(2005) mollenkopf & closs - the hidden value in reverse logistics

8/11/2019 (2005) Mollenkopf & Closs - The Hidden Value in Reverse Logistics

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OPTION

V LUE

OPPORTUNITY

LEADERS

INNOV TION

T h e H id d e n V alu e in

LOG ISTI S

Diane A Mollenkopf and

DavidJ Closs

r>iane A.MnWenknpj i.san

asshianX projessor in the

D e p a r t m e n t


2/9

Many companies trea t reverse logistics as an aftertho ug ht if they give it

any though t at all. That s a hig mistake. How well you manage the flow of

goods back through your supply chain can have a powerful itnpact on

costs, revenues, and customer goodwill. The seven companies profiled in

this article prove the point.

ist ics perspeeli\e. returned products that are handled

iHxIitiously and effieiently ean be reinserted into the for-

ward supply ebain in tbeir current form, as refurbisbed or

remanufaetured produets. or as repair parts. Tbis ean create

additional revenue, reduce operating eosts. and minimize the

opportunity costs of writing off defective or out-of-date pnid-

uets.

(See Exhibit on page .^6.)

Tbis article will outline four ways tbat reverse logistics can

bave a linaneial impact. It will give glimpses into tbe reverse

logist ics aet ivit ies of leading eompanies and deseribe the

()[ip()rtunitii's for others.

Th e inancial Impact of Rever se Log istics

Business leaders are siiov\ing much more interest in reverse

logistics for several reasons. Regulators both in the (European

Union and at the state level in the United States are tighten-

ing up on product disposal. Also, landfill costs are rising. In

tbe Linitetl St.ites, lancilill tipping fees havt' increased to n

RICHARD BORGE

average oi S, , ,7 ) |X T ton, antl incinerator tif ipin g fees now

average S^^J.O per

ton, '

I'lirthermore, soeietv in general bas

bigber expectations for sustainable business practices.

Other factors are pushing companies to focus on reverse

logistics, Ihc grov\th ot product leasing re(|Liires companies

to actively manage end-of-lease products. Additionally, there

has been significant growth in direct online selling, which

can produce return rates ol 40 |iercent for some catalog and

online retailers. ^ Ihese direct vendors have no choice but to

develop etteetive returns management proeesses.

While direct marketers have long been experts at manag-

ing returns, many tradit ional bricks-and-mortar eompanies

tbat bave moved into Web-based eommerce are not fullv pre-

[xired tor biirulling the subsequent surges in [inxkict returns.

Ihus.

it has become increasingK im[)ortan t tbat logisties sys-

tems more elteetively aceommodate product returns, eitber

within the existing systems or through secondarv channels.

Management teams must identifv\ traek. and understand tbese

trends so they ean properly

develop their reverse logisties

eap t i b i l i t i es and pos i t i on

their companies to enhance

suppK cha in compet i t i ve-

ness.

As a lirst step, managers

must grasp the impaet of

reverse logistics activities on

tbeir comjianies' eosts, rev-

enues, and assets. One way

to Jo so is to apply tbe elas-

sie strategie profit model in

v\ h ich re turn -on-a sse ts

(HOAl ana lys is eons iders

re\enues, expenses relating

to net profits, and assets in

terms o t asset tu rn ove r .

Ctearly. the reverse logistics

process must be reeogni/ed

as more than a eost of doing

business or as a eost m in i -

mizat ion exerc ise . In our

experience, i ls impact can

be dem ons t ra t ed i n f ou r

ways.

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idden Value

EXHIBIT

1

Impact

of

Effective R eturns Man agement

Secondary

Customers

Increased

J

Revenues

/

Supplier Manufacturer ^ R e 't S '' ^ Customers

^

^

Increased

^

-.

. \ ,--' '

Revenues

'

InrrpacpH

/

Reduced

'. ,--- --

increased

Cost of

\ ;' (

Revenues

Goods

\ ' , . .

Returns

-

Sold

'

Processor

1 ^ Reduced

Disposal Costs

Forward Product Flow

- Returned Product Flow

Increased revenues can

be

realized from "secondary"

sales and from reducing discounting levels by offering

fresh s tock

in

p lace

of

uns o ld

or

s low-sel l ing s tock.

Cuiii|X inifs CLin Li\oid iiia rkdo wn s on old er pr odu ctb\ nianag-

injj in\cntorics

to

keep "fresh" iiroduct

al the

point

of

sale.

Neu stock command s higher prices than old stock. A manii-

i'acturer can arrange

to

take b aek unsold stock From retailers

and rc-pkice

it

with the new season's model to m aintain retail

prices .incl a\iiid markdowns, tluis niainlalning profit margins.

Such

a

policy recjuircs the man ufacture r

tu

acti\'eiy manage

any returned product in order to capture any remaining value

in tlie product.

Reprocessed

or

reniantiiaL'tured p rodu cts can ge nera te

rc\enuca factor that

no

ma rketing |ilan shoLild overlook.

Ihe revenue levels range from relati\el\ minimal (less than I

percent)

in

cases iinoKin g fresh stoek

to

increases

ot

more

than 5 percent when remanuFactured returns could be sold in

alternative channels or markets

2

The goodwill earned from acting

in a

socially

or

envi-

ronmental ly respons ib le ma nner can prod uce real

value. C^ustomersdorespond U companies' behaviors, and

the goodvvill dc\elo|K"d through reverse l{)gistics and proper

disposalofproducts can create substantial cu stomer lo\alty.

For example, some researchers report that Nike takes back

used running shoes and eonvcrts them into public basketball

courts and running tracks

as

part

of its

community action

efforts.^ Likewise. Kenneth Cole accepts used shoes from

customers and donates them

to

those

in

need . Roth

ul

those

returns programs i.irc costly

to

manage,

but the

companies

believe their actions enhance the valueoftheir brands and

create loyal custome rs.

3

Cost reductions can come from the reduced cost

of

goods sold (CO GS) and lower operating expenses.

Many products and parts can be easily reckijmcd. While the

reclamation process may incur additional costs, everv' produc

or com[ioncnt that canbereinserted into tbe lorv\ard suppl

cbain iur sale is one less unit thai must he prucLirei.1

or

manu

taettired. For example,

a

major compu ter m anufacture r ha

managed tu rednee its procurement costs b\ rccapttiring usable

parts from returneti computers. This process has enabled

the

companv

to

retkiee th e cost

of

its service parts as v\ell

as

th

expense

of

its "last-time buys"the one-off ptirchases

of

part

to stipjiort altcr-Siiles. Better management ol the llovv

of

return

also improves returns processing and labor productivitv. which

can reduce variable expenses. Making sure that returns ar

received and dispusitioned in atimcK manner reduces cost

associated with storage and congestion. Effective returns man

agement and processing can also reduce the costs

of

environ

mental compliance or waste disposal. C'ustomer service cost

can

be

reduced when the return process

is

stream lined from

the customer's perspective. And when properly captured and

leveraged, data on customers' reasons for return can be used

to

ftirther improve the product, therebv reducing futtire returns.

4

Better management

of

return s inventory can improv

asset turnover.

In

terms

of

inventory man agem en

returned goods are

no

different Irom new j^oods. Retur

inventory adds assets both in terms of the inventor)' itself and

the facilities required tostore it Fffective returns manage

ment can help lower inventor}'ofrevenue-gen erating item

and reduce the needlostore item s that do not gen erate rev

enue.

Effective management can also convert damaged prod

ucts

to

salable products

in a

more timely manner. One con

sumer goods company managed to reduce returned inventor}

levels from 10

to

three days.

It

did this simply by developin

a returns management proeess that included better gatekeep

ing and returns processing. Th ese activities stopped non rev

enuc-generaling items from being returned (v\hilc gi\ing ful

credit tocustomers forthe return and helped transform

returned inventory' into salable inventory more quickly.

est Practices in Practice

ResearchersatMichigan State Universitv recently investiga

ed the returns management practices ol seven noneompetin

organiza tions. The objective wastoidentify best pract ice

that eoultl

be

generalized across compan ies and indtistrie

Fhe researcbers conducted in-dcpth intenievvs and laeilit

tourstoexplore th e following five asp ect sof the companie

reverse logistics activities: returns flow, remanufacturing

rcmarketing, recycling, and landtllling.

/\t each

of

the organizations selected, senior m anagem en

pays significant attciition to improving reverse logistics activ

i t ies. Execut ives emphas ize

the

s trategic

and

finanei

importanceof"getting reverse logistics righ t" although ,i

some cases, their focus has been a relatively recent phenom

enon. Inmany cases, tbe executive c hamp ions have hadt

v\ork l{)ng and hard to demo nstr ate the imp ortane e

oi

activ

reverse logistics management.

Each

of

the organ izations surveyed now actively p ursu

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Hidden Value

cind measures reverse logistics with tbe objecti\e ot enhanc-

ing eompany pro Htiibility and en\ ironmental responsi\eness.

Highlights of tbeir Ltcti\ it ies follow, with the discussion link-

ing baek to the finjncial impact each L(impan\ has identified.

For confidentiLiiity pur|ioses, the compan\ names ha\e been

disguised.

The Computer Specialist.

This companylet 's cal l i t

Computer At lant ic Corp.deals in ot f ice computer

prod-

ucts,

many of w hich are leased. W ith this foeu.s on end-o l-

lease asset reeoxeiy, Com[iiiter Atlantic has been inxoKed in

all fi\e of the re\erse logistics acti\ ities lor ycLirs, Because its

leased assets are returned, the eomp;iny highlights the impor-

tance of quickly assessing the \i. ikie ot tlie prinluct in its

entirety and deciding on the resale potential ol the whole

product as dist in ct from the potential \a ue of ind i\ id ua l

modules, components, or materials.

Given the shor t p roduc t l i f eeye les in i t s indus t ry .

Computer Atlantic concentrates on reducing proeessing time

for the assessment and reconfiguration of returned produets.

Products that can be readily refurbished or remanutaetured

are quickly identified and converted to resalabie goods. The

company has identified and estahlished a range of seeondary

markets so the remanufaetured machines do not compete

direetK ith the ta ctor\-new produets. I5y turning the reman-

ufaetured products aroimd and mo\ing them into the sec-

ondarv markets as tjiiiekK as possible. C'om|iuter Atla ntic

keeps inventory low and maximizes re\enueatter alread

realizing substantial re\enues from the lease of the produet

its first life. In short. C'omputer Atlantic tully recognizes th

products' lull lilecyele value in terms of re\enues, costs, an

asset Litili/atii)n,

For produets that cannot be remanuiaetured. C'ompute

Atlantic removes usable components before disassemblin

the rest of the produet to reco\er precious metals and sepa

rate the plastic into appropriate recycling bins. By recaptu

ing componentr\\ the compan}' has tound it ean significantl

reduce the xolumes of new eomponents it must purehase. (I

the electronics sector, many used parts are considered o

e i |ua

\ a iue to new [ la r t s fo r re j i lacement purposes

Additionally, some eomponents are desigtujtecl tor future re

use by the companys ser\ ice division because Compute

Atlantic ser\ices its products for many years atter the las

produetion date. Having a ready supply of eomponents io

older equipment has enabled the eompany to keep satisfyin

eustomers with minimal investments in new jiarls imeiUory,

Finally, with less than tv\o percent of its returns volum

now sent to landfi l ls. Computer At lant ic can promote it

einironniental responsiveness. Management believes tha

effeeti\e returns management has inereased the eompany

brand equity, aeeruing long-term benefits in terms of futur

revenues. These days. Computer Atlantic's returns divisio

has become cirofitable in its own right.

i

C r e a t e a J l o h i p e t i t t u e f i d u a n t a g e

G e t S m a r t n b o u t t h e F i n a n c i a l I m p a c t o f Y o u r L o g i s t ic s P r a c t ic e s

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T H E L O G I S T IC S

i n S T I T U T t

G e o r g ia I n s t i t u t e o f T e c h n o lo g y

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Tbe Engine Rebuilder Ibis c{>mpany^we'll name it

Motormaster Ine ,bas tle\elo[ied a strong cajiability to

rebui ld engines and modules as re[ilacement parts on its

eroeess. It may seem counterintuitive, but HSC bas positive-

ly affected its bottom line hy deeiding v\ hieh produets sbould

ix' returned and hy issuing faster credit to customers. That's

because processing labor has been greatly reduced, as have

return transportation expenses. Because fewer prodticts are

being returned, products that do come back can be proeessed

niucb more tjuiekly ijeeausc tbere's less volume and beeause

of the visibility created tlirougb the K,MAs, Sborter cvcle

times on returns processing bas enabled tbe companv to

return tbe products to the forward

supply chain more tjuicklv. thus

enhaneing revenues. Additionally,

the compan\ now experiences more

positive relationships with its cus-

tomers, thus enhancing the longevity

and value of each cLtstomer relati(jn-

ship.

Tbe Carpet Maker.

In ihe

carpet ind ustry, remanu fae-

tLired car|i(.'t is becoming an accepted product lor man\ com-

mercial markets. In fact, "WeaveCo lnc.'"viev\s its eni|ibasis

on returned car[iet as a basis for comjietitive advantage: tbe

companv s sales stalf offers customers end-of-li fe manage-

ment for tbeir existing carpet, C'ustomers are pleased not to

have to worr\' about used-carpet disposal, and tbe cost differ-

ential can be built into tbe value offering. In

turn,

VVeaveCo

biis invested in tecbnology to remanulacture tbe useti carpet-

ing it actjuires from its customers: tbe company successfulfy

IISCs products are generally consumables, so tbere is limit- remarkets tbe remanufactured carpet in noncompetitive see-

ed need to return tbe |>rodLict at tbe end of its life. I lowevcr.

as a catalog and mail-order company, I4SC is faced with a pp g

substantial number of returns when products are not accept- lator\' processnot to manipulate tbe regulations into being

ond.HA markets

VVeaveC'o actively participates in the environmental

regu-

able to consumers,

I ISC' has come to realj/e tbat not ali products sbould be

returned. W'ben customers call witb a complaint about a par-

tieuiar prot luct . tbe etistomer ser\ ice representatives use

tietailed gtiitielincs to determine wbieh products sbould be

rclurned and wbich sbould not, Tbe deeision to accept a

return is basetl on an explicit cost analysis, comparing the

cost ol jirodtict return anti reproeessing witb the cost of mak-

ing tbat item again, A product tbat meets predefined cost cr i-

teria is not taken baek; consumers are told to keep tbe [irod-

uet, and they recci\e immediate credit for it. Tbis proactive

policy has already sa\'ed the company a significant amotmt in

processing labor and transportation, "Fbe trade-off is often the

$2-3 contribution on the product \s. the $4-5 to return, sort.

"soft" on difficult issues but to ensure a level playing field for

all industry participants and to maintain consistency in legis-

lation across tbe United States. A eompany tbat's belping to

create more laws for its industryr Tbe rationale is this:

VVeaveCo's management team is convinced that operational

eosts will get out of hand if tbe regulatory en\ ironment

e\ol\es into a patcbwork of di fferent laws nationw i(.lc. Long

term, VVeaveCo expects its invoK-ement in reverse logistics

acti\'ities and its work with legislators and nongovernmental

organizations to bave a significant positive impact on its prof-

itabi lity. In tbe meantime, tbe company is capitalizing on the

marketing value it gains with customers by activcK- participat-

ing on tbe environmental scene.

The Office Furn iture Distrib utor. Ibe Deskmax

and refurbishit. To sueceed witb this plan,tbecompany bas Com panies has taken an unusual approacbtoreturns,ft bas

bad

to

create higher visibility

for

returns.

It has

bui l t

a

return long been involved wit h removing old office furniture when

it

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installs nt'w furniture. But Dcskmax has gone lurther iliiin

that by being alert to customers' broader needs. When a cu^-

tcMTitT is rc-outfi ttinfj an olTict'.itolten upgrades flooring and

electronic equipment as well. So the company has expanded

its seniee offering to include managing the rem()\ii olelec-

tronic t'L|uipnienta sen ice that many ol its customers ha\'e

been willing to pay for. Additionally, Deskmax provides verili-

caLion that hard disks ha\c been cleaned and olfers cus-

tomers the option oi either donating used eqLii[iinent to non-

profit organizationsorha \ ing them de-manufactured ,in

essenee , the company v iews re turns management as an

enablerofnew business opportunities. Itsexpertise in the

area and itse.\panded offerings have beeom e s trong selling

points. The extended sen ices have inereased Deskmax's rev-

enues and ha\'e createdaprofitable busine ss through remar-

keting, recyeling.ordisposingot dcct ron ie

equipment.

T h e M i l i t a r y A g e n c y

A

U . S .

m i l i t a r y

agency is employing inlormation technology to

manageitsreturn s processe s effieientK' and

cost-effeeti\ely. The agency uses a sophisticat-

ed We b-base d listing to identify all items (and

tbeir loeations) that are available lorreuse.

When one government agency no longer needsa[iroduct.it

offersit for use in other agencies around the world.

Because distances between buyer and seller are typieally

large, the ageney has developedaproduet classification s\s-

tem that enables Web-based remarketing efforts anda

receivf-in-placc capability for managing and tracking invento-

r\. Rather than moving inventory over long distances to a

central location tor refurbishing and remarketing, the agency

takes the product "in place." adds

it to

its database

of

avail-

able items, and doesn't move iluntila "buyer" claimsit.

(There is no actual charge for the "purchase" of an item as

it

moves from one government agency to another.) The buyer is

solely responsible for the costoftranspo rting th e item to its

new placeofuse. By not moving product until its next d esti-

nationisknovvn and by taking advantage ol W eb-bas ed mar-

keting and eommunications, the agency has significantly

reduced lhe costsot managing retur ns while ) iroviding

imiirovcd levels of sen ice lor the other agenciesit serves.

T h e Appliance Manufacturer A makerof household

applianceslet's call it Henderson .Appliance Corp. has

recentk begun

a

reverse logistics system

to

actively manage

returns from itsmajor dealer custo me rs . P roductsare

returned primarily beeauscofin-transit damage, although

some damage ap[)ears to be occurring at the custom ers loea-

tions. Asa rclati\e i\ nev\ entran t tothe reverse logistics

arena, tbe companv bas bad the luxuiyofdesigningahigh-

performance inforTiiation system Irom the ground up.The

system enables

lenderson to link everv' return to a customer

andtntbe original pu rchas e order as v\ell as to the lactoryot

origin and the dateofmanutactLire. lh e company's produet

and quality engineers use this datatoassess manufacturing

detects, proeess improvements, and even packaging redesign

in ordertoprevent tu ture damage. Th e company s ultima t

goal bere

is to

eliminate returns d ue

to

in-transit damag

because such returns can be extremely costly. For example

v\hena particular typeofdamage was seen repeatedly,th

engineers redesigned the product packageto prevent sLic

damage from occurring while intransit. Th is chan geba

resulted insignificant savings and inereased revenues ove

the past two years.

The niost interesting aspectofthe new systemisthati

allov\s Henderson tomake distinctions among custom er

accordingtotheir long-term valuetothe appliance make

Management has realized that some customers are more eost

ly to sene than others. The dealer customers can be profiled

according to their returns historv. which Iccds into an assess

ment

of

the profitability ot each

to

Henderson

Dealers that abuse Henderson's return polieic

may find themselves looking for another appli

ance m aker. By more effectivelv managing t h

cost- to-serve each dealerparticularly how

much it costs the manufacturer intermso

returns managementHenderson has alread

seen improvements to its bottom line.

Henderson has built another eiement jf sophistication int

its reverse logistics system: an ability to maximize the margin

on returned products. Immediately upon receiptoidamage

goods, product engineers assess the damage, calculating th

cost of the parts and labor required to bring the pn)duet back

to prime condition. I 'or example, when a refrigeratori

returned dented and inoperable, an engineer evaluates whati

would costtomakeit operational andto replace the dente

panels. Based on the cost of repair, Henderson has established

guidelines for v\hether the appliance should be repairedto

new level, repaired and sold ina "seconds" channel, or broke

downto components for spares.Inthis way. Henderson ca

minimize its costs to restore products and ensure thatitgene

ates maximum revenues for the refurbished product.

Overa l l . Henderson ampK' demonst ra tes thepositiv

impact tbata focusonrevenue and cost man agem ent ca

have un a company's bottom line, Not long ago. the applianc

maker's returned products used to bewritten oft.Today

repairables proeessing and remarketing is a prolitable endeav

or for the company.

Opportunities bound

The Michigan State benchmarking research revealed oppor

tunities that canbepursued by supply chain managersa

many companies and across many industry sectors. (Se

Kxhibit2.)We toimd that compa nies can use tbereturn

proeess to enhance marketing etiorts by analyzing reasons to

returns and conducting ongoing defect analysis. Companie

can then use v\biit they learntoguide prod uct design an

engineering to present tuture product defeets and returns. O

if returns are happening because customers don't understan

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idden Vtilue

liov\touse ibep rot li ict, com panies can use tbeanalvsisto

r el i n e t b e i r e o m m u n i c a t i o n s toc u s t o m e r s .

For

thi>se

instances when returns cannot

be

avoit ied, prodtic t-gradin g

initiatives

can

belp maximi/,e

tbe

margin

on

remarket ing

tbe

produet -

I he r esearcb a l so r evea l ed abu nda n t oppo r t un i t i esfor

c o s t c o n t r o l , p r i m e o p p o r t u n i t \ : i m p r o v e m e n t sin

r e t u r n s i o r e c a s t i n g . I m p l e m e n t i n ga r e t u r n m e r c i i a n d i s e

a u t b o r i / a t i o n s y s t e m c r e a t e s v i s i b il i ty intbe r e t u r n s

p i p e l i n e ,b\ p rov i d i ng advanc e no t i f i ca t i on

o f i n c o m i n g p r o d u c t s , L v e n a

lev\

d aysof

a d v a n c e n o t i c e cane n a b l e i m p r o v e d

i n b o u n d c o n t r o l / s c b e d u l i n g

and

w o r k f o r c e

| i l a n n i n g , R M A [ i r o g r a m s a l s o p r o v i d ean

o p p o r t u n i t y

to

work more p roac t i ve l y wi t b

c u s t o m e r s d u r i n g tbe r e t u r n s p r o c e s s ;an

effect ive program cano v e r c o m e c u s t o m e r s

r e l u c t a n c e orl ackol i n c e n t i v e top r o v i d e

better visibil i tyof r e t u r n s .

Fu r t her oppor t un i t y l i es

in

bov\

tbe

r e t u rns p rocess

is

vievvedand acted iqntn . Unless al l de | iar tments understand

tbe role {>f tbe ret urn s pro ees s anditsul t ima te goals, eonflict-

ing goalsandpriorities will be setac ross depar t m en t s .It is

a l so c ruc i a l top r e p a r e tbevvorklorce lor tbev o l u m eof

i n e o m i n g r e c e i p t s . ya f i gn i ng em pl oyees abea dof t i m e ,

c o m p a n i e s cane x p e e t i m p r o \ e d t b r o u g b p u t p r o c e s s i n g ,

ensure that customers receive credi t more t |u ickK. and make

sure tbat products are returneil

to

sa lea ble stoc k a s (.|tiiekly

as

possible.

Tbe Micbigan State researcbers al so lound tbat compa-

nies can benelit greatlv

by

leveraging their re lat ionship s v\itb

thi rd par t ies . For example, al l iances wi th carr iers

can

belp

provide visibil i ty when customers cannot. And bv publicizing

reverse logist ics efforts, companies can hefp get their suppli-

ers and customers

on

board witb tlieir initiatives vvbile cre at

ing significant goodwill both witb their cu sto me rs andwit

the public

in

general .

ounting the Lessons Learned

We draw f ive valuable lessons

ior

supp l y cba i n man ager

from the experiences of the organizations descri l ied.

Fi rs t : Bacboftheo rganiz at ions involvedintbe b e n c h

marking s tudyisno\^at apoint v\hereitsmana gers recogniz

a n d m e a s u r e the f inancial impa ct of r ever s

liigistles nilc o m p a n y p e r l o r m a n c e .Insevera

cases ,

companies have also heen abletom e a

sure

tbe

i mpact

on

cus tom er service

and

rela

t ii >n s bi p m a n a g e m e n t . T h e s e p e r f o r m a n c

measu remen t s have fu r t her subs t an t i a t ed

th

i m p o r t a n c e ofe f f ec t ive l y ma nag i ng r ever s

logisties.

Second: Each company nov\ usesitsrevers

logis t ics capabi l i ty toe n b a n c e its e o m p e t i t i \ c a d \ a n t a g c

Wbile re\erse logist ies may never be tbe focal point

of

a com

jianv s overall strategy, ma nag ers

are

increasinlgy recognizin

tbat reverse logistics canfitintoacom pany s strategy

to be

cost leader

or to

be tter serve cu sto m ers , f^everse logisties sys

tems st i l l represent uncbarted terri tory

for

many compan i es

i l iose managers who recogni /e the importanceof thep roces

to enhance pn)ii tabil i tyorde\elo p s t ronger ei i s lomer relation

sbips stantitost rengtben tbei r companies com| iet i t ive pos

t ions .

Third: lor reverse logistics system stohe successful ,to

man agem en t mus t gu i de

and

suppor t

ibe

im| i lementat i{)n

Only then will

tbe

s t r a teg i c i mpor t a nceof

tbe

p r o c e s s

w i d e l y r e c o g n i z e d , E a c b

ot

the

c o m p a n i e s i n t e r v i e w e d

acknowledges that i ts systems work onlv because

it

enjoys

tb

lull sLip|)ort

oi

i ts executive team .

EXHIBIT

Revenue

Expenses

Assets

The Financial Impact

Returns Flow

Environmental ly

responsible activities

enhance brand equity.

1) Reduce COGS by

recla iming usable par ts.

2) Reduce inventory-

carrying costs through

improved channel-

clear ing activi t ies.

Reduce obsolete

inventories by

improving channel-

clear ing activi t ies.

Remanufacturing

Increase satesof

remaiuifactured

product, which s

produced

a t

lower

cost of goods sold

COGS).

Reduce COGS by

refurbishingo r

remani i factt i r ing

products

an d

parts

salable.

of Reverse Logistics Strategies

Remarketing

DSell recovered

and remanufactured

products/par ts,channels.

2 )Env] ronmenta l l y


enhance brand equity.

Keep inventories o f

old stock from

accumulatingb y

actively remarketing

to secondary markets.

1 Recycl ing

D R e cyc l e p a r t s /

m a te r i a l s t h a t can no

l onger be used

n

p r o d u c t s .

t) Lnvirof imental ly

responsive activitiesenhance brand equity.

Reduce operating

expenses through

disposal co mpliance.

1 Landfill ^

Environmental ly


enhance brand equity

Reduce operating

expenses through

disposal compliance.

4 2 S L I I I . \ C H V I \ MA N V I : L M I N I R l V J L

s

r

21)OS

\\ \\ . s u m r, t;


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Fourth: It is

crucii i l

to

integrate

all the

func tiona l areas

[hat allcct.

or

can be alfec tcd by, returned prodtacts.

At

sev-

eral

ot

the organizations surveyed, integration chiefly means

creating tighter linkages between the marketing and logistics

funct ions toensureasmooth retu rn [ irocess with prompt

and correct credits for customers. Regardlessofthe scopeof

the necessary integrat ion, each company recognized that

reverse logistics spans several kiiictional areas and cannot

he

managed

in

isolation.

Firth: Ihemost s t iccesslul com panies systeniat ical lv

developed decision rt i les that consider thecost of return

transportat ion,

the

cost

ol

reprocessing

or

remanufacturing,

am i

the

resale price , Stich giiiLlclines allow comp anies

to

tocus their return and processing elforts

on

items that ean

achieve

a

return

on

investment while min imi zin g the eosts

incu rred hv other p rodticts thai v\ ill not generate any re ttirn .

Poten tial W aiting to e Captured

[Reverse logistics

is a

valid stipply chain management disc i-

pline,hut

one whose full potential has

yet to he

realized

hy

man\-

managers, B\' sharing the rcsirlts

of

the Michig an State

survey, we hope

to

have prov iilcd some valuahle glimpses

of

the gains that comf ianies

can

make f rom wel l -p la nne d

reltirns management eapahilitles and systems.

Some

of the

organizations stirveyed have heen [iractie ing

returns management lor a long time, while others are relative-

Iv' new

to it. In

manv

ol the

cases, tlie rettirns managemen t

process had been ad hoc meaning that the strategies, opera-

t ions, and gtiidelines werenotwe ll-def ined or thoughtout.

I iowever, all theorgan izations survevcd have i,|Liickly seen

compe ll ing henefits,tothe point where thev, have all o ptedto

build reverse logistics eapahilities into their overall logistics

and sup|ilv chain strategies and processes. Each

ol

the com -

[lanies profiled above can attest to the value

of

doing so.

Authors Note: Th e researchers ivislilotluiiik IH M htlegnitcd

Stippiv Chain for its support

oj

rc^^earch iuid llw conipuiiies

and

agencies that agreed to be

inten ieived. 3SD

Footnotes

^M.C. C ooper, D.M. Lamb ert, and J.D, Pagh, S upp ly C hain

Management: More Thana New Name for Logistics, Th e

International JournalofLogisticsManagement vol.8,no.1(1997) :

pp. 1-14,

S. Rogers, Douglas M, Lambert, KeelyL.C roxton, and

Sebastian J. Garcia-Dastugue, The Returns Management Process,

The International Journal

of

Logistics

Management

vol. 13, no.2

(2002): pp, 1-18.

^ D. S. Rogers and R.S. Tibben-Lem bke, Going Backwards: everse

Logistics

Trends

and Practices Reno: Reverse Logistics Executive

C ouncil, 1999. Also, Edward W. Repa SW MA 's 2002 Tipping Fee

Survey/ ' NSWMA

esearch

Builetin September 2002.

' 'Rogers, 2002.

^Rogers, 1999.

S e e y o u

at

t h e c e n t e r

of

t h e m o v in g w o r l d

C e M A T 5

Move to the next level

TH E W O R LD S LEA D IN G FA IR

F D R I N T R A L O G I S T I C S

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www.cemat.com

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