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Moving Forward ... With Reverse Logistics

There is more to manufacturing than pushing products out the door. To acheive "whole" supply-chain management, it's vital to pay attention not only to what goes out, but what comes back in, too.

Manufacturing is a forward-looking process. Designing products, manufacturing them, and then getting the products out the door to the customer are all geared towards moving products through the supply chain for profit.

But remember - the "backwards" movement of products, aka "reverse logistics" - can also add to your bottom line.

Mark Vigoroso, chief research officer and senior vice president, Service Chain Management, at AberdeenGroup, a research organization, defines reverse logistics as "the return, exchange, repair, refurbishment, and/or remarketing of products – basically any asset that can break." Gailen Vick, president of the Reverse Logistics Association (RLA), a trade group for third party service providers, refers to reverse logistics as "all activity associated with a product or service after the point of sale."

Reverse logistics is not just about fixing broken products, however; it's managing the return and exchange process to maintain customer satisfaction and control costs.

"Many manufacturing executives are not even aware that reverse logistics is happening in their company, because their main job priority is to concentrate on moving products out of the plant," Vick said. "But that's not the end of the manufacturing process; returned products can also affect a company's profits."

According to Aberdeen's latest Benchmark Report, "Revisiting Reverse Logistics in the Customer-Centric Service Chain," while 61 percent of companies surveyed admit that reverse logistics is important, 60 percent of the respondents are not satisfied with how their companies handle it.

The RLA estimates that reverse logistics accounts for 3 percent to 35 percent of a company's bottom line. "A company really needs to get the 'C-level' executives to think in the reverse world if reverse logistics is to become a profit center," Vick explained. "Companies cannot afford to miss this opportunity."

As forward logistics became more sophisticated and economical, it developed into what we now know as supply chain management, noted Tony Sciarrotta, director of returns management for Philips Consumer Electronics. Now, reverse logistics is evolving, too.

"An even better description for reverse logistics is returns management," Sciarrotta said. "Returns management should be part of a company's culture. It's not just about servicing or repairing products. Returns management is geared towards delivering a better product that won't be returned."

The smart manufacturer will pay attention to the "whole" supply chain – not only what goes out of the plant, but also what comes back in. For manufacturers, reverse logistics is really about keeping up good customer relations and understanding what is happening with products once they leave the plant. The point of reverse logistics is to quickly replace or repair a returned product.

"Supply-chain optimization does not end when the product is shipped," said Vigoroso, who co-authored the Aberdeen report. "If a customer can easily return a product to get a new one or have the product repaired, you have a satisfied customer, and hopefully that customer will continue to do business with you."

Yet many companies do not have any real process for handling returns; returned products languish on a shelf, or management may not even be aware of what or why certain products are being returned. Manufacturers are missing out on learning about their products if they don't understand why products are returned.

"Recovering failed products is really 'asset recovery,'" noted Vigoroso. "Many customers will just throw out products that did not work, or buy from another manufacturer, or even buy a new product from the same manufacturer and never tell the manufacturer there was a problem with the original product."

Visibility into the supply chain is the key to successful returns management, counsels Warren Sumner, vice president of Marketing & Strategy for ClearOrbit, a provider of supply chain software.

"In the forward supply chain, usually large quantities of the same product, pallet or load are shipped to one place and one time," said Sumner. But it can be difficult to control the return of products, since they tend to come back individually, at different times, from different locations. "What can be controlled," Sumner said, "is the information about the returned products and how they are handled once they are returned."

At Philips Consumer Electronics, the "Out of Box Experience," or "OOBE," as Sciarrotta calls it, is helping the company to market products that won't be returned. Under this program, once a product is developed and before it is marketed to consumers, senior staff members are given the product to take home. They test the product, use it, follow the instruction manual and make recommendations on how easy or difficult it was to get the product up-and-running.

"With the 'OOBE' program, Philips can make design changes or rewrite instructions before the product goes to market, and hopefully prevent any returns," Sciarrotta said. "This is returns management at its best."

Vick believes that with a returns management program such as Philips' can help avoid the turmoil of different departments blaming each other for product defects. "Good reverse logistics finds out where the problem is and works towards resolving the situation, to make sure the customer is satisfied," Vick said.

Meanwhile, manufacturers are discovering new profits in post-sales service.

"By providing 'World Class Service' upfront, it can help to sell more products and build a service revenue stream," explained Vigoroso. "Some manufacturers even charge premium prices because they offer excellent reverse logistic services."

Lee Norman, senior manager of Enterprise Returns Management at ClearOrbit, agrees that in today's marketplace, reverse logistics can be a competitive advantage if efficiently appropriated. "Companies need to ask themselves, 'How do I extract dollars out of these assets when they are returned?'"

But don't just "tack-on" reverse logistic functions to the forward supply chain process, warns Vigoroso.

"Although reverse logistics should be part of the supply chain process, it must be looked at as a separate function with its own personnel set-up and manager for it to be successful," Vigoroso said.

He suggests manufacturers look at existing partnerships to see if they can be helpful with the reverse logistic process. Transportation providers, repair depots, and 3PLs (third-party providers) can all enhance the reverse logistics process, along with software systems that will help a manufacturer manage sales, warranties, contracts, and communication with customers.

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