Logistics is the management of transportation and storage of goods from its origin to final destination. Logistics is very important component of supply chain of an organization. Often we hear the term ‘Reverse Logistics’. In this post, we will understand, what the ‘Reverse Logistics’ is?
What is Reverse Logistics?
In the logistics, the goods flow from manufacturer/ supplier to customer. Reverse logistics is the supply chain in which flow of goods occur in the backward direction, i.e. from customer to the manufacturer. If the customer is not satisfied with the product or want to return it due to any reason, then return or recycling process require reverse logistics.
In the reverse logistics, the movement of goods starts from the end user, then the goods move to distributor and finally to manufacturer. A responsive reverse logistics is as important as traditional logistics The supply chain of reverse logistics can be demonstrated as follows:
Steps in Reverse Logistics Process
The reverse logistics process starts with the end user. If the customer wants to return the goods, proper mechanism should be available for the customer so that he/ she can process the retunes. A good reverse logistics process has following steps to effectively return the product.
Process the Return
The first step in reverse logistics is to process the returns. The manufacturer or supplier should establish a mechanism for returning the goods. Now a day, the companies enable their customers to initiate returns through their websites by choosing return or replacement option. The customer has to choose the return option and fill the reason for return or replacement. Suitable return time and address is also filled by the customer. After gathering all the data regarding the return, the manufacturer or supplier arrange return of goods.
The goods returned by the customers are collected by the manufacturer at the central processing unit. After collecting the goods at the central processing center, these are inspected & sorted out into different categories such as, resell as new, resell as return, repair, recycle, scrap, etc.
Reduce the Returns by Separating Repairable Items
If the repairable item can be separated and send to repair department, then the returns may be reduced substantially. The repairable items can be repaired and sold again. In this way the loss of company may be reduced up to a great extent.
The items which cannot be repaired are recycled. This practice helps reducing scrap and reduce losses of the company. From environmental sustainability point also the companies should encourage recycling of useless items.
Benefits of Reverse Logistics
The companies having a well-established reverse logistics process, can reap many benefits. Some of such benefits are mentioned as below:
Customer Satisfaction & Retention
Reverse logistics instils trust in customers and enhances customer satisfaction and retention. If the customers feel a negative return experience, in most of the cases they do not turn up again. A well operated, efficient and systematic reverse logistics process help in a great way to retain customers.
A well optimized reverse logistics system saves cost of the company in terms of storage & transportation costs. The goods may be repaired or recycled based on their condition and therefore cost of keeping excess inventory can be controlled. Some companies assign the task of reverse logistics also to the agency handling their traditional logistics. In this was substantial savings in cost of transportation can be achieved. Reverse logistics also saves some other costs like, administrative, shipping, tech support costs, etc.
Reduce Losses & Additional Revenue
Reverse logistics also help in reducing losses. The defected items may be repaired or refurbished and therefore losses can be reduced. If the items are not in a condition to repair, then they may be discarded and recycled in a well-established reverse logistics system. This can provide additional revenue to the company.
Collection of Valuable Data
A good reverse logistics system collects valuable data about how much percentage or quantity of items, out of total goods manufactured has been returned, what was the reason of return or replacement, what features the customer didn’t like in the product, what further improvements need to be done in the product, what percentage of cost attributed to resale, repair, refurbish or recycle the products, etc. All these data help a company to make strategies for further improvement in the area of manufacturing, sales, etc.
Good Brand Image
An optimized reverse logistics system helps a company building its brand image. Customers usually like to retain with the companies, where they find good return experience. They also spread these experiences to other people through word of mouth. This all create a good brand image for the company and helps create a sustainable business for the company.
How to monitor the flow of Reverse Logistics in the Supply Chain?
The following are main parameters, which help in monitoring the flow of reverse logistics in the supply chain.
The volume of products returned and resold, reused and recycled is an important matric to monitor the flow of reverse logistics. The companies should use this parameter to estimate how much percentage of total volume manufactured has been returned, repaired and recycled and should make their strategies accordingly, to improve their business.
The comparison of costs attributed to repair, reuse and recycle the products to the total supply chain cost gives an idea about the cost incurred in wastage and cost recovered due to recycling of products.
Condition of Returned Products
The condition of returned products is important parameter to be analyzed. What is the reason of return, is there any trend in the rejected items which can help in improving the products, how many products can be reused, repaired or recycled? Is there a need for any other sales channel to sell the refurbished items? The answer of these questions is crucial for making strategic decisions of an organization.
Every organization has to assess financial value of its each processes and components. Similarly, the reverse logistics system also has some financial value. It is crucial to estimate the financial value of the reverse logistics system to take better decisions.
Reverse logistics provides an opportunity to analyze the errors made during manufacturing & to understand, what went wrong. Reviewing the mistakes and their cost implications is very necessary to improve the processes.
Reverse logistics is the supply chain in which flow of goods occur in the backward direction, i.e. from customer to the manufacturer. Often the organizations pay attention to their traditional logistics systems but ignore the reverse logistics, without which the supply chain of organization is incomplete. Now a day, many organizations are understanding the value and benefits of reverse logistics and improving these. An efficient and optimized reverse logistics system saves costs, helps building the brands and improves customer satisfaction and customer retention. Therefore, it is crucial for the organizations to make their reverse logistics systems strong and efficient, to reap the above mentioned benefits.