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Many companies treat reverse logistics as an afterthought-if they give it any thought at all. That's a big mistake. How well you manage the flow of goods back through your supply chain can have a powerful impact on costs, revenues, and customer goodwill. The seven companies profiled in this article prove the point.
Reverse logistics has often been viewed as the unwanted step-child of supply chain management. It has been seen as a necessary cost of business, a regulatory' compliance issue, or a "green" initiative. But more companies are now seeing reverse logistics as a strategic activity-one that can enhance supply chain competitiveness over the long term.
Reverse logistics is part of a broader supply chain management process called returns management.1 Returns management includes all activities related to returns flow, reverse logistics, effective gatekeeping, and even returns avoidance.2 Reverse logistics encompasses the traditional logistics activities of transportation and inventor,' management, but its focus shifts to getting product back from customers rather than moving product to customers.
Making a strong business case for reverse logistics is not easy. Although reverse logistics obviously has some cost implications, it can be difficult to illustrate the impact on revenue. Indeed, in our experience, companies more often focus on the cost side of returns management rather than on its revenue side. To be successful, however, the revenue side needs to be managed aggressively too.
To understand how reverse logistics can create value, it is necessary to understand both the marketing and logistics components of this process. From a marketing perspective, an effective returns operation can enhance customers' perceptions of product quality, help minimize the purchase risks, and boost goodwill by demonstrating good corporate citizenship. From a logistics perspective, returned products that are handled expeditiously and efficiently can be reinserted into the forward supply chain in their current form, as refurbished or remanufactured products, or as repair parts. This can create additional revenue, reduce operating costs, and minimize the opportunity costs of writing off defective or out-of-date products. (see Exhibit 1 on page 36.)
This article will outline four ways that reverse logistics can have a financial impact. It will give glimpses into the reverse logistics activities of leading companies and describe the opportunities for others.
The Financial Impact of...