Going The Right Direction With Reverse Logistics

by George Schultz

Anyone involved with industry—manufactured products or others—becomes aware of supply chain dynamics, either carefully planned or certainly de facto once in motion. Smooth and efficient steps in logistics can maximize potential profit from goods developed, produced, sold and delivered.

So much for the readily recognized forward supply chain. The reverse supply chain and its enabling “reverse logistics” ride on the same planning and partnering principles, just different functions, a whole arsenal of them. Particularly significant today, many align with strategic or pragmatic opportunity in the 2008-09 economy.

Greg Aimi, a supply chain research analyst with AMR Research, Boston, delineates between “return” in the consumer goods sense and broader reverse logistics. “It’s a little more complex in the industrial return process,” he says, “with such functions as return for repair or refurbishing, or services parts planning.” Moreover, he cites processes such as Hewlett-Packard’s initiative “in a reverse supply chain, to recover some of the copper in electronic items from its own customers and others.”

Aimi notes, too, steps in the forward supply chain which help make the reverse more efficient, such as the practice of affixing a barcoded paper “return material authorization” (RMA) on products shipped out, in the event of return. He cites use by Amazon, the online consumer marketing company, besides widespread RMA practice in industry.

Another demarcation between forward and reverse supply chain logistics comes from Jeremy Vick, vice president for global marketing solutions and sales with the Reverse Logistics Association (RLA): “Anytime money is taken from a company’s warranty reserve or service logistics budget, that is a reverse logistics operation.”

Vick uses cell phones as an apt example. “From that phone’s research and development, and the manufacture and marketing to get it out the door and selling it via a communications service company (e.g., AT&T, T-Mobile) which supports its use under a customer contract,” he says, “that involves forward logistics.

“But when a customer buys that phone, that’s the beginning of reverse logistics,” he explains. “When the customer operates that phone, supporting the effort becomes a ‘cost’ to the company.”

“Say the customer drops his phone and it’s not working, so he contacts the ‘seller’. He likely is talking with an outsourced call center—a reverse logistics partner of the maker. If an exchange is agreed upon, and the customer sends in that phone, the delivery company also is a reverse logistics link. That returned phone then might be sent to a different company for refurbishing and reselling, also in the reverse logistics domain.”

From ‘Cost’ To Profit Center
AMR’s William McNeill cites an intriguing case in which Cicso Systems, the communications network equipment maker, now implements several reverse logistics strategies to serve a new market it has created, mainly within Cisco itself!

The original mission of the San Jose-based company’s reverse logistics operation was managing efficient collection and environmentally responsible recycling or scrapping most of the company’s returned and excess gear. It was an expensive proposition, costing the company $6-million a year worldwide across its hundreds of locations. In 2005 management began a strategy premised on the asset value of returned goods.
Now, one can reasonably ask, “Scrap? What scrap?” Diligent investigation and harnessing reverse logistics processes had turned all that into a profit center to the tune of some $85-million by 2008.

Run as a distinct business, the RL organization reinforced the total scope of the returns program and identified all reuse options. It began a strenuous marketing and sales program within the company to reach all potential customers. Redirecting excess manufacturing and service parts inventories, while refurbishing for reuse all viable equipment from trade-in returns, produced dramatic savings in new component requirements, including for warranty repairs. This “refound” inventory particularly proves its value in demonstration, technical support and training laboratories (like training new Cisco engineers).

Current expectations forecast reusing about 44% of recovered products, with the remaining 56% responsibly recycled—but this “cost” function of the original RL mission now is covered by the profit center even as it contributes the $85-million net to Cisco Systems’ bottom line, notes McNeill.

Optimizing Logistics Assets
For an entirely different “return” objective, think of beer; not the liquid product moving to market with forward logistics, but the kegs that go out to distributors and need rapid return to the brewer for refilling. A return process, straight and simple? Not if you value optimum use of costly assets, the metal kegs, and brisk time and transport factors that maintain a steady keg inventory level for most effective ROI.

Enter a specialized third-party logistics firm (3PL), and its proprietary technology system which it developed for the return logistics process. The 3PL manages and fulfills logistics services for more than 90 client breweries (domestic and import) and some 1,200 distributors.

Their system guides the collaboration essential to any supply chain, here between the scores of breweries, the distributors, and the 3PL and its transportation partners. Using client breweries’ production schedules, the system factors production data and seasonal trends to reduce dwell time of empties and predict when and where the 3PLwill pick up kegs. Given the cost of metal kegs and their potential for loss, the technology gives brewers an actual keg inventory, crucial to accurately measuring turn rates, loss rates and other data that help them manage their keg assets without costly replenishment.

Whether sweeping or very specific, resource-stretching processes abound these days. This prompted the RLA’s Vick to declare, “In a down economy like this, reverse logistics become practically the greatest thing on earth. Companies still need to keep the same level of customer satisfaction, and they try to ‘go lean’ by outsourcing, using alternate channels to recoup a lot of their original development, manufacturing and marketing costs.

“Many Original Equipment Manufacturers (OEMs) formerly would write-off overstocks, but now they’re turning them into some profit, selling originally returned or excess products to a recycler or liquidator, or refurbishing them for reselling as lower priced units,” he observes.

“Our industry is somewhat keeping the economy going,” says Vick. “Right now people are buying ‘used’ because they can afford it, and some of that money is going right back into retailers’ hands and into OEMs’ hands, and that’s keeping them happy.”

George J. Schultz is an independent journalist who covers industry and supply chain technology, issues and management.

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