What is Reverse Logistics?
An ideal question to address, on the first day of a new year, in a Reverse Logistics blog is: What is Reverse Logistics? The following post contains all the aspects of RL that I could think of. Please let me know if I forgot something or if you agree or disagree with what I say.
Reverse Logistics is defined by the Reverse Logistics Executive Council (http://www.rlec.org/) as:
‘The 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’.
Reasons for Return (RfR) are manifold and include shipping damage, faulty goods, product recall, buyers’ remorse and excess stock adjustments.
Frequently, reverse logistics involves the processing of goods using disposition rules designed to maximise the Net Asset Recovery (NAR) from the disposal of goods being processed. Possible dispositions include; resale as new, resale as ‘B’ stock, use as exchange, recycling and disposal. The management and handling of hazardous materials may be a factor in recycling and disposal. The term ‘reverse logistics’ is also used to cover the process or returning reusable containers for reuse and of transporting packaging to recycling facilities.
In some cases a customer may receive credit or an exchange item without the need to return the original item where the return freight costs exceed the recoverable value of the item after return.
Repair, remanufacturing, and refurbishment are sometimes stages in the reverse supply chain. These stages add value to the returned product to maximise NAR or to satisfy a customer need for an exchange item or to enable the re-return of the actual item to its owner after service. Customer chargeable services for both in and out of warranty items can also be considered as part of reverse logistics.
There are some aspects of forward logistics that are closely related to reverse logistics.
a) Spare Parts distribution is required to support repair, remanufacturing, and refurbishment.
b) The design of products and packaging to facilitate reliability, recycling and disposal can reduce after sale costs.
c) Reverse Logistics can be a source of valuable failure analysis and market intelligence data to assist product design and manufacture.
d) Warranty registration data collected in the forward supply chain may be used to control warranty costs in the reverse supply chain.
Reverse Logistics involves the return by a customer (or in some cases the customer of a customer) of product to a supplier. The customer making the return can be a business or an end consumer. As well as the operational issues outlined above, two factors important to the relationship with the customer making the return must be dealt with as part of the reverse supply chain.
1) In many cases the customer is returning goods that are defective, or are perceived by the customer as defective. Therefore, the return can often be viewed as a customer complaint. The processes and procedures in place at the customer boundary are therefore important in determining customer satisfaction.
2) The customer has to get credit, their product repaired, or an exchange product to close the issue. Turn Around Time (TAT) is defined as the time it takes to close a returns issue.
NAR is probably the principle financial KPI, and TAT is probably the principal customer service KPI, in a Reverse Logistics Supply Chain.
The Reverse Logistics Association offers a financial perspective on the topic.
"In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budget, that is a Reverse Logistics operation" - Gailen Vick, President RLA