Reverse Logistics & SCM – Scope and Advantages

Supply Chain Management is concerned not only with the flow of raw materials and finished goods, but scope extends beyond this to include reverse flow of unsold finished goods, parts and packaging materials from the point of consumption at customer’s end back to the organization or to rework/refurbishing vendors.

Today reverse logistics has been adopted in a big way by automotive aftermarket spare parts field as well as electronics and computer hardware markets. Retail and book publishing too have implemented reverse logistics schemes, but the volumes that are returned are relatively lesser than the other fields.

Reverse Logistics offers several advantages to the company in terms of both tangible and intangible benefits.

1. In the first instance, companies can retrieve defective equipment and parts which are either salvaged or refurbished and thus reclaims value out of the defective parts.

2. Secondly, the packaging and defective materials are collected and recycled thereby generating scrap value back for the company.

3. Thirdly unsold and obsolete equipment are collected back from the point of sale which encourages the distributors and stockists to buy confidently stocks from the company knowing that he can always return unused inventory and not stand to lose in the bargain. Distributors are more likely to be open to stocking all fast moving as well as slow moving stocks.

In the eyes of the customer and society, the organization stands to gain a good standing and reputation of being a responsible company that takes care of the e-waste and hazardous waste generated and thus stands out for its corporate governance policies.

Reverse logistics has been successfully adapted as the marketing strategy. Refurbished computers are sold at lower prices by all leading brands and the demand for such laptops seems to be growing. The spare parts used by the computer manufacturers to service the laptops and computers on warranty or sale include refurbished parts.

Many electronic and consumer durable manufacturing companies offer to buy back or exchange offer for the old equipment instead of the customer purchasing a brand new product. In consumer electronics and white goods, the exchange offers are a big hit during discount sale seasons.

Managing reverse logistics process is as operations intensive and complex as FG supply chain and demands the same focus and involves multiple logistics partners. Companies like IBM, HP, Dell and other equipment manufacturers like Xerox have established processes and network of refurbishing centers together with spare parts distribution centers. Unlike managing good parts inventory, defective spare parts require more handling and processes at the logistics providers end.

Commonly it has been noticed that the good parts are handled neatly by all involved in the supply chain including distributors and retailers. On the other hand, while the process demands that the defective part be returned in good condition, both users and retailers do not give enough attention to handling defective parts.

Statistics has shown that the defective parts are found to have suffered more transit damage and handling damage than the good part. A lack of understanding that the defective part has value to the organization is noticed in few cases of the sales staff of the organizations as well as retailers, who treat defectives as scrap.

However the reverse logistics processes followed by the computer and electronic equipment industry is a good example for other industries to begin looking at adopting similar strategies in their markets too.