January 2006 | Commentary | Supply Chain Technology

Managing the Supply Chain in Reverse

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Those of us who enjoy changing gears manually when we drive don't hesitate when we have to shift into reverse. But not all reverse actions are comfortable.

Taking in, sorting, and repairing or redistributing returned goods is an onerous task for many manufacturers and retailers. Unlike goods moving out of the factory, goods coming back have no planned measure. They come when customers or manufacturer recalls require them.

The reverse process, or "the other side of the supply chain," is not a monolithic process. It breaks out into returns, recalls, and various forms of re-manufacturing that are industry dependent. Returns can happen before manufacturing, for example, when materials supplied to manufacturers do not meet quality levels.

Conversely, machines, devices, or tools for re-manufacturing can be returned years, even decades, after their initial manufacture. This makes it hard for companies to forecast or compute their returns.

The other side of the supply chain also involves transporting products for repair. In the electronics industry, for example, this occurs regularly, and often goes well beyond repairs to upgrading the original product—such as changing a computer's hard drive.

Regardless, the product has to be packaged and transported twice.The reverse process also includes refurbishing items for resale to a different buyer. Or, if the product is damaged beyond refurbishment and has to be destroyed or some parts recycled, a third-party provider usually gets involved.

Many Happy Returns

Companies that accept returned products must pay attention to other-side supply chain matters. Return information, in all its manifestations, indicates a great deal about the products being returned, the supply chain process (are goods being damaged in transit?), and the nature of the customer.

Companies should look at returns, recalls, and remanufactures as assets; and their entry into the other side as an opportunity to reutilize or recover those assets. This is the best way to put a positive spin on what can be a negative process.

All businesses can gain through improving after-sale customer relationships. Customers are extremely sensitive to how a company handles returns or recalls. Companies can satisfy customers merely by providing prompt and easy transportation for returns.

Industries particularly vulnerable to the problems of the other side of the supply chain have a big stake in pleasing customers and retailers. Book returns, for example, are a huge business with a wealth of factors unique to publishing: can the books be reissued as new, then discounted and sold through another source, such as the Internet? Books can rarely be repaired, but can still be an asset, as eBay can testify. The sorting, repackaging, and transportation process is challenging.

The returns process for heavy industries, such as off-road equipment, machine tools, robots, and other automation devices, most often consists of re-manufacturing. Industry giants—such as Caterpillar, which serves tools and equipment beyond its own line of goods—may process millions of units each year.

Remanufacturing in heavy industries retains some semblance of order because the equipment has a maintenance benchmarking system attached, which forewarns when a machine is ready to be refashioned. The logistics of a re-manufacturing job will, in most cases, be for a single product. It may take an 18-wheeler to move that product back and forth.

The initial destination of a returned or recalled item can be a crapshoot. In the automobile industry, returns usually go to dealers; in most cases, returns are sent to a distribution center or warehouse.

Sometimes, products are returned to a highly organized and designed returns center. These returns centers are industry- and/or product-specific. They use skilled workers, and may have processes in place that mimic the original manufacturing operation. To be profitable in both the consumer and specialty electronics markets, these returns centers must be well-organized, and process valuable products.

The other side of the supply chain deserves attention. Your company may already deal with collection, inspection, sorting, repair or reprocessing, final redistribution, or warranties.

Regardless of which reverse logistics aspect you focus on, your company will gain advantages by realizing that the other side of the supply chain can become a value center.

Companies that understand the full nature of their returns process will benefit immediately by speeding inventory turnover. This alone can have a salutary effect on the bottom line.

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