Reverse Logistics

What is Reverse Logistics?

Graphics courtesy of OmisellOpens in new window Reverse logistics is sometimes also called logistics backward because its flow of good—from a consumer towards a producer in the supply chain— is just opposite to the flow in the conventional supply chainOpens in new window. In the literature, a great variety of definitions of reverse logistics can be found. Here, we define reverse logistics as follows:

Whereas the forward flow of goods runs from the supplier over the manufacturer and the retailer to the consumer, reverse logistics deals with all the flows of goods and information that are necessary to collect used products, packaging materials, production scrap and other residues and bring them to places where they can be reused, remanufactured, recycled or disposed of properly.

The idea of reverse logistics businesses has been around at least since the early industrial age when merchants recognized that old clothing and rags, linens, and so forth, could be reproduced and used to produce new textile products.

Over the last many decades, particularly in the European community, the passage of green laws requires the manufacturer to be responsible for the ultimate disposal of certain products.

In addition, the growing recognition on the part of many high tech product and service organizations that material in the field has real value—at the same time environmental impact legislation required specific focus on return and disposal of material in accordance with standard rules and regulations—have led to increased interest in reverse logistics process.

In addition to the normal situation, where the products and goods at the end of the supply chain are no longer wanted or needed, or have little value because they are obsolete or not operating, there is, of course, a requirement for disposal, which deals with specific questions involving solid waste, liquid waste, and hazardous materials.

Furthermore, many other products and materials in the field have value that could be recovered through repair, disposition, and recycling, such that it may not be efficient to simply throw them away. These could include the following types of goods and products:

In these situations, and others, reverse logistics is important from an economic recovery standpoint, and because of the reduction or elimination of trash and junk.

It is important we consider more precisely the dynamics of returns. Products are returned by end users or purchasers to the outlet from which they were purchased, or to other disposal chains in the consumer, commercial, and industrial markets.

1. Consumer market

In the case of the consumer market the product may be returned by the consumer to a retailer, and then to a distributor for transport to the manufacturer or to waste or trash dealers and recyclers.

Depending on the product, this cycle may be further complicated by the presence of an independent or third party organization that specializes in refurbishment/repair of a returned good, reselling them into other or secondary markets at a discount rate.

2. Commercial goods

In the case of commercial goods, the return cycle will be almost the same except that the names of the organization will change. Products are returned by the end user to a reseller, and then to a manufacturer or a third party repair/wholesale agent.

3. Industrial products

For industrial or high tech products, the returns are usually coordinated, controlled, or both by a field service organization supplied by the buyer or the seller.

The reasons why products are returned also may vary in a typical consumer or retail vs. commercial and industrial environment.

Returns within some segments of the supply chain are not caused by any consumer and user behavior. These include stock balancing issues (i.e., products sit too long on retail shelves), and internal product recalls.

Thus, when addressing the topic of product returns, it is important to define the context of the question, such as:

• Retail consumer to retailer
• Commercial or industrial end user to reseller
• Distributor to manufacturer

A brief look at anecdotal examples in these categories provides a framework for formulating a focus on this emerging market.

1.   High tech products, parts, and subassemblies

Normally, products and their embedded parts and subassemblies flow from the manufacturer to the end user.

This process can be more complex, particularly in high tech markets dealing with complete products including process controls, voice and data networks, medical technology, office automation, computers, and so on. For these products, field service and support organizations—owned by the manufacturer, the end user, or independent service organizations (ISO)—travel to the field to install or fix (maintain and repair) the product.

In the course of this process, parts and subassemblies and even whole units may be removed by the service engineer and fixed or replaced.

Since this process is increasingly carried out on a pull-and-replace basis, rather than by fixing units in the field, a good deal of valuable material is created and is generally returned to a central or regional repair depot for evaluation and processing.

Typically, about 30 to 35% of these returns are “no trouble found” (i.e., perfectly good). This is due to the fact that many field service engineers increasingly use parts and subassemblies as test equipment upon arriving at a customer’s site, based on a request for service and/or product failure.

They try a new part in the product, pulling out an old one; if the unit now works, the old part is assumed to be bad and returned. However, if the new part, as replaced, does not fix the problem, the old part is not replaced with the new part returned to a central inventory. The old part is returned. The field engineer then tries another new part until the product is back in operation.

This pull-and-replace process creates a return flow of both good and bad parts and materials, which are initially all assumed to be bad. As more and more field engineers or service techs use parts as test equipment through the pull-and-replace approach, the reverse logistics process becomes larger and increasingly important.

2.   Consumer products

Consumer goods, such as TVs, washers, dryers, refrigerators, toys, and clothing, may no longer be wanted by the original purchaser, or may have failed from the viewpoint of the purchaser, but still have a useful as is or after repair or refurbishment. Since the original manufacturer is often separated from the buyer through indirect distribution and retail channels, the return process and the responsibilities and economics of return are somewhat different from the high tech situation discussed above.

3.   Unwanted, unsold, and unused products

Large retail chains and stores usually have an agreement with their consumer goods suppliers that allows them to return goods. While this practice was originally designed to deal with the case of customer returns for failure, it has been expanded to cover the general practice of returns.

Retailers often return perfectly good products simply because they have not moved off of store shelves.

Sometimes a buyer purchasers a product, makes very limited use of it or simply decides not to keep it and returns it, sometimes in the same box with the original tags. These goods may also be perfectly good, without defect or failure and have value, but they may have to be returned because the goods are no longer fresh, or the retailer wants to clear his shelves.

4.   Recalls or obsolete products

Products that have been made obsolete due to new product development and products that have been recalled by the manufacturer or dealer due to change in portfolios or product manufacturing error are another category that creates a return flow of material that has more than scrap or waste value.

5.   Green goods control

Another category of goods, now emerging in Europe and other countries as a result of legislation, are products covered by green laws, or environmental impactOpens in new window, legislation and direction.

In these areas, the original manufacturer or dealer is ultimately responsible for the final disposal of the product. If a buyer fails to properly dispose of the unwanted product, the manufacturer is considered at fault if the disposed product becomes a hazard. In other words, there is a real cost to the manufacturer from the failure to control and manage the full return process from the end user purchasers.

Newer legislation also requires the end user to formally dispose of the product according to regulations, if the manufacturer refuses, thus penalizing the buyer for dealing with a manufacturer or product that is not fully covered by formal return processes.

Summary

In summary, as indicated above, material and products in the field that are no longer wanted by or used by the purchasers need to be returned if they have value, or if they represent a hazard or a threat to the environment or population. Much of this is not junk, but has a real product (as opposed to scrap) value, and the disposal, refurbishment, and resale or reuse of this returned material represents a real economic opportunity and base of business.

Why? How? What? And Who?

After having briefly introduced the topic of reverse logistics, we now go into the fundamental of reverse logistics by analyzing the topic from four essential viewpoints: whyOpens in new window, howOpens in new window, whatOpens in new window and whoOpens in new window.

Prominent scholars have argued that these types of characteristics are relevant to characterize reverse logistics (e.g., Thierry, 1995; Fleischmann et al., 1997; and Zhiquiang, 2003). In this approach, we consider the following details.