Reverse Logistics and Supply Chain Management

Logistics and Supply Chain Management-

- Reverse Logistics

Enough said and done about the global warming scenario, but what is it that companies, manufacturing industries and the like; can do to achieve positive tandem with the environment? While the supply chain system caters to the inception to the finished product’s delivery to the customer; what’s important is not just how much value is added at each level but even the amount of wastes and defects incurred. There are 2 ways to deal with such a situation:

1.        Resell such goods to another party (unfavourable option) or

2.      Incorporate a system wherein the supply chain is inherent with adding value to products even if defective

The latter can easily be carried out to form a sustainable supply chain system by taking into account the environmental aspect. How can it be done? Well let us revisit some facts:-

‘Logistics’ per se is the management of resources from the source to the point of consumption. A relatively new concept that is catching businesses’ eye is ‘Reverse Logistics’. It primarily deals with the same parameters but in the opposite flow i.e. from the point of consumption to the source; with the aim to recapture value of the product. To put it in layman’s understanding: it focuses on those goods which are returned from the customer on account of defects and damages.

It is observed that a majority of goods that are returned are from the retail and electronic industries. Such products do not generate revenue for businesses and are discarded on accounts of faults. Thus accumulating the amount of waste produced by a firm. The UN estimates that every year about 20-50 million tonnes of electronic and electrical waste are generated worldwide. Thus to manage e-waste(refuse created by discarded electronic devices and components as well as substances involved in their manufacture or use) is of utmost importance in lieu of environmental sustainability.

1.       Reverse Logistic is a Holistic Approach to Cater to the Needs of the Customer

We are all very much aware of how important it is to fulfil the needs, wants and desires of a customer so as to garner a profitable throughput. However, in reality if a Venn diagram is made to depict the needs and what a customer actually gets; there are aberrations and a complete intersection is hypothetical. Thus, it I observed that a number of goods once sold are returned due to a plethora of reasons: damaged and defective goods majorly. Here’s where Reverse Logistics steps in to cater to such products which are later rendered usable, replaced, repaired or refurbished. Hence addressing the needs of a customer in totality: from selling to after sales services.

2.      Reverse Logistics is a Logical Solution to Curb e-Waste

While supply chain works towards delivering the finished good right from the very initial stage of procurement of raw materials and sourcing; what most organisations fail to keep a tab on: is the amount of goods returned on grounds of defects and damages. Reverse logistics caters to precisely this domain and is gaining momentum in the industry. It has historically been an undervalued part of supply chain management, but is currently drawing attention due to its direct impact on profit margins, companies’ environmental image and the prevailing trend of corporate social responsibility. Reverse logistics primarily includes the sorting, testing, refurbishment, recycling, testing or even disposing off of the product; thus a logical solution to curb e-waste. Easier so, since it’s inherent within the supply chain.

3.       Potential Market

The e-waste and reverse logistics market has become a $100billion+ annual, excluding much of the resale of still usable goods that flood the marketplace as new updates in software and hardware are released. With the burning issue of global warming many environmental legislation and policies are being set with stringent requirements for the disposal of e-waste. Projections by analysts and practitioners confirm e-waste to grow faster than any of its counterparts in the waste segment, over the next 5 years. The benefits of e-waste management and recycling are many. Apart from the conservation of natural resources and prevention of environmental contamination by toxic chemicals, it also creates new job opportunities and reduces the amount of energy required.

Type of e-Waste	China	India
Old computers	2-4 times	5 times
Mobile phones	7 times	18 times
Televisions	1.5-2 times	1.5-2 times
Refrigerators	2-3 times	2-3 times

*Predictions with 2020 in comparison with amounts in 2007

Source: http://computersandtheenvironment.files.wordpress.com/2011/12/screen-shot-2011-12-09- at-2-50-04-am1.png

4.      100% of the Mobile phone parts can be reused!

Picture this:  On an average the life span of a cellular mobile phone is 2 years. Post this time duration what do we do with our phones? 91% of us shove it away in a desktop drawer, the garage or leave it idle at home for an alternate option in case of emergencies.

100% of the parts within a mobile phone can be recovered and used to make new products or generate energy. This ever growing number of electronic waste (e-waste) is expected to reach 93.5million tonnes by 2016. The underlying question remains-where does all this go? About 80% of the e-waste collected in the USA is dumped in developing countries such as China, India and Pakistan. However, there are responsible e-waste management guidelines set up by the WEEE (Waste Electrical and Electronic Equipment) which recycles up to 56% of the waste collected. The European Union has set restrictions for exports of e-waste to prevent global warming and further environmental damage.

5.      What Reverse Logistics has to Offer

Here is when reverse logistics comes into play: it aids in minimizing environmental damage caused by companies and producers by collecting, sorting and recycling/reusing used electronic goods. Once products reach the final customer the reverse logistics activities start and it is called aftermarket customer services. There are several activities performed after goods are returned:

Product Acquisition: is the stage of retrieval of the product back from the market. The timing, quantity, quality and composition of returned goods needs to be managed in close synchronisation with other supply chain parties.

Collection: the logistical activities (such as transportation, consolidation, trans-shipment and storage) to procure the products from the market and then transport them to factories so as to process it via other stages.

 Sorting, Testing and Disposition: the classification (according to quality and composition) of returns and determination of the action to be undertaken on the product. Market and strategic conditions are taken into account in the disposition decision.

Recovery: is the process of recovering value from the returned product by re-use, repair, refurbishment or recycling.

Redistribution and Sales: the underlying purpose of business is profit making and no value recovery materialises until the recovered products, component or materials are brought back into a forward supply chain; thus the need for redistribution.

6.      Short cut to make quick bucks

A growing number of companies is finding that there is profit to be gained by sending things back. The business of returns starts when a customer, retailer, dealer or manufacturer finds something wrong with a product (outdated, spoiled, broken or flawed). Reverse logistics is one of the main unexplored areas for potential revenue growth. Recalls, commercial returns, wrong deliveries, warranties, repairs and refurbishment and end-of-life returns are some of the many examples of reverse logistics that companies face. Top companies such as Nokia, Samsung and Toshiba have displayed Extended Producer Responsibility by incorporating a reverse supply chain logistics for the purpose of e-waste management. Nokia has initiated the “Take-Back” programme for mobile phones that have reached the end of its waste cycle.

7.      The Indian Prevalence

Relatively new in India, the lack of awareness and consciousness of reverse logistics is catching up. One such example is of GreenDust- a start-up in Gurgaon. The brainchild of an IIT alumnus, its business model is aligned completely with that of revers logistics’ verbatim. GreenDust accepts rejected, defective, unsold, returned products from the Original Equipment Manufacturers and refurbishes them. In addition they provide an year’s warranty and then sell them as factory seconds from their side. With clients as Haier, Apple, Philips, Toshiba etc.; just 5 years old and with an initial work force of 3 people to now 400 employees GreenDust is going places. From an INR 0 to a revenue of over INR 250 crore; just reiterates how lucrative this field of reverse logistics is to generate revenues from returned goods.

Anything new experiences resistance from the masses as change is not easily accepted; yet the incorporation of Reverse Logistics has many takers primarily because of the noble cause of CSR towards the environment. In a practical sense- you are making money out of scrap: which would have rendered you no revenue, if just discarded. Including it within the supply chain itself adds a holistic dimension to the entire process cycle and is the way forward to a sustainable system.

Contributed by:

Sheeba Pathak,
Symbiosis Institute of Management,
MBA (Operations) 
2013-2015.

For more on SCM :-  http://issuu.com/samvad/docs/logistics_and_supply_chain