Reverse Logistics

The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Reverse logistics is a broad term referring to the logistics management skills and activities involved in reducing, managing and disposing of hazardous or non hazardous waste from packaging and products.  In short, Reverse logistics is the timely and accurate movement of serviceable and unserviceable materiel from a user back through the supply pipeline to the appropriate activity. It includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery. An important part of reverse logistics is reverse distribution, which causes goods and information to flow in the opposite direction of normal logistics activities. Reverse distribution is defined as “the process buy which a company collects it’s used, damaged or outdates products and/or packaging from end users”.

In recent years, industry has placed greater emphasis on Reverse Logistics. With the growth of direct-to-consumer channels like catalogs and Internet sales, the reverse supply chain has exploded in recent years. "Returns to U.S. retailers now [amount to] over $100 billion per year," says Jim Stock, professor of marketing and logistics at the University of South Florida in Tampa. "That's greater than the GDP of two-thirds of the world's countries." Within specific industries, reverse logistics activities can be critical for the firm. Generally, in firms where the value of the product is largest, or where the return rate is greatest, much more effort has been spent in improving return processes. There are many reasons given and discarded. But the simplest answer is buying power, or, more correctly, the avoidance of lost buying power; Reverse Logistics makes the greatest and most efficient use of existing resources.

Three Tenets of Reverse Logistics

From this beginning, three tenets of Reverse Logistics have emerged: predictability, reliability, and visibility.

  • We should be able to predict successfully when a particular item will arrive
  • Our prediction should be reliable to a very high extent
  • We should have visibility of the item throughout the transportation process.

Return Percentages

The reverse logistics process can be broken into two general areas, depending on whether the reverse flow consists primarily of products, or primarily of packaging.  According to a study conducted by University of Nevada, Reno Center for Logistics Management, return percentages for selected industries are shown in Table

Industry Percent

Reverse Logistics Activities

Typical reverse logistics activities would be the processes a company uses to collect used, damaged, unwanted (stock balancing returns), or outdated products, as well as packaging and shipping materials from the end-user or the reseller. Once a product has been returned to a company, the firm has many disposal options from which to choose. Some of these activities are summarized in the Table below. If the product can be returned to the supplier for a full refund, the firm may choose this option first. If the product has not been used, it may be resold to a different customer, or it may be sold through an outlet store. If it is not of sufficient quality to be sold through either of these options, it may be sold to a salvage company that will export the product to a foreign market. If the product cannot be sold “as is,” or if the firm can significantly increase the selling price by reconditioning, refurbishing or remanufacturing the product, the firm may perform these activities before selling the product. If the firm does not perform these activities in-house, a third party firm may be contracted, or the product can be sold outright to a reconditioning/remanufacturing/refurbishing firm.

Common Reverse Logistics Activities

Material Reverse Logistics Activities

Information support and performance:

Information technology/information support has long been recognized as a competitive weapon - capable of enhancing firm performance. Information support is particularly critical to achieving efficient reverse logistics operations. Reverse logistics is frequently characterized by uncertainty and a need for rapid timing/processing. While some industries can rely upon historical information to project the type and amount of returns, returns in other industries are much less easy to predict. Even in those less predictable industries, although managers may not know when (or if) products will be coming back; they must be prepared to quickly process and handle the products on demand. Thus, prompt and accurate exchange and access to information should be considered a top priority. In such situations, information coordination is complicated because of the multiple parties involved. There is great need for coordination between the parties to ensure maximum efficiency. Communication becomes particularly critical to facilitate daily interactions and to promote longer-term business relationships.

Information systems support

The degree to which a firm can achieve a balance between desired service level and cost control depends at least in part upon the quantity and type of information available to support decision making. Extensive information is typically needed; however, studies investigating information systems support across firms have restricted examination to a single dimensional perspective of information. Various studies suggest information systems should be viewed in a more holistic manner in order to capture the multiple dimensions and more fully understand the value of information accumulation and dissemination within and across firms. Thus, in the current research, the distribution and information systems literatures have been integrated. Information systems support (IS support) is viewed as consisting of three distinct dimensions: capability, compatibility, and technologies.

IS Support Capability

Capabilities are bundles of skills and knowledge that help provide competitive differentiation. At the extreme, a firm would try to develop capabilities that are distinct, defensible, and difficult to imitate, thus providing a true competitive advantage. A more contemporary perspective of capabilities involves a broader interpretation.

Consistent with this, relating to the current research IS networks must be responsive in order to anticipate and accommodate operational change and customer demands. The networks must deliver information that is readily useable, i.e., information capability must match business needs. This means information must be continuously accessible and shared across organizations. Such information support is a particularly critical aspect of reverse logistics. Readily available and accurate information provides necessary support for accommodating non-routine events such as product returns. Information support helps to reclaim value that might otherwise be lost and it also serves to improve buyer-seller relationships through improved customer service/satisfaction. For example, if a manufacturer effectively handles the reverse logistics process through the efficient pick-up and handling of unsold product, a stronger relationship is likely to be forged with retail trading partners.

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IS Support Compatibility

World-class logistics organizations recognize the importance of information support and focus on both capability and compatibility. Capability, in this context information exchanged accurately and readily, is critical in a cross-organizational setting. However, effective, fast cross-organizational sharing of information is only possible if information systems are compatible. Whereas IS support capability indicates a practical ability, IS system compatibility refers to how easy it is to use.

A need to quickly respond to supply chain partners has influenced strategic decisions at many firms. In a reverse logistics context, this would mean that channel members' information systems must ...

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