REVERSE LOGISTICS IN SU PPLY CHAIN MANAGEMENT [602954]

REVERSE LOGISTICS IN SU PPLY CHAIN MANAGEMENT

Sunhilde CUC
University of Oradea, Faculty of Textiles and Leatherworks , e-mail: [anonimizat]
Keywords: Reverse Logistics, Logist ics, Supply Chain Management,
Reverse Supply Chain
,Costs, Textiles Industry,

Abstract : For a number of decades, industries have been concentrating on development,
implementation, and management of forward logistics processes to reduce operational
costs. In the age of quality, t he attitude toward forward logistics has evolved to include
enhancement of customer service quality. Meanwhile, ever growing concern for
environmental problems, and pressure from t he global competitive marketplace toward
further improvement of cust omer service, have been pres enting industries with a new
challenge; development and managem ent of effective reverse logistics processes. The
purpose of this paper is twofold: to pres ent an overview and introduction to reverse
logistics, and to provide insights on how to manage reverse logistics well.
1. MOTIVATION FOR RETURNS

Reverse Logistics (RL) or Reverse Distribution (RD ) is defined as “the logistics
management skills and activities involved in reducing, managing, and disposing of
hazardous waste from packaging and products.” It includes reverse distribution, which causes goods and information to flow in t he opposite direction from normal logistic
activities.[1]

Reverse logistics has traditionally placed low in the supply chain hierarchy.
Recently, however, apparel businesses, serv ice providers, and technology companies
have begun to understand that strategic reverse logistics management can have a large
impact on overall operations. The reverse logistics process begins when a customer decides to return one or more
products. The majority of the time these are new products which the cu stomer has recently
ordered and received.
There are a variety of reasons why a product may enter t he reverse logistics flow. A
part of these are summarized in Table 1 below. There are, of course, more reasons why a
product will enter the reverse logistics system, but these ar e the most common. Returns
can be also divided between those that ar e unplanned and undesired – what we might call
“traditional returns” – and t hose that are planned and desired. Reasons for return often
include the customer changing his mind, wanting a different color or size, etc. In addition to
return of new products, customers also return used products that they feel did not live up
to expectations, so these would fall under the category of warranty returns. Regardless of
whether the product is old or new the cust omer will request either an exchange or a
refund. An advantage of planned returns is that it is much easier for the organization to
know what is coming back.

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Table1. Reasons for Returns
CUSTOMER RETAILER

• Product did not meet customer’s
needs
• Customer did not understand how to
properly use the product
• Product was defective
• Customer abuse of liberal return
policy
• Product packaging outdated
• Seasonal product • Product replaced by new version • Product discontinued
• Retailer inventory too high
(overstock, marketing returns, or
slow-moving)
• Retailer going out of business

UNPLANNED RETURNS PLANNED RETURNS
Returns of new
products Returns of used
products
· Return of reusable packaging or shipping containers – can be environmentally and/or economically motivated. · Trade-in programs – where a customer
exchanges an old product for partial credit on a new one. · Company take-backs – where a customer returns an old product to its manufacturer at the end of the product’s useful life. The motivation can be either economic, environmental, or both. · Leased or rented products – where the customer returns the product at the end of the lease. · Service work – where the product is
shipped to a service location and then back to the customer.
· The customer changed his mind · The product was defective · The customer perceived the product to be defective · The product was damaged in transit · A vendor error (such as wrong item or quantity sent) · Warranty returns · Product recalls

Returns are fundamentally co mplex because of how they impact physical inventory,
electronic inventory and account ing systems. All items must be identified, assigned to a
customer or account, assigned a disposition and then physica lly sorted for processing.
Since some of the product might be discarded or kept back for vendor chargeback’s, not
all merchandise enters electr onic inventory; some merchandise must be repacked and
accounted for manually versus electronically. Finally, credits are generally issued at a
later time and often for only some part of a return, including discarded or un-saleable
goods.
In today's marketplace, many retailers treat merchandise returns as individual,
disjointed transactions. By not planning for retu rn-related issues at t he order's inception,
many retailers fail to control the entire retu rn process. By following returns management
best practices, retailers can achieve a retu rns process that addre sses both the operational
and customer retention issues associated with merchandise returns .
A growing number of companies are findi ng that there‘s money to be made by
sending things back. The concept is called re verse logistics, but most people simply call ANNALS of the ORADEA UNIVERSITY.
Fascicle of Management and Technologi cal Engineering, Volume VII (XVII), 2008
2078

them returns. And all sorts of businesses, particulary fashon and apparel industry, have
come to understand that their work is unfin ished until their customers are happy, and the
bottom line looks good. Despite the fact that returns operations are inherently problematic
and do not yield to simple automation, so me companies have gained competitive
advantage by applying some of the industry’s best practices.
And that bottom line impact c an be a huge one. In 2005, in the U.S. alone, the cost
was an annual $100 billi on. So a growing number of companies have found ways to create
a real business out of sending things back. Th ird Party Logistics Providers see that up to
7% of an enterprise’s gross sale s are captured by return costs. This is a staggering figure
and part of the answer as to why they offer re verse logistics applications that range from
$50,000 to $500,000 for a single si te license. Almost all reve rse logistics contracts are
customized to fit the size and type of compan y contracting. The 3PLs themselves realize
from 12% to 15% profits on this business.[2]
During the past decade, logistics has gained an increasing importance among
businesses. Reverse logistics has now become the point of focus for all businesses. A
report says that out of every $100 worth of sa les, $5 worth of goods are returned. This
report presents an introduction to Reverse Logistics, its importance, application in various industries, especially textiles.[3]

As the cost of Reverse Logistics conti nued to increase, and as the methods of
transportation became more sophisticated, m anufacturers and distributors began to look
for alternatives in transportation for savings. Planning and consolidatin g freight for return
products was identified as a way to reduce expenses related to fuel and labor. This also
led to detailed analysis of transportation options.
The next step in the evolut ion of Reverse Logistics was the experimentation and
cost comparison between multiple local hubs and single consolidated returns centers. The
simple analysis for savings contrasted the costs of warehouse space and manpower to the amount of freight and transporta tion fees for handling the back end of the Supply Chain.
Other factors also played a significant role in the financial analysis, including volume,
material costs and inventory controls.
As the costs of Reverse Logistics continu ed to rise, the importance of returning
refurbished merchandise to market also beca me more significant. Organizations began to
place financial significance on the deval uation of product for every day lost in
transportation, handling, processing or warehousing.

3. REVERSE SUPPLY CHAIN

In today's highly competitive business environment, the success of any business
depends to a large extent on the efficiency of the supply chain. Competition has moved beyond firm-to-firm rivalry to rivalry between supply chains. Managers in many industries now realize that actions taken by one mem ber of the supply chain can influence the
profitability of all other s in the supply chain.
Supply chain is defined by The Council of Logistics Management as "the process of
planning, implementing and controlling the efficien t, cost-effective flow of raw materials, in-
process inventory, finished good s and related information from the point of origin to the
point of consumption for the purpose of conforming to customer requirements."
[4]
However, a company's supply chain is not limited to delivering products to the end-
consumers.
The Council of Logistics Management defined reverse suppl y chain as "the process
of planning, implementing and controlling the efficient, cost effective fl ow of raw materials, ANNALS of the ORADEA UNIVERSITY.
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in-process inventory, finished goods and related information fr om the point of consumption
to the point of origin for t he purpose of recapturing value or proper disposal." [5](see
Figure 1)

Fig.1 Reverse Supply Chain

Reverse supply chains differ from forwar d supply chains in information flow,
physical distribution flow and cash flow. To manage reverse supply c hain, companies need
sophisticated information systems. Some of the technology involved in reverse Supply chain is similar while in some areas the technology used differs from that of traditional
supply chain. Reverse supply chain also differs from forward supply chain in physical distribution flow. In the revers e supply chain, inbound logistics consists of defective units
and other returns from customer s. Inbound logistics follow spor adic or random routing. On
the other hand, outbound logistics consists of repair ed and remanufactured products;
recycle items; or products meant for disposit ion. In forward supply chain, inbound
logistics consists of flow of parts to a fact ory from the suppliers, which are consolidated,
high-volume in nature and follows fixed routing.[6]

Suggestions for those facing reverse logi stics cost or processing problems:
1. The outsourcing of reverse logistics to a th ird party logistics prov ider may be the wisest
choice. 2. The way toward success in the reverse logist ics process is through higher visibility of
selective information and as close to "real-time" process knowledge as possible. 3. A smart reverse logistics syst em can prevent the cost of pr ocessing returns that are not
actually the responsibility of the manufacture r and prevent useless transportation before it
begins. 4. Above all, keep the process simp le and inexpensive for all involved.
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3 CONCLUSIONS
While much of the world does not yet care much about the reverse flow of product,
many firms have begun to realize that reverse logistics is an important and often strategic
part of their business mission and it can provi de a significant opport unity for competitive
advantage. Unfortunately, there is no one reverse logistics strategy that is ideally suited to
all industries. This is largely because the frequency, number, and character of items
returned will differ drastically from company to company.
To lay the foundations of a successful re verse logistics strategy, companies must
recognise that it is not solely a supply chain issue. Without the direct involvement of an
organisation’s customer service and finance functions, the whole process will become
unresponsive. When the main beneficiary is improved customer service, this equals
failure. Efficient reverse supply chains bring many benefits to the compani es. However, reverse
supply chains are different from forward suppl y chains and most of the existing forward
supply chains are not designed to handle reverse supply chains.
Many supply chain
systems are equipped to initiate high levels of interaction with the rest of the business.
This has given rise to the development of sophisticated supply c hain execution systems
that offer dedicated supply chain visi bility and interaction applications.
4. REFERENCES
[1] Kopicky, R.J., M.J. Berg, L. Legg, V. Dasappa, and C. Maggioni, -“ Reuse and Recycling: Reverse
Logistics Opportunities,” Council of Logistics Management, Oak Brook, IL, 1993.
[2] Malone, R.-Reverse Side Of Logist ics: The Business Of Returns,
http://www.forbes.com/2005/11/02/retu rns-reverse-logistics-market-
cx_rm_1103returns.html , accesat 11.03.2008
[3]***Reverse logistics and its application in the textile industry, http://www.fibre2fashion.com/industry-articl e/paidArticles/892/reve rse-logistics-and-its-
application1.asp , accesat 12.03.2008
[4] http://cscmp.org/aboutcscmp/definitions/definitions.asp [5] http://www.bizforum.o rg/whitepapers/CSC-3.htm
[6] Veerakamolmal,P., S. M. Gupta-„ Optimizing the Supply Chain in Reverse Logistics”,
http://www1.coe.neu.edu/~s mgupta/4193-26-SPIE.PDF

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Fascicle of Management and Technologi cal Engineering, Volume VII (XVII), 2008
2081