Full Circle: Reverse Logistics Keeps Products Green to the End
Smart strategies to reuse, refurbish, and recycle products and raw materials not only benefit the environment, but also save money and increase profits.
While companies struggle at times to find ways to make their supply chains more environmentally friendly, one subset of the supply chain stands out as inherently green: reverse logistics. Because reverse logistics by definition includes processes such as remanufacturing, refurbishment, recycling, reuse, and asset recovery, engaging in reverse logistics activities guarantees companies a certain level of green.
“All elements of reverse logistics have green implications,” says Jeff Robe, director of marketing for the Reverse Logistics Association (RLA), a trade organization focused on educating retailers, manufacturers, and third-party logistics providers about the benefits of reverse logistics. “Reverse logistics addresses questions including: At a product’s end of life, can some components be salvaged and reused? Can the materials be ground up, recycled, and made into additional parts?
“Recovering products, refurbishing goods, and pulling out parts such as precious metals that can be recycled or reused are green processes, and they bring a huge benefit to the environment,” he adds.
Through effective reverse logistics operations, companies can also cut out inefficient returns processes that result in unnecessary transportation moves, helping to reduce carbon emissions and improve air quality. It is hard to argue against that list of green attributes. But environmental green is only feasible if it doesn’t cost too much of the other kind of green.
Contrary to what some logistics professionals suspect, it is possible to manage reverse logistics processes so they are friendly to both the environment and the bottom line.
Good for the Bottom Line, Too
The benefit reverse logistics brings to companies ranges from three to 15 percent of the overall bottom line, according to RLA estimates. Robe cites electronics giant Cisco as a prime example. Partnering with a third-party provider and revamping its reverse logistics processes turned the company’s reverse logistics function from a cost center to a profit source. What was an $8-million loss for Cisco in 2005 became a $147-million revenue generator by 2009, according to Rehman Mohammed, Cisco’s senior director, customer value chain management.
Another example of green reverse logistics contributing to the bottom line is mobile electronics producer Palm Inc. The company revamped its reverse logistics processes to focus on refurbishing its goods, and now resells them using secondary channels such as an online corporate store and Internet retailer Overstock.com. Refurbishing the returned inventory for consumers, rather than leaving it to be scrapped, benefits the environment and Palm’s profitability.
Thanks to the revamp, Palm decreased processing costs by 50 percent, reduced returned goods inventory to less than two weeks, and tripled the product recovery rate. “Now we are often able to receive up to 80 percent of the retail sales price for our returned goods,” says Dawn Wang, senior manager of reverse logistics at Palm.
Sometimes, finding a way to make green reverse logistics pay off is just a matter of looking beyond short-term profit motives to long-term business and environmental gains.
“Businesses would not implement green reverse programs if they did not ultimately reflect a bottom-line value,” says Dave Meyer, vice president of sustainability consulting firm Sustainable Economic & Environmental Development Solutions (SEEDS) of Vancouver, Wash. “Companies get hung up focusing on short-term horizons instead of a long-term complete product lifecycle perspective,” he says, explaining that the initial capital and process reengineering costs sometimes involved in green reverse logistics may scare companies away.
“Companies need to consider collaborative opportunities within their supply chain and their long-term ROI,” Meyer says. “They should also weigh the intangible benefits of being green, such as positive public relations and consumer loyalty.”
But it’s simpler than that. The very goal of reverse logistics, and what makes it green, is also what makes it smart from an economic perspective: getting rid of waste, which is costly to profits and harmful to the planet.
“The whole idea of reverse logistics is to reduce what is used to manufacture a product; reuse components that can be economically recovered, for as long as possible; then at the end of its life, recycle that product to squeeze maximum life and profit out of it,” Meyer explains.
Best Practices Revealed
How can companies get started on the path to implementing green reverse logistics processes that yield a healthier bottom line? Here are a few best practices to follow, from companies and experts who practice what they preach.
Understand Your Product From Beginning to End
The first step is to truly understand the product’s impact, from the start of the manufacturing process until the end of its useful life. Although reverse logistics concerns only the reverse half of the supply chain, the implications for its success begin with the forward supply chain.
“Companies need to understand what resources are used in their manufacturing process; whether any of those products are hazardous; which components can and cannot be recovered and reused. Then they need to examine the various waste streams and outputs associated with the process,” Meyer explains.
This approach means thinking of reverse logistics at the beginning of a product’s lifecycle, and designing with its end-of-life disposition in mind. “Don’t take an end-of-the-pipeline solution; start instead with the initial product conceptualization and design,” Meyer advises. “Designing a product in a way that reduces the amount of hazardous materials that are used and maximizes the use of those materials so they can have an extended life, will reduce the product’s overall long-term environmental impact.”
This “designing with the environment in mind” aspect of reverse logistics is key for global telecom supplier Ericsson. The company tweaked its designs to reduce operating energy consumption; reduce product weight and volume; remove banned or restricted substances; and keep product disposal in mind throughout its product development process. The philosophy has helped Ericsson decrease the raw material footprint of its mobile switching center products by 70 times over the past 10 years.
This approach is also key to boosting profitability, because a product design that uses fewer resources and allows for easy reuse or recycling at end of life generally translates into lower overall production costs. Meyer cites the example of a solar panel manufacturer in Portland, Ore. The firm contracted with a local recycling company that collects and reclaims some of the waste, including slurry filter cake and graphite, produced in the manufacture of solar panels. The recycler is able to turn some of that waste into a material that the solar panel manufacturer can reintroduce into its production process.
Be Creative About Finding Value
When products are returned to a manufacturer (or to a third party that handles reverse logistics for the manufacturer) several scenarios usually arise:
- The product is still functional and can be repackaged— or repaired/remanufactured if necessary— and sold as refurbished goods in a secondary market.
- The product no longer functions but can be harvested for parts that still have value.
- The product has reached the end of its life and must be disposed of in some way. At each of these points, companies can be creative about how to find value in the product, while still adhering to green practices.
“One of the greenest parts of reverse logistics is that it turns material that used to end up in the landfill into something useful,” says Liz Walker, vice president of marketing and business development for Image Microsystems Inc., an Austin, Texas-based company that provides repair, refurbishment, and reverse logistics services. At the company’s depot, for example, it tries to find a value or a use for everything that comes through its doors. This is where it helps to be creative.
Take e-waste plastics— such as the plastic in spent printer cartridges or on cell phone housings. They are a major environmental issue for today’s electronics manufacturers because the goods usually “have no value in the downstream recycling supply chain and are burdensome to dispose of,” Walker says.
To combat this issue and find additional value for its clients, Image Microsystems has developed a process where it grinds and compresses e-waste material into an earth-friendly material that it uses for sign substrate. “We work with a major computer OEM in Austin that uses these signs— made from its own e-waste— on its corporate campus. It’s a unique closed loop,” she adds.
Don’t Forget About Transportation
While much of green reverse logistics focuses on returned goods and how best to reuse or dispose of them in a cost-effective and environmentally friendly way, the reverse logistics process also has a variety of transportation and carbon footprint implications. Greening returned goods processes but ignoring reverse transportation concerns makes for an incomplete green reverse logistics strategy.
“The procedures required to ensure timely processing and turnaround of returns directly affect transportation,” write supply chain consultants Wayne Burgess and Craig Stevens in a recent whitepaper, Reducing the Environmental Impact of Returns. The authors advocate a centralized returns process in order to decrease multiple shipments and location transfers.
“Shipping consolidated lots holds clear carbon footprint gains, which are closely matched by a decrease in fuel costs,” they say.
That was certainly the case for a large office supply retailer that partnered with Image Microsystems to gain reverse logistics efficiencies. The company, which sells computers, printers, and other consumer electronics, now ships all its returned products to Image Microsystems’ facility, regardless of whether the products are to be repaired, resold, or scrapped.
“We developed software to help the retailer analyze— right at the point of return— what needs to be done with that product, so it does not have to ship products to different facilities around the country depending on the work required,” Walker explains.
If a product has to be scrapped, Image Microsystems handles that process; if the product can be resold, the company becomes a virtual store for the retailer, fulfilling orders out of the refurbished inventory it holds for the retailer. “This takes several legs out of the reverse journey, and prevents the retailer from incurring extra carbon footprint and transportation costs,” Walker notes.
Ultimately, whether it is the actual products being returned, or the process by which a company returns them, reverse logistics can— and should be— both green and cost-effective. “The benefit to green reverse logistics is tangible,” says RLA’s Jeff Robe. “Most companies are realizing that being green means being more profitable, too.”