REVERSE SUPPLY CHAIN LOGISTICS



Reverse Supply Chain Logistics 640
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Consumer awareness, enhanced by legally imposed green law constraints, have lead to the need for safe return of products from the field as well as more environmentally friendly products. As a result, logistics planning must now consider both forward and return flows of products, parts, subassemblies, scrap and containers. It seems that an entirely new spectrum of goods has emerged at what was once considered the end of the supply chain. These goods include:

In their Harvard Business Review article, Guide and Wassenhove describe a reverse supply chain as "the series of activities required to retrieve a used product from a customer and either dispose of it or reuse it."

Donald F. Blumberg describes reverse logistics as the "coordination and control, physical pickup and delivery of the material, parts, and products from the field to processing and recycling or disposition, and subsequent returns back to the field where appropriate." This may include the services related to receiving the returns from the field, and the processes required to diagnose, evaluate, repair, and/or dispose of the returned units, products, parts, subassemblies, and material, either back to the direct/forward supply chain or into secondary markets or full disposal.

As a point of contrast, Blumberg describes forward logistics as "the overall management and coordination and control of the full direct service logistics pipeline, including the flow of the original material, parts and the final products to the central warehouse and distribution system, as well as the initial physical flow down to regional and local supply points to the end user or purchaser."

A number of forces seem to be influencing this increase in need for reverse logistics activities. These include:

Guide and Van Wassenhove list five key components to the reverse supply chain:

  1. Product Acquistion. The used product must be retrieved.
  2. Reverse Logistics. Once collected, used products are transported to some sort of facility for inspection, sorting, and disposition.
  3. Inspection and Disposition. The returned products are tested, sorted, and graded. Diagnostic tests may be performed to determine a disposal action that recovers the most value from the returned product. If a product is new it may be returned to the forward supply chain. Others may be eligible for some form or reconditioning while others may be sold for scrap or recycling.
  4. Reconditioning. Some products may be reconditioned or completely remanufactured. Most people have seen products labeled factory reconditioned which implies it is used but like new and may have a warranty. Some products may have parts that can be extracted for reuse or as spare parts. Others go for salvage or recycling.
  5. Distribution and sales. Reconditioned or remanufactured products may be sold in secondary markets where customers are unwilling to purchase a new product. In other instances the firm may need to create a new market if demand is not currently present. Of course, there are distribution needs in getting the product to the secondary market.

Blumberg lists a number of important characteristics that need to be managed coordinated, and controlled if the reverse supply chain is to be economically viable:

CLOSED LOOP SUPPLY CHAIN

Increasingly, it is found that the original supplier is in the best position to control the return process. The basic reverse supply chain logistics model operates independently of the forward supply chain that delivered the original product. When a firm controls the full process of forward and backward shipment the result is called a closed loop supply chain.

The closed loop supply chain generally involves a manufacturer, although sometimes it is the buyer, taking responsibility directly for the reverse logistics process. The products, parts, etc. are returned and recovered directly by the original manufacturer or through indirect (dealer) channels representing the original manufacturer's own field service force. The primary difference in this and the reverse supply chain is that in this model the entire direct and reverse flow can be and usually is controlled by the original manufacturer.

Within a closed loop system involving a consumer market the primary interaction is between the retailer and the original manufacturer. Returns can be failed products or simply those purchased and returned. In this model there are two reverse linkages, consumer to retailer and retailer to original manufacturer.

Closed loop systems allow firms to track the product and its failure and repair experience, thereby revealing how to cost-effectively service and support field service. Also, the close control and rapid recovery provided by a closed loop system allows minimum inventory for field support. Blumberg states that inventory value is maximized through:

Reducing inventory often produces significant additional efficiencies and results to the firm including:

Blumberg also states that the strategic value of closed loop reverse logistics management operations will have a very positive effect in terms of:

General experience dictates that the introduction of closed loop supply chain management can result in the bottom line direct savings of 1 to 3 percent or more of total revenues, particularly for organizations in a mature or stagnating market.

RESPONSIVE VS. EFFICIENT

By strategic design, forward supply chains generally strive to be either efficient, that is, designed to deliver the product at a low cost, or responsive, meaning designed for speed of response. Obviously, there is a trade-off between the two structures; the quest for low-cost (efficiency) would tend involve foregoing actions that would increase responsiveness, while striving for increased responsiveness almost always involves an increase in cost (or a decrease in efficiency).

Blackburn, Guide, Souza and Van Wassenhove suggest that reverse supply chains follow a similar structure even though most currently strive to be efficient. They propose that reverse supply chains may be structured as efficient or responsive depending upon the type of product returned. Their research indicates that for reverse supply chains, the most influential product characteristic is marginal value of time (MVT). They also propose that efficient reverse supply chains can achieve processing economies by delaying testing, sorting, and grading until the products have been collected at a central location. This works well for products that have a low marginal value of time. However, for items with a high marginal value of time, for example, PCs, a responsive reverse supply chain is appropriate. Early diagnosis, for example by field testing, can maximize asset recovery value by accelerating returns to their ultimate disposition, a process they call preponement (as opposed to the postponement tactic prevalent in forward supply chains). Also, by diverting new and scrap products from the main flow, flow time for items requiring additional work, repair and reconditioning, is reduced. Therefore if efficiency is the objective, then the reverse supply chain should be designed to centralize the evaluation activity. If responsiveness is the goal, a decentralized evaluation activity would be appropriate in order to minimize time delays in processing returns.

The total value of returned products in the U.S. alone is estimated at $100 billion per year. With this kind of volume the importance of the reverse supply chain can only go up.

SEE ALSO: Inventory Management ; Inventory Types ; Logistics and Transportation ; Production Planning and Scheduling ; Purchasing and Procurement ; Quality and Total Quality Management ; Supply Chain Management

R. Anthony Inman

FURTHER READING:

Blackburn, Joseph D., et al. "Reverse Supply Chains for Commercial Returns." California Management Review 46, no. 2: 6–22.

Blumberg, Donald F. Introduction to Management of Reverse Logistics and Closed Loop Supply Chain Processes. Boca Raton, FL: CRC Press, 2005.

Guide, V. Daniel R., Jr., and Luk N. Van Wassenhove. "The Reverse Supply Chain." Harvard Business Review 80, no. 2: 25–26.



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