5 Principles for a Better Reverse Logistics Operation

Plus, learn how one company's high-velocity reverse logistics operation put its ERP system to the test by making pre-owned network equipment available globally


Plus, learn how one company's high-velocity reverse logistics operation put its ERP system to the test by making pre-owned network equipment available globally

Reverse logistics manages inventory that flows upstream — back toward a source — to capture value otherwise lost or under-realized. Often considered the forgotten stepchild of supply chain planners (who typically design supply chains for forward deployment), poorly managed reverse logistics can be costly, and those costs can be extremely hard to discover. However, it's common that even those enterprise resource planning (ERP) systems capable of reverse logistics aren't properly set up. As a result, mislabeled, unacceptable or non-labeled inventory is often lost to possible resale, refurbishment or other positive disposition because the ERP is simply unaware that it exists.

Before looking at a case study of an exemplary reverse logistics operation, here are five principles to consider when designing a reverse logistics process:

First, avoid creating inventory that is highly likely to be returned. This resource planning approach is called avoidance management, and it aims to prevent you from flooding your market with overages that are bound to come back. While this may seem obvious, it is important for planners to remember that no amount of reverse logistics optimization can take the place of eliminating the root causes of excess inventory.

Second, establish gate-keeper rules in your ERP that automate the registry of returned inventory. With automated gate keeping, even low-skilled workers can accept, sort and properly re-label (or discard) items without having to examine each one. Barcode- or radio frequency identification (RFID)-based returns gate-keeper systems are affordable to implement, and inventory can immediately be labeled as available for forward supply chain operations or appropriately relegated for repair, recall processing, refurbishing or the trash.

Third, establish a complete set of code categories within an ERP — right down to the radio frequency (RF) gun level — to accommodate the full range of possible returned inventory. A dock worker who cannot find a valid entry code for an item is likely to store it without checking it into the ERP, making it lost inventory that can never be monetized.

Fourth, availability is what drives any inventory-based business. Since an ERP system makes an essentially binary distinction about inventory (it is or isn't available for fulfillment), the rules driving reverse logistics should absorb and label inbound inventory with the determination of availability as their goal. Items that float in a grey area between unacceptable and almost available are likely never to move. Available inventory will be promised and fulfilled before items languishing in limbo.

Fifth, dock personnel should aim for immediate inventory turns, and they should have the authority to request or directly edit reverse logistics rules, as the nature of the inbound inventory changes. Labeling a recently recalled product with a refurbish code — for lack of a better code or because the IT systems administrator was distracted — can be costly and expose companies to liability.

Let's take a look at a complicated reverse logistics operation that has been successfully integrated with a forward logistics operation through adherence to these principles. Telmar Network Technology is a provider of pre-owned voice, data and optical equipment for both wireless and wireline networks. (By purchasing pre-owned, customers can realize 30 percent to 70 percent savings over new equipment, but they must source the equipment in the secondary market in which Telmar operates.) Telmar's inventory is accumulated through a reverse logistics operation and immediately re-deployed in a traditional forward-logistics operations, all run from an ERP that has been accessorized by a supply chain execution solution for functionality the ERP doesn't otherwise offer.

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