Yet for many logistics managers today, that’s not the end of the story. In addition to managing outbound goods, they also are responsible for reverse logistics–the flow of returned goods and packaging, including customer service and final disposition of returned items. The need to manage waste materials and returned goods is growing in all kinds of industries. Today, companies like Xerox, Eastman Kodak, Mobil, Home Depot, and Ethan Allen Furniture – to name just a few – have recycling programs that meet the needs of their individual industries.
There are many reasons for the explosive growth of what’s come to be known as reverse logistics over the past five years or so. The most prominent is increasing public awareness of the social costs of excess waste. A large-scale recycling program, therefore, generates goodwill among consumers and industrial customers. As support for recycling grows, moreover, companies want to be perceived as good citizens that are committed to protecting the environment. Another important reason is the need to control costs. Frequently, manufacturers treat recovery of products and packaging as an afterthought.
A well-managed reverse-logistics program, however, can bring enormous savings in inventory-carrying, transportation, and waste-disposal costs. For these and other reasons, more and more companies are launching reverse-logistics programs today. Unfortunately, it’s often assumed that reverse logistics is simply a matter of reversing the outbound distribution process. In fact, recycling and returns management have their own unique and complex issues that affect logistics operations. A brief overview of those issues highlights the five main areas you should consider before starting a reverse-logistics program.
A related issue is what kind of resources you are willing to commit to a reverse-logistics program. The obvious answer is that the level of potential benefits will influence how much a company will invest in such a program. Too often, though, companies shortchange themselves by failing to devote sufficient time, money, and personnel to the project. A lot of times, [reverse logistics] becomes a side job for somebody. It’s not their focus or a high priority, says Cindie Vaughan, supervisor of reverse logistics for Consolidated Freightways. If no one is proactively managing the process, it’s bound to result in higher costs and missed opportunities for savings and profits.
A solution for many companies that have limited resources for reverse logistics is outsourcing that function to third parties or transportation companies. It’s up to the shipper, though, to examine the cost and service benefits, then decide how much of the process should be outsourced. As with any outsourcing decision, it’s a matter of being able to focus on your core competencies and freeing up your people to work on products rather than expend your assets on [reverse logistics], suggests Brett Chyatte, senior marketing specialist for reverse logistics at Federal Express. Components The primary components of the reverse-logistics operation are retrieval, transportation, and disposition.
The retrieval stage deals with where the waste or products should be picked up and by whom. Much depends on the nature of the item being returned; if it’s clothing, for example, a carrier can handle all of the pickup and documentation tasks at the consumer’s door. If, on the other hand, the items are oversized, heavy, hazardous, or very delicate, special training may be necessary for both customers and carriers. Burnham, for example, dismantles photocopiers for several customers that sell or lease the reconditioned machines. Drivers are trained to remove internal components that could cause damage in transit, protect glass, secure all moving parts, and pack them for transportation. Hazardous materials, meanwhile, must be flawlessly handled, but field locations and distributors may not have the necessary expertise.
Michael LeMirande, business development manager for Redwood Systems, says he often tutors auto dealers in how to manage returns of such items as engines and transmissions. The battery and most fluids in automobiles are classified as hazardous, so there are specific procedures for preparing them for transportation, he says. A company that does not control the transportation of returns is asking for trouble, says consultant Ken Miller of Gardner, Mass. Most often, the manufacturer pays the freight for returned goods.
Yet typically the customer estimates the weight, guesses at the bill-of-lading description, and routes the shipment via a carrier that has no pricing agreement in place with the manufacturer, he says. As a result, incorrect weights and product classifications can lead to $500 bills that should have been $50. To prevent thousands of dollars in excess freight charges, Miller suggests that shippers provide the carrier routing, correct weight, description, and class to customers when they call for a return authorization. Better yet, he says, customer-service representatives could complete the bill of lading for the customer showing all three of those items. The biggest questions related to product disposition are whether to handle returns in centralized or regional facilities and how incoming shipments should be processed.
The answer depends on the type of product and what will happen to it after it is returned. More and more shippers are opting for centralized returns processing because it increases their control over a product’s life cycle and allows for better data collection. That is especially true for manufacturers of high-value goods with short shelf lives, such as computers and telecommunications equipment that need to be repaired and sold as quickly as possible, notes FedEx’s Chyatte. It also creates opportunities for shipment consolidations, which can reduce transportation costs and ensure better utilization of reusable containers and other equipment. Centralized returns-processing also helps shippers document returned products that are exported to secondary markets overseas, supporting claims for duty refunds under U.S.
Customs’ duty-drawback program, adds Buzzy Wyland, executive vice president of GENCO Distribution System. A successful reverse-logistics program depends heavily on gathering meaningful information that can help manage the returns process while tracking costs, says Wyland. You want software that will facilitate the smooth, efficient backflow of product from the customer-service desk all the way to the final disposition, he says. Too often, companies add the information component at the end onto a finished program, which can create bottlenecks and inefficiencies, he notes. What’s important is not to wait until you have a pile of returned stuff.
You have to plan for it upstream and build the software into the system. The Internet is becoming an effective tool for gathering and disseminating information in a reverse-logistics environment. Federal Express, for example, has developed a returns-management system called NetReturn that relies on the Internet to capture customer information, schedule pick.ups, arrange transportation, and track the status of returned goods. All the customer has to do is call the merchant and request a return authorization.
Once the shipper transmits the shipment details, the information system takes over. It even prompts the merchant to follow up when items are not picked up as scheduled. The tax, finance, and credit implications of the program is an area that may not be very visible to logistics managers, but it is one of the primary reasons upper management will support a reverse-logistics program. The act of returning goods sets off a flurry of finance-related activities, including issuing refunds and credits, accounting for inventory costs, and tra …
