“Improperly handled returns erode 32-35% of potential profits of the business organization1”
—Gartner2004”
To understand:
Forward and Reverse Supply Chain
The consumer power today is exhibited by the product recalls of the brand. For keeping the image of the brand intact and to keep the customer satisfied, leading global players resort to mass product recalls through their reverse supply chain infrastructure. These firms use product recall for adding value to their competitiveness. The reverse supply chain is strategically used to allow forward channel participants—such as wholesalers and retailers—to reduce the risk of buying products that are slow moving. The resellers are allowed to return the goods within a reasonable time period using fine-tuned reverse chain which is in place. It can be used for immediate cleansing, if possible, of any purposefully tainted products (pharmaceutical, automobile) to gain customer confidence and keep the company's image intact.
A leading world class apparel, footwear and sports accessories retailer was facing problems in ‘returns’system. The returns processing system was facing three primary challenges. The first was returns from walk-in customers as the earlier system was designed for receiving return requests from customers over phone. The customer support representative would then collect the returned item from the customer’s doorstep. As the existing system was not designed for walk-in-customer, it was causing delays and dissatisfaction for them. The second challenge was returns in instalments. The existing system generated two separate credit notes for the customer who returns in instalments. This created unnecessary load on the system. The third was ‘less than pre-pack returns’. It is a common practice for a customer to open a pre-pack, use a few items and return the rest. The existing returns system did not have the capability to process less-than pre-pack returns. But, the customer has the right to get credits for the returned items. This created a customer-service challenge.
The retail consultants analysed the existing system and suggested process improvements in returns handling. The suggested processes were then mapped for feature enhancements in the existing returns processing system. The process improvements addressed each of the challenges faced by the client.
For walk-in customers it was suggested to implement a separate returns process. With this walk-in-customer’s returns were to by-pass the carrier pick-up process and the inspection process. As soon as products were received, online credits were generated to integrate with the finance system to approve credit. The inspection process would be triggered after customer’s credit generation. For ‘returns in instalments’ a windowing system was introduced to combine multiple returns of the same customer. For example, multiple returns from a customer at different dates can be added into the first return until it reaches the inspection complete process. For ‘less than pre-pack returns, the process improvement followed was that the operator performs rework by combining same products back in the official pre-pack quantities before updating the stock account. In situations where this is not possible, the system will automatically generate credit for the customer without updating the stock account.
The new system of returns accrued the following benefits to the retailer: reduced cycle time for returned product, financial savings through immediate reflection on inventory, availability of saleable stock, enhanced ability to trace a product anywhere in the returns cycle, increased customer satisfaction, developing a comprehensive warehouse management solution.
Companies spend more time and money in fine-tuning their forward supply chains while ignoring their backward supply chains. However, in today's competitive business environment when there is both external and internal pressure, companies can no longer ignore reverse supply chains. Efficient reverse supply chains bring many benefits to the companies. However, reverse supply chains are different from forward supply chains and most of the existing forward supply chains are not designed to handle reverse flow of materials.
Reverse supply chain process covers planning, implementing, and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. Many companies do not have an awareness of the reverse supply chain and the costs associated with reverse flow of material. These companies lack in awareness, defined processes and support of the system. The reverse supply chain handles varying returns in terms of quantity and time. Hence, such system should be designed keeping in mind the flexibility nature of the returns. In general, reverse product flow programmes are complex in nature. It involves lots of paperwork and tracking to the users.
According to Devangshu Dutta, director of a supply chain solutions company, ‘Nearly 20% of everything that is sold in America is returned’. This means it is imperative for the company to have a system to handle the reverse flow of materials.
The reasons for returns are varied. However, returns in business-to-business markets and business-to-customer markets are based on different reasons. Due to varied nature of reasons, the design of reverse flow network faces many challenges for which different strategies need to be evolved (Exhibit 18.1).
Exhibit 18.1 Returns and Reverse Supply Chain Challenges
Business Markets | Consumer Markets | |
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Reasons for returns |
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Challenges |
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Scope |
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Traditionally, in the supply chain of an organization there is one directional flow of goods, that is, from manufacturer to the end user. Almost, all of a logistician's attention has been focused on their ‘forward’ logistics activities. Once the product is sold and delivered to the user, the manufacturer feels that there is an end to his responsibility. The manufacturers consider that their responsibility is limited to the extent of replacement of defective products covered under warranty period or products damaged during transit. What is happening to the used materials, packaging waste, disposable product waste generated out of the finished products supplied by them? The left out material and the wrappers cause environmental pollution and create problems in disposal for the civic authority. However, in wake of the growing concern about environmental pollution, developed countries across the world, have started passing legislations, asking the manufacturers to take care of products discarded by their customers after usage. The leading corporations across the world are taking this as an opportunity to develop a system for reverse material flow. They are focusing on the ‘reverse’ logistics activities to use it as a tool for competitive advantage.
Reverse logistics may be defined as a process of moving the goods from their place of use, back to their place of manufacture for reprocessing, refilling, repairs or waste disposal. It is a planned process of goods movement in reverse direction done in effective and cost-efficient manner through an organized network. It can be a standalone or integrated system in the company's supply chain. The drivers for reverse logistics are:
In competitive markets, to retain the existing customers, the manufacturers are creating switching barriers by extending value added service to the customers. To remain competitive and differentiated, more and more firms across the world are showing speed and reliability in service offerings such as:
These additional services are adding to the competitiveness of the company operating in regulatory environment and creating customer value by providing clean environment through reverse logistics services without any extra cost to the customer. Today, corporations across the world are leveraging reverse logistics, for growth by enhancing the level of customer satisfaction beyond the traditional boundaries of product and service supply.
According to authorities Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke, reverse logistics is:
The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
The council of supply chain management professionals define reverse supply chain2 as:
The process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
Wikipedia defines reverse logistics as:
As a process of removing new or used products from their initial point in a supply chain, such as returns from consumers, over stocked inventory, or outdated merchandise and redistributing them using disposition management rules that will result in maximized value at the end of the item's useful life.
To sum up, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or achieving proper disposal to the satisfaction of the customer or consumer. Remanufacturing and refurbishment activities may be part of the procedure. Reverse supply chain include processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls and excess inventory. It also includes recycling programmes, hazardous material programmes, obsolete equipment disposition and asset recovery. For a practitioner, the disposition choice is determined by the most profitable alternative:
The reverse supply chain, though considered as a drain on the company's profits, but in today's competitive markets it can be leveraged as a tool for customer satisfaction. More and more manufacturing firms are thinking of incorporating reverse flow system in their supply chain process. The reasons for this are as follows:
Reverse supply chain is important for asset utilization (re-utility), asset recovery (capture value), profit maximization, full environmental obligation (or regulatory compliance) and customer relations management. The reverse supply chain network can be used for various purposes such as refilling, repairs, refurbishing, remanufacturing, etc. Depending on the nature of the product, unit value, sales volume and distribution channel the reverse logistics can be organized and the system can be designed for the following activities.
In industries such as soft drinks, wines, oil, LPG distribution, etc. reverse flow of used containers is integrated to their regular supply chain because of the reusable nature of the packages such as glass bottles, tin containers, metal cylinders, etc. In case of soft drinks the delivery van en route delivers the filled bottles to the retailers and collects the same number of empty bottles from them for delivery to the factory. No extra transportation costs are involved in the process as the delivery van originates and terminates its journey at factory where these reusable bottles are refilled for re-delivery to the customers. The arrangement deployed here is like hub and spoke distribution system in reverse flow system. For refilling of LPG cylinders, the similar arrangement is in use by the petroleum companies (Hindustan Petroleum, Bharat Petroleum). From the bottling plant, the truck load of filled LPG cylinders are dispatched to dealer's godown for delivery and on the return trip the same truck carries the empty cylinders for depositing at the bottling plant. In case of metal cylinders (due to the less damages and prolonged life), the recovery rate of the cylinders is to an extent of 99.9 per cent.
The logistics service suppliers who are supplying pallets3 on leased basis to their various clients for packing and moving the goods keep the pool of pallets at fixed locations. The customers draw the pallets for use and deposit the pallets at the assigned centre after usage. The damaged pallets are repaired or replaced regularly keeping the required quantity in the circulation. The return of the pallets is on the exchange basis between the buyer and seller with whom, the pallet supplier is a common link who co-ordinates the reverse logistics operation. This system is quite common in developed countries.
In India, the box containers used in multi-modal transportation system are leased by the container lease corporation Ltd. (CLCL), which keeps the inventory of empty box containers at inland container depots (ICDs) operated by container corporation of india (CCI) or private agencies. The customer requirements of containers for packaging and movement of goods in domestic or foreign markets are drawn from these depots. These containers are loaded at container freight stations operated by the CCI or others. The empty containers after de-stuffing of materials are deposited at the container depot near to the place of delivery for further reuse and reverse flow to the place of origin. Thus, the entire movement of containers in forward and reverse logistics is controlled by CLCL.
Shaw Wallace (leading wine manufacturer) has integrated the reverse flow of empty bottles with their regular forward distribution system. The empty bottles collects at the area distribution warehouse with the help of their dealers, who are in touch with hotels and scrap dealers who deploy his network to collect empty wine bottles from house holds, hotels, clubs, pubs, etc. The bottles thus collected at field warehouses are sent back to the factory for refilling. The empty bottles recovery is to an extend of 85–88 per cent of the supply.
London Pilsner of UB group, a leading beer brand in Maharashtra, India, does filling of 3 lakh beer bottles per day at their plants. The recovery rate of empty glass bottles from the market is 92 per cent, as 3 per cent of bottles are broken and 5 per cent are lost or put to other usages. The cost difference of 20–25 per cent between new and old glass bottle contributes to the extent of 12–15 per cent in the total manufacturing cost of the product. Hence, the firm saves a lot by using the used bottles. They have developed a stand-alone reverse logistics system for recovery of the empty bottles through the scrap vendors who collect these bottles at throw away price from hotels, clubs, pubs, bars, etc.
This is a regular feature for serviced-based products under warranty period, which has to be incorporated by the manufacturers in their product offerings. Almost all consumer durables such as television sets, audio systems, washing machines, fans, refrigerators, and other consumer durables and all industrial products need repairs on a regular basis. The refurbishing is done for the goods returned by the customers during warranty period due to damage, defective piece or performance below the promised level, etc. For consumer durables and engineering products manufacturers in general keep in place the reverse logistics system for extending the service within warranty period (free of cost) and beyond the warranty period on a chargeable basis. In addition to extending value added services to the customers, these systems are major revenue earner for the company. The system operates through the company's service centres where the repair and the refurbishing take place. The collection of the products is done through dealer's network. The collected products are dispatched to the nearest service centre for overhaul, repair or refurbishing. The documentation and payment collection are responsibilities of the concerned dealer. For large value industrial product locating and coordinating, the customer is not posing any problem, as the number of customer is less and customer is personally known.
Product recall is calling back the products from the customers or requesting the customers to return the products. This may be due to safety concerns or design defects or labelling error at the manufacturer's end. The drive for product recall is cut throat competition, concern for environment and growing consumerism. Today product recalls are not uncommon. Many brand leaders recall their defective product from the market to guard their image or avoid costly court litigations. The reasons for recalls may be as follows:
Thus, product recalls can be handled and is it possible to build in a system for possible product recalls. Customers may demand damages through the courts resulting in financial implication for companies. The delay may be fatal for consumers in certain products like electric appliances, automobiles and food items/medicines. Many failures are due to poor design and ignoring safety aspects, like sharp corners in toys or loose parts or buttons on children garments during manufacturing. For normal defects, normal warranty procedures are adequate. However, product recalls are preventive in nature and can avoid costly litigations and financial and goodwill losses. For example, in 1977 Glaxo Laboratories (now Glaxo Smithkline Beecham), due to some problem in composition of baby milk powder in some batches, recalled the product from the market. This process of recalling products from market through channel partners or consumers is reverse logistics and normally results in heavy expenses. To call back widely distributed consumer products when they are out of marketing channels is quite cumbersome and expensive. The other dimension is the time; after the product defect is identified the recall process has to be expedited to avoid further damage to the company's image and goodwill. Even though there was immediate threat to the life of babies, Glaxo's decision in product recall was due to concerns to the society.
In another case in 2007, Mattel Inc. USA, a leading toys manufacturer in the United States recalled millions of toys from the market because of a small detachable and swallowable magnet in toys and lead (in paint) taint, which are hazardous to childern, in some toys manufactured for Mattel by Foshan, a China-based company. The recall ran into millions of dollars. A class-action lawsuit was filed against Mattel related to its recall of more than 1 million lead-tainted toys. Nokia Mobile phone batteries BL-5C (manufactured in China but for Matsushita, Japan) have been recalled (46 millions) for getting overheated and bursting during charging. IBM for its Lenovo brand computers recalled, in 2006, more than 5 lacks laptop batteries worldwide made by Sony Corporation because of a fire risk. In this case, both 1MB and Sony Corporation announced a global replacement programme of the company's lithium-ion batteries. In 1994, Maruti Udyog India recalled Maruti 800 cars due to some problem in front axle components which endangered customer safety on road. This recall was for axle replacement only. For Maruti it was easy to do that as customers were in finite numbers and their database was available with the dealers/company.
Product recalls are done under certain situation. It may be because of process failure, faulty product or packaging and labelling goes to market. The safety-related aspect is known only after product is sold off to consumers and put to use. In ‘product recall’ products sold to customers or available with dealers are called back to the factory in emergency situation. The reasons may be as follows:
This type of situation may arise due to the reasons of production short cuts, bypassing stage inspections, employee negligence, human error or negligence by management. The product recall in such situation puts huge financial burden on the company. For handling such emergencies, no organization design in advance and keep in reserve reverse product flow system in anticipation of such eventualities. However, to handle such emergencies many firms have shown great deal of organizing ability to mobilize company's resource to achieve the time-bound objective.
A leading Indian auto manufacturer, after launching multi-utility vehicle, in the Indian markets in the 1980s, received large-scale complaints from customers due to defective gearbox design. All the vehicles dispatched to the customers were called back within a short time span deploying their dealer's network and company's sales force, for refitting the gearbox with improved design. In the mean time, the redesigning programme of gearbox was competed on a war footing.
Johnson & Johnson Health Care, a U.S.-based multinational company introduced milk powder in South African markets, as substitute for breast-fed milk for newborn babies. However, due to large scale deaths of the babies by consumption of the powered milk, Johnson called back the entire unsold powered milk stocks in the market under a time-bound programme and gave away compensation to the victims on the ethical grounds. The cause of the death was contaminated milk prepared under unhygienic conditions and not the milk powder. The company failed to educate the mothers on a hygienic process for milk preparation during the sales campaign.
The scope and effectiveness of the recall process is dependent on the type of the product, its distribution network, consumption pattern and unit value. The industrial products of high unit values, which are directly dispatched to the customers and the number of customers are limited, the recall process is very effective. The customer being knowledgeable fully extends his co-operation in the process. However, in case of mass consumed products distributed through multi-level channels structure, identifying the product location becomes a problem. It is easier to trace the product location within the boundaries of the channel network. Once the product is sold and handed over to the user, the degree of effectiveness of product recall process reduces drastically because of the following reasons:
For service-based products like consumer durables which are accompanied with warranty cards the product can be located, provided the documentation is maintained at the point of sale. This makes the recall process easy.
In the wake of the stiff competition and growing consumerism, many manufacturers have built up a system for product recall as value-added service to build competitiveness. The recall of defective products during warranty period is now the most common feature of the customer service offers. In fact, it is a cost burden on the part of the manufacturers. However, many companies are considering product recall as an opportunity in increasing customer satisfaction and asset recovery operation. Nestle India, for example, gets back the ‘Yoghurt’ every day from their distributors after its expiry of 24 hours shelf life. Similarly, Monginis, a Mumbai-based leading confectionary producer, collects the cakes for their distributors after its shelf life is over. The van delivering the fresh products to the distributors collects by default the products, which are not sold, once their shelf life is over.
The left out materials, used products, and wrapper wastes cause environmental pollution and create problems for disposal. Hence in developed countries, the governments are devising regulations to make manufacturers responsible for minimizing the waste by way of recycling the products. The Germany is the first country in the world to implement such regulations. Legally, the manufacturer is responsible for taking back pallets, cardboard boxes, wrappers, strapping, etc., which are used for protecting the products during transit. They have implemented three stage packaging ordinance. In the first stage, the wrappers or packaging wastes are collected from households by the retailers. In the second stage, retailers send it to manufactures, which in the third stage is sent to packaging manufacturers for recycling or disposal. The levy for recycling is indicated on the product by green dots. In Germany, the FMCG manufacturers have jointly promoted DSD (Dealers System Deutschland) with common funding for collection of packaging waste of FMCG products. They have reduced cost of retrieving and recycling the packing waste through economies of scale by joining hands together. In the United States there exists a law to take back from the customer car batteries, soda bottles, etc.
Germany’s new packaging law, (1992) regulates the management for recycling of packaging waste. The law stipulates that all transport packaging are required to be accepted back by manufacturers and distributors. The packaging items covered under this legislation are crates, drums, pallets, foam containers, etc. German packaging law stipulates that the manufacturers, distributors and retailers will have to take back returned (of the used product) secondary packaging (Figure 18.1). The packaging items include cardboard boxes, blister packs, paper wrappers, etc. The manufacturers, who are participating in the ‘green dot’programme, require to collection the used packaging materials from the consumers or from decided local collection centres. In Germany, it is a legal offense to either dump or incinerate such materials. Firms are free to engage third-party operators to fulfil the requirements of the new regulations on their behalf.
The green dot symbol is adopted by the Duales System Deutschland GmbH (DSD—Dual System of Germany). DSD corporation was established in September 1990, with over 400 participating companies in Germany. The fee is collected from the participating manufacturers for the right to display the green dot symbol on their products. This revenue is used for packaging waste collection and recycling programmes. The green dot indicates to the consumer to deposit the used wrappers at collection containers which are further taken to the recycling centre. The responsibility of depositing the wrappers in the collection containers rests with customers who very well know that they have paid for the collection and recycling cost which is included in product price.
In Europe, BMW, a leading auto manufacturer, is the first company, which has effectively developed a car recycling supply chain system. The car is mostly an assembly of components made out of metal, which can be easily recycled. For product refurbishing, SONY, a consumer electronic giant operating in the United States, uses its regular dealers network for reverse flow of video or audio systems returned by the customers within warranty period.
In India, the supreme court is in the process of imposing a ban on charging and discharging of automotive batteries on the grounds of pollution, and the union government is coming out with a new legislation making it mandatory to return used batteries to manufacturers for recycling and disposal.
The manufacturers in developed countries are putting into practice a new concept of ‘remanufacturing’ emerged in the late 1990s. According to them, during usage the product undergoes wear and tear. The worn parts are replaced with the new ones and the performance of the product is upgraded to the level of a new one. This is practised more in defence establishments, wherein the fighter planes after each flight are checked and their performance level is every time brought to the level of a new one without any compromise on the quality front. Similarly, the equipments sold in the markets, after use can be checked to qualify for remanufacturing process and brought to the remanufacturing unit. A leading cell phone giant in Europe has outsourced the remanufacturing activities to a few vendors in Europe and developed a separate network of reverse flow of the used or discarded products which have been used by the customer for a short period and discarded due to switching over to the latest models. They have identified a huge market for remanufactured products in developing countries. The investment in remanufacturing and related reverse logistics supply chain can be justified on economies of scale. Critics say that the remanufacturing will solve the problem of waste disposal in developed countries but create new dumping grounds in the developing countries.
The different activities in reverse supply chain process include collection, inspection and testing, sorting, reconditioning, disposal and redistribution. All these activities are required to be integrated to create value. And finally, the value needs to be delivered to the customers through the reverse supply chain network. Many good companies integrate the reverse supply chain network with its forward supply chain on costs consideration and assets utilization.
In a nutshell, the scope for reverse supply chain is immense and it can play an important role in publication houses, beverage industries, FMCG industry, pharmaceutical industry, automobile industry, petroleum industry, etc.
Irrespective of whether it is forward or reverse supply chain, the network design is of prime importance. In the reverse flow of material, the location of channel members, warehouses, company's manufacturing plant and their capacity to handle the reverse flow are the important determinants in its design. Many good companies handle the reverse flow of the material through their forward supply chain. The forward supply chain is designed in such a way to take up the reverse flow of the material. The structure of reverse supply chain can be divided into two segments. The first one is the convergent network wherein the companies collect the returned material at some convenient place or location and transfer the accumulated material to reworking/recovery facility. The other one is divergent network, wherein there is linkage with the customers to collect the reusable material. It is integrated with forward supply chain of the company. The strategic points in designing the reverse supply chain are as follows.
The major cost component of reverse supply chain operations is product collection. In FMCG industry, the collection of defective material after it leaves the channel network becomes difficult. Locating the end user is difficult due lack of record/information. However, in case of high-value products, channel members have records to trace the end user and product which are under warranty claims. In reverse supply chain, retailers and distributors are deployed for collection of returns.
In this stage, only the products can be assigned for recovery opinion. Hence, the location of testing or grading operation is important as it decides the flow of goods. The cost of transportation may be significant as a percentage of value of the used product. In many cases, the testing and grading of recovered product is done at some central location as specialized and expensive testing equipments and skilled hand are required for this operation. In many cases, the geographically decentralized testing facility is used to avoid transportation cost for unwanted useless returns.
This facility requires capital investments. The specialized equipments are required for recycling or product recovery. The facility can work profitably only on economies of scale. The recovery facility should be integrated with regular manufacturing line of the new products to share labour and equipments.
The redistribution of reworked products can be done by integrating with the forward supply chain. Here, consolidation and responsiveness in transportation are required to achieve efficiencies. Redistribution can also be done along with new products.
Reverse SC is also put in practice for recovering value from products. Recovery is actually only one of the activities of reverse SC. Other processes include collection, inspection/testing selection and sorting. Collection refers to bringing the products from the customer to a point of recovery. At this point, the products are inspected, that is, their quality is assessed and a decision is made on the type of recovery. Products can then be sorted and routed according to the recovery decision. Thus, we have the following:
The product exchange offers in marketing for consumer durables are examples of value recovery (Figure 18.2) or value proposition of used products in secondary markets.
To run reverse supply chain process essentially, the following players are the most crucial:
These players will have to play roles to manage, execute and accommodate.
The companies which are working with customers for product replacements shows their concerns for customers, exhibit efficiencies and reduce cost by avoiding product obsolescence. In effect, it helps in release of tide up capital and unproductive occupied storage space. Many companies are using reverse logistics as differentiator to gain competitive advantage. Key drivers to design and implement cost-effective reverse supply chain are:
In conclusion, traditionally almost all manufacturing firms focus their attention on ‘forward’ logistics activities. During the last few years, changes in environmental laws, increased consumerism and stiff competition in markets have raised the requirement for effective reverse logistics to be used as a competitive weapon. For many years, soft drink manufacturers practised reverse logistics in glass bottle refilling. The cost advantage in reverse logistics is possible through economies of scale. Today, many big corporations, across the world have developed either reverse logistics systems or integrated the same into their forward logistics systems. The system design takes into consideration factors like the product locating system, product collection mechanism, documentation, product recycling/disposal centres, cist implication and legal aspects. In developed countries like Germany and the United States, stringent environmental regulations have prompted corporations to develop three-tier product waste recycling/disposal through reverse logistics.
When it comes to completing the end-to-end processing, companies should do two things: take a full view and understand the total cost of the supply chain, which includes having and dealing with returns and realize the opportunity that an analysis of the return part of the system offers in terms of finding and solving problems, better satisfying customers and consumers, and discovering a way to increase revenues.
The success of the reserve logistics system to achieve desired objectives shall be depending on the efficiency and effectiveness of the following subsystem.
The first step in the call back process is to identify the product location in the physical distribution system of the firm. The product may be lying in company's mother warehouse, distribution warehouse, dealer's godown, retailer or with the customer. Locating the product becomes easier and quick if it is within company's warehouse, depot, or distributor where tracking can be easily done. But once it enters retail network, particularly the FMCG or mass consumed low-unit priced products, the task becomes difficult because of large number of retailers, wider geographical spread and lack of proper documentation.
Locating the product becomes more difficult after it is sold and handed over to the customer. The product location is bit easier in case of industrial or high value product due to limited number of customers and personal touch with the clients due to direct selling.
Once the product location is identified, the collection mechanism gets into operations. This can be either done through company's field force, channel members or third party. However, proper guidelines or instructions have to be given to motivate the customer for returning the products. The customer is the biggest hurdle in retrieval of products as he does not want to part with something which he owns. The collection centres are to be located conveniently so as to ensure wider coverage and minimum collection cost. The company's intermediaries are the most effective centres in product call back as far as the cost and the coverage are concerned. With the right training, they carry out the preliminary inspection of the called backed/returned products before inducting the same into the system for further processing.
These may be company's manufacturing plant or the mother warehouse where from the finished products were dispatched to the market or some fixed location in reverse logistics network. The called back products are inspected before they are further processed for repair, refurbishing, re-manufacturing or waste disposal. The investments in facilities for these activities depend on the objectives of the system, cost implication, complexity of the operations, and the expected gains.
The tracing of the product location become easier, if proper documentation is maintained at each channel level. However, at the time of handling over the product to the customer, the information on name of the user, address, contact phone numbers, application, and other personal data if collected through proper documentation, can form a good database which can be used in case of product call backs. The product warranty card with product and customer detailed duly filled at the point of sale is quite common for the service-based products such as consumer durables or industrial products. But in most of the cases, the warranty cards are handed over to the customer to show it as proof of purchase, at the time of claims during warranty period. Except for high value industrial products, no records are kept with retailers for consumer durables or mass-consumed products. The documentation system in reverse logistics ensures maintaining of customer-product database at the point of sale. To ensure smooth running of the system, a procedure is to be introduced for entry, exit and flow of the called back products in the system for tracking and tracing.
The reverse logistics system is a cost centre. However, these costs are incurred for achieving certain company objectives and can be broadly subdivided into the following activity heads:
– Product collection (Customers > retailers > plant)
– Disposal (plant > suppliers > disposal)
Due to cost implication, the manufacturers invariably integrate the reverse logistics into their forward logistics system with little modifications. The same network components are geared up to accommodate the reverse flow of the products with same efficiency and effectiveness. The investment and operating costs involved in tuning the existing ‘forward’ flow system to ‘reverse’ flow shall be less than a separate stand alone system devoted only for reverse flow unless it is designed on scale of economies.
Under Indian regulations, the excise paid goods once sold by the manufacturer cannot be brought back to the plant without proper documentation and declaration to the excise authority. This is a very cumbersome and time-consuming process and non-compliance may put manufacturer in a legal trap. For resale of repaired or refurbished goods both the excise and sales tax authorities are involved and clearing of such goods require documentations, certifications and declarations. Hence, such activities are normally carried out at service centres or at dealer's premise.
In reverse logistics the critical strategic points in design of network are: acquisition/collection of returned/used products, testing and grading operations, reprocessing, and redistribution/disposal. For reverse logistics to be successful the collaboration of supply chain is very important. Technologies like bar coding or RFID helps in making reverse logistics more effective and responsive
To design and deploy reverse supply chain is a complex task. The reverse supply chain may be a standalone system or may be integrated to the forward supply chain operations. However, the management has to face the following challenges in running the reverse supply chain.
In case of FMCG or consumer durable products which are sold through the retailers or dealers, there is a difference in objectives of manufacturers and channel members. Many times there is a disagreement on timeliness of claims, condition of item and its importance to customers. The lack of proper inspection system to accept returns may aggravate the situation. The products damaged during transit sometimes cause disputes due to conflict of interest of two parties. However, at the end the customer suffers. Therefore, a proper return policy in place may avoid such conflicts arising out of interests.
Many companies in the past have shown lack of interest in handling returns. According to them, large investments in product returns handling system is not justified. However, of late due to competitiveness in market, pressure from environmental agencies, returns legislation and strong consumerism have started thinking about reverse supply chain system. Inspite of all the company executives usually disagree with reverse supply chain issue resulting into lack of responsiveness. In many case they are reactive (late) than proactive.
The information system in the organization is designed to handle forward flow of the inventory. However, for returns handling the information is not designed to data collection and reporting. As a rule, those firms that manage their information well manage their supply chain well. This applies to reverse supply chain too.
Dr. Richard Dave of the Fritz institute of international logistics identified the following six symptoms of problems in returns:
Looking into the environmental factors such as consumerism, pro-consumer legislation, eco-balance pressure there is considerable attention on reverse supply chain designs and implementation and to use it as a tool for competitive advantage to create switching barriers to the consumers. Some of the trends observed are as follows.
Many firms have become aware of the importance of reverse supply chain. However, they are yet to realize its importance as a strategic tool for customer satisfaction leading to sustainability. The firms need to focus on the following aspects in reverse supply chain:
In future, companies should manage products from cradle-to-grave. This means the company has to support and manage products throughout its life cycle. This requires companies to provide proper logistics and marketing support base during the life cycle of the product. The basis of product life cycle is that all the products have a finite life and they move through various stages such as introduction, growth, maturity and decline.
As the product travels through its life cycle, the inventory-and returns-related issues change. The company needs to design its reverse supply chain to address the related issues during the life cycle of the product.
Most reverse chain systems are paper intensive, resulting in delay in information flow and further slowing the responsiveness. The system on IT platform will make a difference. Many leading companies are making use of bar coding or RFID technology in supply chain operation for system automation and speedier information flow and its analysis. The use of bar code or RFID will make the reverse supply chain system more effective and efficient. Another important technology, that is, EDI (electronic data interchange) which is used in supply chain operations for document transfer may also help in reverse supply chain for similar application. Improved data collection system will always help the decision-makers to act proactively and positively. The product tracking and tracing technology on IT platform will improve the competitiveness of the reverse supply chain system.
To accept the returns from customers, details such as product manufacturing and date of sale are required at the time of complaints or while registering returns. A web-based system will help to know the product history and other details to decide whether to accept the returns or not depending on the complaints, expiry date or warranty period. With the web-based information system, the middlemen also can take decisions and further know the batch numbers and manufacturing dates of the returns.
Many companies earlier had the returns handling activities at a centralized location or centres. People were made responsible and assigned to do both forward and reverse supply chain jobs. Over the years, the companies have realized that under dual responsibilities the employees were not giving justice to returns management. However, the major trend in supply chain today is to engage a third party or an expert to perform your non-core activity. Many companies are assigning returns handling jobs to logistics service providers, who can perform it efficiently and cost effectively for the company.
Companies spend more time and money in fine-tuning their forward supply chains while ignoring their backward supply chains. However, in today's competitive business environment when there is both external and internal pressure, companies can no longer ignore reverse supply chains. Efficient reverse supply chains bring many benefits to the companies. However, reverse supply chains are different from forward supply chains and most of the existing forward supply chains are not designed to handle reverse supply chains.
Invariably, all of the manufacturing firms have ‘forward’ supply chain activities for inventory flow from suppliers to customers via manufacturing operations. However, due to changing environmental factors such as increased consumer awareness, growing consumerism, pollution control laws and growing market competition the manufacturers have felt the need to deploy reverse SC in an effective way to gain competitive advantage. The reverse logistics is practised in soft drink industry for many years for bottles refilling and similarly, in the LPG cylinder refilling too as the empty bottles and cylinders could be recovered from the consumers and refilled after due treatment. In today's competitive world many big companies have developed stand alone reverse supply chain for customer satisfaction and gaining competitive advantage. However, many companies integrate the reverse supply chain system with forward supply chain. For designing the reverse supply chain, the following factors are taken into considerations: product locating system, product collection mechanism, documentation, product recycling /disposal centres, cost implication and legal aspects. In countries like Germany and the United States, due to strict environmental regulations the manufacturing firms are mandated to develop product waste recycling/disposal system on their own. They put in place the reserve flow system for collection of the used products or the wrappers through reverse logistics. Reverse supply chain acts as switching barriers to their customers to offering value added services to build up the competitive edge and leveraging for customer satisfaction. In many industries, product recalls programmes are initiated to call back product with poor designs and poor quality to save company's image. Product recalls take place when large number of consumer's safety is at risk and company's image is at stake. However, to recall products from market requires a reverse supply chain system in place.
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