same as supply-chain management, but it focuses on companies and organizations that are trans-national.

A transportation and warehouse management system (TWMS) is a software application that supports eCommerce, distribution, and third-party logistics (3PL) companies within supply chain management.

References

  1. ↑ NetSuite.com (14 January 2021). "A Guide to Reverse Logistics". Oracle NetSuite. Retrieved 2022-07-05.
  2. ↑ Hawks, Karen. "What is Reverse Logistics?", Reverse Logistics Magazine, Winter/Spring 2006.
  3. ↑ Srivastava, Samir K. "Network Design for Reverse Logistics", Omega, 2008, 36(4), 535-548.
  4. ↑ James R. Stock, Reverse Logistics (Oak Brook, IL: Council of Logistics Management, 1992)
  5. ↑ James R. Stock, Development and Implementation of Reverse Logistics Programs (Oak Brook, IL: Council of Logistics Management, 1998)
  6. ↑ Dale S. Rogers and Ronald S. Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices (Reno, NV: Reverse Logistics Executive Council, 1999)
  7. ↑ Rengel, P. & Seydl, C. (May 2002). Completing the Supply Chain Model at seydl.at. Retrieved on 2019-07-28.
  8. ↑ "Topic: Reverse logistics". GlobalNewsWire (Press release). 11 April 2023. Retrieved 2023-06-09.
  9. ↑ "The benefits of efficient reverse logistics". Airpharm. Retrieved 2022-10-31.
  10. ↑ Harrington, Ryan "Reverse Logistics: Customer Satisfaction, Environment Key to Success in the 21st Century" Reverse Logistics Magazine Winter/Spring 2006
  11. ↑ Greer, 2004
  12. ↑ Rogers, 2002
  13. ↑ Mollenkopf, D.; Russo, I.; Frankel, R. (2007), "The returns management process in supply chain strategy" (PDF), International Journal of Physical Distribution & Logistics Management, 37 (7): 568–92, doi:10.1108/09600030710776482 , retrieved 2008-05-05
  14. ↑ Srivastava, Samir K. "Value Recovery Network Design for Product Returns", International Journal of Physical Distribution and Logistics Management, 2008, 38(4), 311-331.
  15. ↑ Madaan, J. & Wadhwa, S. (2007) Flexible Process Planning Approaches for Sustainable Decisions in Reverse Logistics System, Global Journal of Flexible Systems Management. Vol. 8, No. 4. p. 1-8
  16. ↑ Panjehfouladgaran, Hamidreza; Lim, Stanley Frederick W.T. (2020). "Reverse logistics risk management: identification, clustering and risk mitigation strategies". Management Decision. 58 (7): 1449–1474. doi:10.1108/MD-01-2018-0010.
  17. ↑ "Number Of Packages Returned Expected To Peak Before Christmas, Reflecting E-Commerce Shift". UPS Pressroom. Retrieved 2020-08-28.
  18. ↑ Reverse Logistics Sustainability Council. "Secondary Market Research" . Retrieved 9 August 2018.
  19. 1 2 Chiou, Cherng Ying; Chen, Hui Chiu; Yu, Cheng Tao; Yeh, Chun Yuan (2012-01-01). "Consideration Factors of Reverse Logistics Implementation: A Case Study of Taiwan's Electronics Industry". Procedia - Social and Behavioral Sciences. ASIA PACIFIC BUSINESS INNOVATION AND TECHNOLOGY MANAGEMENT SOCIETY. 40: 375–381. doi: 10.1016/j.sbspro.2012.03.203 . ISSN   1877-0428.
  20. ↑ Zimmerman, T (2020). "Single-use vs. reusable packagingin e-commerce: comparing carbon footprints and identifying break-even points" (PDF). GAIA. 29 (3): 176–173. doi:10.14512/gaia.29.3.8. S2CID   235861717 . Retrieved 7 May 2023.
  21. ↑ Vogt, J J; Pienaar, W J; de Wit, P W C (2002). Business Logistics & Management - Theory and Practice. OXFORD. p. 236.


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