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SCM 2016: REVERSE SUPPLY CHAIN 2012

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This document gives us insights intohow Reverse Supply chain will pan out in

various industries in the year 2016

SCM-2016Reverse Supply Chain

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Table of ContentsWHAT IS REVERSE SUPPLY CHAIN LOGISTICS.............................................................2

WHY REVERSE SUPPLY CHAINS?.................................................................................3

HOW IS A REVERSE SUPPLY CHAIN DIFFERENT??.............................................. .........4

APPLICATION OF REVERSE SUPPLY CHAIN IN VARIOUS INDUSTRIES...........................4

REVERSE SUPPLY CHAIN IN PHARMA INDUSTRY............................................... .......4

Recommendations...............................................................................................6

REVERSE SUPPLY CHAIN IN THE AUTOMOTIVE INDUSTRY........................... ............7

REVERSE SUPPLY CHAIN IN THE PAPER/PUBLISHING INDUSTRY.......................... ..11

REASONS FOR RETURN IN THE PUBLISHING INDUSTRY......................................12

THE SEVEN RS OF REVERSE LOGISTICS.............................................................13

REVERSE LOGISTICS PUBLISHING SUPPLY CHAIN.............................................. ....14

SCOPE FOR DEVELOPMENT IN THE FUTURE................................................ .......14

REVERSE SUPPLY CHAIN IN CONSUMER ELECTRONICS INDUSTRY............. ......... ..15

REVERSE LOGISTICS IN RETAIL INDUSTRY.............................................................17

Centralized Efficient Reverse Supply Chain........................................................18

Decentralized Reverse Supply Chain with Preponement....................................19

Conclusion................................................................................................................20

REFERENCES............................21

REFERENCES

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WHAT IS REVERSE SUPPLY CHAIN LOGISTICSSupply Chain Logistics is defined by The Council of Logistics Managementas: The process of

planning, implementing, and controlling theefficient, cost effective flow of raw materials, in-

process inventory, finished goods and related information from the point of origin to the point of

consumption for the purpose ofconforming to customer requirements.

Reverse Supply Chain Logistics includes all of the activities that are mentioned in the definition

above. The difference is that reverse logistics encompasses all of these activities as theyoperate

in reverse. Therefore, reverse logistics is: The process of planning, implementing, and controlling theefficient, cost effective flow of raw materials, in-processinventory, finished goods and related

information from thepoint 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. Remanufacturing and

refurbishing activities also may be included in the definition of reverse logistics. Reverse

logistics is more than reusing containers and recycling packaging materials. Redesigning

packaging to use less material, or reducing the energy and pollution fromtransportation are

important activities, but they might be better placed in the realm of green logistics. If no goods

or materials are being sent backward, the activity probably is not a reverse logistics activity.

Reverse logistics also includes processing returned merchandise due to damage, seasonal

inventory, restock, salvage, recalls, and excess inventory. It also includesrecycling programs,

hazardous material programs, obsolete equipment disposition, and asset recovery.

WHY REVERSE SUPPLY CHAINS?

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Returns in an industry can be of three types, return of unsold product and secondly return of

packaging material and thirdly return of used products in either a state where they cannot be

reused or in a state where certain amount of reuse is possible. Typically the rate of returns is

around 6-8% but this percentage varies by large amounts across industries. Some of the return

rates across various industries are shown below and these show why it is important for the

managers to manage the reverse supply chain.

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HOW IS A REVERSE SUPPLY CHAIN DIFFERENT??

APPLICATION OF REVERSE SUPPLY CHAIN IN VARIOUSINDUSTRIES

REVERSE SUPPLY CHAIN IN PHARMA INDUSTRY

In todays highly competitive and cut-throat business environment, need for an efficient supply

chain has become utmost important. Today a company supply chain is not only defined by its

ability to deliver the end product from supplier to customer but also the ability of phenomenon

called Reverse Supply Chain which has been most often ignored by many.

According to the council of Logistics Management - Reverse supply chain is defined as 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.Reverse Supply chain also includes remanufacturing and refurbishing activities, processing

returned merchandize due to damage, seasonal inventory, restock, salvage, recalls, excess

inventory and recycling programs, obsolete equipment disposition and asset recovery.

It also helps to get slow-moving products off the shelf, the distribution networks and warehouses.

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Currently, the pharmaceutical industry is experiencing unparalleled change and challenges. All

of the usual suspects that impact business today are at play: globalization, treatment and pricing

economics, government controls and technology. However, in an era of continuing

consolidation, innovation abounds not only in R&D, but also in business models. Supply chain

visibility is also essential for any pharmaceutical supply chain including reverse logistics, as

counterfeiting and lost or stolen products continue to be a major concern for this industry.

The wastage and spillover in pharmaceutical industries is also very high. A proper system would

enable reduction in this wastage and spillover. Supply Chain plays a pivotal role in todays

highly competitive business environment. The success of any business depends to a large extent

on the efficiency of supply chain. Companies spend more time and money in fine-tuning their

forward supply chains while ignoring their backward supply chains. Companies can no longer

ignore reverse supply chains in todays competitive business environment. Efficient reverse

supply chains bring many benefits to the companies. Pharmaceutical companies take back

medicines from the retailers regularly. The research to analyze the practices of these companies

in this reverse supply chain processes would facilitate further scope to know about reverse

supply chains in this field. According to Healthcare Distribution Management Association (HDMA) estimates 3-4%

of product going out from pharmaceutical warehouses ultimately comes back. Some

redistributed, and some returned for disposition and destruction by a 3rd party processor

or manufacturer. Of the estimated 3-4% of product returned, it is also estimated that approximately 1

-2% of pharmaceuticals manufactured will be returned for destruction with a resulting

credit back to the manufacturers' trading partners. Recent publications indicate that manufacturers currently spend up to 4% of cost of

goods sold (COGS) on non-value-add distribution functions like returns and reverse

logistics.

With such a large amount of product going through the reverse supply chain, returns should be

an ideal touch point for mechanisms and technology to support a safer pharmaceutical supply

chain.

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RecommendationsSupply Chain Efficiencies - On the reverse logistics side, if the company performing the returns

function on behalf of the manufacturer has adopted the right systems and technology to perform

those tasks, there are a number of efficiencies that can be gained. First and foremost being the

speed at which the provider can verify and process the return coming in on a daily basis.Maintaining an acceptable turn-a-round time from the time received to the scanning, processing

and collecting of data necessary for the manufacturer to provide accurate and timely credit to

their trading partners should be the goal. This is even more important when managing a product

recall, when time and accuracy of reporting is most important. Timely processing will also help

dramatically with the debit/credit reconciliation process which can pose major challenges to

pharma manufacturers and their trading partners. Keys to compliance and bringing true value to

the stakeholders can be accomplished by utilizing and adopting business practices and systems

that help to facilitate quality outcomes. Some of which are:

Returns processors need to revamp or build out their IT capabilities to respond to ever-changing

industry needs and trends, including the installation of RFID and 2D barcode readers on their

processing lines. Operating returns systems can also facilitate an on-line Return Authorization

(RA) feature, which gives the customer the option to request an RA on-line. This will then allow

the system to automatically determine which products are eligible for credit, as well as the

estimated credit value along with streamlining of data to the manufacturer and their trading

partners with the utilization of real-time data visibility through web-based management systems.From the RA request to receipt and processing of the returned items, all the way to disposition,

the manufacturer will have access to data as it is generated during the returns process.

Providing access to the data and a suite of "Dashboard" management reports containing key

trend and timeline comparisons can provide the manufacturer and their trading partners with

valuable historical and current snapshots of product that is being returned.

Integration of QA Processes is also a critical success factor. Part of this should involve the joint

development and maintaining of performance metrics between the service provider and their

business partners. Building performance metrics into the service agreement should also be givenconsideration, with on-going measurement of results taking place on a quarterly or yearly basis.

Specific to processing turnaround time, there is at least one returns company which has

established a standard of a maximum of five days for turnaround time with their clients. A

formal and comprehensive training curriculum is also a key element to quality outcomes.

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Anyone involved with the receipt and processing of returned product should be fully trained on

the aspects of customer procedures, equipment operation and materials handling. A system

which supports multi-validated processing, or "double checking" the data which is captured

should also be utilized.

Intelligent Redeployment

In summary, reverse logistics, once thought to be a very minor piece of the supply chain, has

evolved to the point where these services, whether they are managed internally or outsourced to a

professional returns company, are considered to be a significant part of managing product flow

in the supply chain. For a good number of years, returns have been managed in a very

mechanical and labor-intensive way, but with the adoption of the latest in technology, and more

flexible operating systems, reverse logistics is taking on a whole new look - one that is adapting

to the needs and changes that are taking place in the marketplace.

REVERSE SUPPLY CHAIN IN THE AUTOMOTIVE INDUSTRY

The Reverse supply chain concepts become all the more important in those fields dealing with

ever so durable products because of the need to cover long periods of time of their llife and what

next is to be done to these live parts or components to ensure minimum wastage and maximum

contribution or profit. These days it has become also important to ensure that minimum dumping

occurs and landfills and other places for dumping are regulated. So to ensure all this reverse

supply chain plays a key role in an automotive scenario. Some of the examples of where reverse

supply chain can be used are listed below

Warranty returns for products and their disposition management.

Refurbishing activities of equipments Remanufacturing activities of finished products

Manage the levels of surplus

Manage the returns and machines coming back from leasing business

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Listed below are the key processes by which the automotive industry presently indulges in

reverse supply chain processes

In the automotive sector, the key differentiating factor that will help it go along a long way is the

concentration on the Reverse logistics part of this reverse supply chain

The automobile industry is one of the largest industries in the world and as mentioned earlier it

deals with some of the costliest durable deals. These consumer goods are easily some of the most

careful investments made by people and are an expensive good for the customer. Thereforereverse logistics should play an important role for this industry. The roles played are as follows

Usage of scrap parts and take the salvage parts from the used vehicles

Refurbish and remanufacture used parts and procurement for the same

Meet dealer requirements of stock balance of new parts

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Considering the importance of Reverse logistics a Centre for Vehicle recycle development has

been former. The VEHICLE RECYCLING DEVELOPMENT CENTRE formed by the Big 3

automakers of America plans to increase the recyclability of cars. The main focus of VRDC Is to

learning to build vehicles that has the recyclable potential and those vehicles that can be

disassembled easily. While there have already been enough study being made in the field of DFA

in automotive design, this centre one step ahead and concentrates on Design for Disassemble

(DFD).The logic behind DFD is to minimize the usage of permanent fasteners like chemical

bonds and welds and use minimum number of parts being fastened by temporary fastening

processes like snap fits and screws etc which would make disassembly easier and make products

easily recyclable.

These processes offer many positive effects. The most prolific being the fact that it aids heavily

in remanufacturing. The automobile industry has been one of the well knownindustries being

used for old remanufactured products. Infact sale of used cars has been one of the biggest

thriving businesses across the world. The impact of car leasing also has a huge effect on these

remanufacturing phenomenon.

According to the Auto Parts Remanufacturers Association (APRA), the market for

remanufactured auto parts is estimated at $34 billion, annually. The APRA also estimates there

are 12,000 remanufacturing firms (including large-scale companies) involved in the auto parts

industry. One particular company remanufactures more than four million alternators, starters

and water pumps every year. Between 90% to 95% of all starters and alternators sold for replacement are remanufactured

The key concern for automakers is to make use and maintain a closed loop system for their parts.

For example, when a vehicle needs a new steering system, they hope that there will be a

customer who needs a replacement of the existing steering system and he would bring it to the

dealer. The dealer will then send this old steering system to the automaker for remanufacturing.

This is where reverse logistics plays a huge role.

With the help of this key assumption, we believe that the automaker will have this standard

supply of steering systems that he will remanufacture and pass it onto the customer as and when

the need arises. The estimated cost of reverse logistics in the Indian auto and auto components

industry is around 0.5% to 1% of total sales

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EMERGING TRENDS IN REVERSE SUPPLY CHAIN IN AUTO INDUSTRY:

REVERSE SUPPLY CHAIN IN THE PAPER/PUBLISHING INDUSTRY Historically reverse supply chain has not been considered important in the paper industry,

typically because in the past the number of publishers were less as compared to the demand for

the books in the market. But in the last few years as the number of publishers has increased and

the demand for books reduces it has become more important for reverse supply chain to be used

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Reverse supply chain totally centralized

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in the publishing industry. Earlier it was considered easier to destroy the books than to return it

to the publisher, this option has become less favorable in the past few years because of the

following reasons:

1. The retailer might sell the books at very low prices to customers and employees who may inturn sell it again at a usual price, resulting in huge losses to the publisher.

2. Destroying books also needs to be registered in the auditing and financial books of the

retailers; this makes it better for them if they could return the books to the publishing house.

3. As greater focus on Environment becomes an important part of the Publishing industry

destroying books is being considered a waste of natural resources.

4. Improvements in the recycling technologies have made reusing paper economically viable for

large publishing houses.

In the publishing industry because of the entry of new large-scale book retailers , the square foot

selling area has increased as a result the number of books required to stock these stores have also

increased. Due to the ease in publishing new books the number of books written by authors has

also significantly increased. As new and new publishers mushroom the life of a book continues

to become shorter which leads to almost 30% to 35% books not being sold by retailers. In large

retail book stalls selling 70% of the books on the rack is considered a good performance. It is in

this light that the importance of reverse supply chain has become important in the Publishing

Industry.

REASONS FOR RETURN IN THE PUBLISHING INDUSTRY In the case of the Publishing Industry return is defined as return of books, papers, and magazines

from the downstream user (customer/ retailer) back to the publisher for various reasons. Reversesupply chain here would be the processes and management action taken once the book is

returned. The entire process involves customers, booksellers, wholesalers and publishing houses.

The various reasons for returns in the publishing industry are:

Unclear product market positioning;

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Quality problem; Design and binding problems; Inaccurate forecasting; Unreasonable pricing; Slow information flow; Lack of marketing support; Weak sales function; Bad store presentation; Weak logistics support; Weak transportation support; Lack of control over return frequency, quantity, and items; Serious back order and late delivery due to the small order quantity; Long return process cycle; Returned products in large variety yet in small quantity; A large quantity of returned products due to the fixed return period; Significant increase in returns at the terminal period of sales for best-sellers; Cash flow problem; Oversupply of new book titles to the current market demand; Inappropriate selection of a product mix;

Discrepancy between the return list and actual items and quantities; Long distribution channel; Frequent promotional activities resulting in lots of returns at the end ofpromotion. Different consumer preference among different geographic regions; High transportation costs due to difficulty in transportation arrangement inadvance. No rigid discipline in stock-taking and stocking activities; and Too many distributors involved.

THE SEVEN RS OF REVERSE LOGISTICS Reuse the packaging is reused or a product is sent back for resaleto another customer. Repair/repackage where a moderate amount of repair and/orrepacking will allow the

product to be reused.

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Recycling where the product is broken down and mined forcomponents that can be

reused or resold. Reconditioning When a product is cleaned to its basic elements,which are reused. Refurbishing Similar to reconditioning, except with perhaps morework involved in

repairing the product. Remanufacturing Similar to reconditioning, but requiring moreextensive work; often

requires completely disassembling theproduct.

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REVERSE LOGISTICS PUBLISHING SUPPLY CHAIN

SCOPE FOR DEVELOPMENT IN THE FUTURECurrently for small publishers it makes more economic sense to destroy the returnable than to

invest in reverse supply chain logistics, but as publishers become large and demand for book

becomes more and more difficult to predict reverse logistics will have to become an important

part of the Publishing industry.

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REVERSE SUPPLY CHAIN IN CONSUMER ELECTRONICSINDUSTRY

From the time Business has started, forward supply chain was the focus of the industry. The

focus was on delivering value from the Supplier to manufacturer to distributor to wholesaler to

retailer and finally to the end customer. The supply chain field has seen a lot of changes and

some of the links that existed in the past are not there in the present and some new links have

been added. For example the Dells direct Model disposes of the retailer and wholesaler and

distributer and a logistics partner has been added between the manufacturer and the customer.

The supply chain was focused on being delivering the value only in the forward direction. The

reverse direction was only thought of as a direction where only information flows back to the

supplier to improve customer awareness and getting orders for products.

In the future, reverse supply chain will be the focus to deliver value back into the supply chain.

As the world gets more and more IT enabled, online retailing will be a global phenomenon in

2016. In such a scenario reverse supply chain takes a more prominent role. The concepts of

returns, use of IT in managing value back to the supplier will give the business a new strategic

advantage and direction for creating and maximizing value.

Consumer electronics industry is witnessing a sea of change in the current century. Products that

were discarded as possible only in the realm of imagination in the past decade are real today. For

example the now ubiquitous embedded chips have changed the way humans live in the world.

Every little thing is now made easier using consumer electronics.

In reverse supply chain in consumer electronics, the focus can be in both business to business

and business to consumer segments. The consumer electronics industry is a challenging industry

to focus for both B2C and B2B market because of the short life cycle nature of its products. As

world grows older, fresh technologies and upgrading of the existing technology makes the

current product obsolete. For example, the normal PCs today are being replaced by more powerful laptops. The replaced desktops most often end up as an e-waste. The reverse supply

chain can play a major role in this capturing and maximizing the value in this field. There is a big

opportunity for used PCs in the developing countries and countries with struggling economies.

The reuse of these so called obsolete PCs from the developed countries can be reused in the

developing and emerging countries to help deliver a better value to the population in both the

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countries. To a person who is buying a new PC or a laptop to replace his existing one reverse

supply chain can help him to claim value which he never thought existed. To a person in the

emerging and developing countries, buying the latest PC or laptop may not be financially viable

to them. But, they will be open to buy the used PC from the developed countries, because

technology obsoleteness is different at different countries. The reverse supply chain can help in

claiming value in both these transactions. The reverse supply chain can help the manufacturer or

supplier to get the old product, in this case the PC, back from his new customer and refurbish it a

little and deliver it to the customer in the emerging market. This capability of reverse supply

chain helps all the parties in this value chain claim value that they never thought existed.

In the establishing a reverse supply chain, a lot of new players can come into the game and stake

claim to the value. In the consumer electronics industry, while using reverse supply chain to get

the products back from the customer, there exists a new set of services that can be performed.

The reclaimed products also needs to be serviced and warranty needs to be given for that in the

developing countries to make sure that the customer in the emerging market who buys the used

PC does not believe that he is a sink for obsolete product. He should also fell that he is claiming

some value as part of being in this value chain. The services of refurbishing the product to get it

ready for the new market, servicing the product once sold into the new market and warranty

repair for the product sold can be outsourced to another player and can open up new avenues for

growth in the value chain. This is how reverse supply chain in 2016can help in discovering value

that no one saw existed in the value chain.

The importance of reverse supply chain comes into focus in Consumer Electronics industry

because o the following factors

The short life cycle of the products The growing demand of new and exciting products that stretch the imagination The demand fluctuations that are caused by different factors.

Low cost of manufacturing in developing countries Increased awareness of hazards of improper disposal of e-waste

Reverse supply chain also takes a prominent role while considering the issues of sustainability of

business. We have seen that the developing countries have been a dump yard for e-waste for the

developed countries. As mentioned above, this was mainly due to products becoming obsolete

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due to the rapid changes and strides that we make in technology. This has mandated the

developing countries to take a note of this grave situation and have started making legislations to

handle the e-waste being dumped into their country. They have started forcing the OEM

companies to handle the e-waste that they generate due to product obsolescence by themselves.

The industries have themselves started creating policies within the organization to reduce the

carbon foot print that they leave in this world when a product of the company is sld. This has

made the companies to realize the economic sense of the reverse supply chain opportunities.

REVERSE LOGISTICS IN RETAIL INDUSTRY

Reverse logistics (RL) is becoming an important aspect of supply chain management. Many companies

that, previously, did not devote much time or energy to the management and understanding of reverse

logistics have begun to pay attention. Firms have begun to benchmark return operations with best- in-

class operators. Third parties specializing in returns have seen demand for their services greatly increased.

Leading-edge companies are recognizing the strategic value of a RL system for the return of stale or

obsolete goods. Those firms can maintain goods on the retail shelf fresh and in demand.

A typical forward supply chain is shown in Fig.1

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Centralized Efficient Reverse Supply ChainAn efficient reverse supply chain focuses on processing product reruns at an overall

lower cost. The cost efficiencies in the supply chain are obtained by centralizing the

testing and evaluation of the returned product at a central facility, after which credit

is issued. The retailer or reseller doesnt partake in any product evaluation at their

end. Shipping costs are minimized by shipping the returns to the vendor in bulk.

The model achieves economies of scales at each level, thus enabling minimization

of processing costs.

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Decentralized Reverse Supply Chain with PreponementIn the previous model, we saw that product differentiation is delayed until allreturns are shipped to the central facility. On the other hand, for products like PCswhere the asset value loss over time is relatively high, we can prepone the testing

and evaluation of the returned product using a decentralized model so that theunused productscan be restocked immediately.

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Conclusion

As seen in the above pages, Reverse supply chain is a very important factor in

many industries such as Retail, automobile etc.Be it return of products, return of

packaged material or return of used products, reverse supply chain makes the

whole supply chain very efficient and helps in decreasing costs. Applications

ranging from warranty returns, remanufacturing of finished products, recycling

repairing, packaging, reconditioning has shown us that reverse supply chain is a

necessity part of the organization. As the future pans out it will be highly likely that

companies will go forward in making reverse supply chain as efficient as possible by

using various new techniques and models.

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REFERENCES

1. Guldem Elbus ,(2011)The importance of Reverse Logistics:, International Journalof Business and Management Studies,

2. V. Daniel R. Guide Jr. and Luk N. Van Wassenhove(2002), The Reverse SupplyChain, Harvard Business Review .

3. Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke(1998), Going Backwards:Reverse Logistics Trends and Practices, Reverse Logistics Executive Council .

4. Nandan Kumar,(2009)Reverse Supply Chain: Completing the Supply Chain Loop.Cognizant 20-20 insights ,

5. Joy Field,Robert Shroufe,(2007) The use of recycled materials in manufacturing:Implications for supply chain management and operations strategy, International

Journal of Production Research.

6. Carter, C.R. and Ellram, L. (1998), Reverse logistics: a review of the literatureand framework for future investigation, Journal of Business Logistics.

7. Rogers D., Tibben Lembke D (1999), Going Backwards: Reverse Logistics Trendsand Practices, USA: Reverse Logistics Executive Council.

8. Automotive Parts Rebuilders Association,(1998)Rebuilding/Remanufacturing:Saving the Worlds Environment , (Fairfax, VA:Automotive PartsRebuilders Association, 1998)

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9 . Dr.MihaelaMoise , The importance of reverse logistics for retail activity

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