Meeting the Reverse Logistics Challenge

Hard data and sophisticated planning are key when goods and materials start flowing upstream through the reverse supply chain


Reverse logistics is, of necessity, an information technology-intensive business, says Steve Manning, vice president at Milpitas, Calif.-based electronics manufacturing services (EMS) provider Solectron and general manager of its Solectron Global Services unit. The reason? "It's all about the data," Manning says.

Reverse Logistics Rising

As the Reverse Logistics Association notes, a variety of names have been applied to reverse logistics, including aftermarket logistics, aftermarket supply chain and the reverse supply chain. Formally, the Reverse Logistics Executive Council defines its namesake process as "a specialized segment of logistics focusing on the movement and management of products and resources after the sale and after delivery to the customer."

Reverse logistics has always been a concern for manufacturers and retailers, but until recently this process has gotten little respect in the C-level suites. "It's been an afterthought for a long time," says Greg Aimi, a research director focusing on supply chain issues at Boston-based technology consultancy AMR Research. David Morgan, CEO and president of DW Morgan Co., a Pleasanton, Calif.-based logistics services provider and supply network consultancy, puts it even more bluntly: "Reverse logistics, for many years, has been looked upon as a necessary evil." Companies were more focused on the forward supply chain, pushing goods through the pipeline to meet demand, and leaving returns to the folks at the store and warehouse level.

But more recently reverse logistics has begun to lose its "necessary evil" status, and analysts and industry veterans point to several trends that have increased the importance, and raised the profile, of the reverse logistics process. Phil Corwin, director of marketing with Atlanta's UPS Supply Chain Solutions, which offers a variety of reverse logistics services, says that as manufacturers and retailers have seen their margins become razor-thin, they have begun to recognize the significant costs associated with reverse logistics and to seek opportunities to reduce those expenses. "There are a significant number of touch points [in the reverse supply chain] that add up to a lot of cost. By not properly addressing the touch points, companies can negatively impact profitability, customer satisfaction and brand image," Corwin explains, "so companies are getting more sophisticated in their returns approach."

David Morgan suggests two additional drivers behind the newfound prominence of reverse logistics. First, he says, new environmental laws — such as the European Union's Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) directives — are forcing companies to plan how they will retake possession of goods from end users at the end of a product's lifecycle. And second, with heightened focus on corporate governance and reporting thanks to the Sarbanes-Oxley legislation in the U.S. market and similar laws elsewhere, chief financial officers have become more concerned with tracking — and accounting for — inventory coming back into the company's supply network. "With Sarbanes-Oxley, they cannot get away from recognizing those returns and putting them on their books as inventory, so Sarbanes is forcing the reverse logistics world to articulate and capture those revenue numbers," Morgan says.

Unique Challenges

Managing the flow of goods through the forward-facing supply chain is hard enough, but keeping the reverse supply chain running smoothly presents a number of unique challenges. For instance, Tom Giovingo, executive vice president at Wauconda, Ill.-based Fidelitone, an outsourced logistics and supply chain services provider, suggests that the reverse supply chain is frequently much more labor-intensive than the forward supply chain. "If I bring in a pallet of 48 comforters, I deal with all 48 at once, and the cost is spread over all the comforters," Giovingo says, "but if a consumer brings a comforter back, all the same activity — the receiving, inspection and stock put away — now has to be performed for just one unit. You multiply that times a couple hundred or a couple thousand returns each day, and it really adds up."

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