January 2005 | Sponsored | Knowledge Base

Reverse Logistics: Customer Satisfaction, Environment Key to Success in the 21st Century

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During this past holiday season, an estimated $13.2 billion in holiday gifts were returned to retailers - more than a third of the $36 billion reverse logistics market in the U.S. These figures pose several questions and challenges. What becomes of these products? How do retailers cope with the management of these items? Are customers unsatisfied? Unfortunately, for some companies the answers are anyone's guess. For others, these answers are quite clear.

As we head into the 21st century, more and more companies acknowledge that reverse logistics - taking in, storing and redistributing returned items - is a critical part of the supply chain. Without a comprehensive return system, retailers can lose millions in revenue. Two recent studies show returned merchandise costs the consumer electronics industry $10 billion annually, while personal computer returns amount to $1.5 billion per year.

What is Reverse Logistics?

According to the Reverse Logistics Executive Council, reverse logistics is the process of moving goods from their typical final destination to another point for the purpose of capturing value otherwise unavailable, or for their proper disposal. Reverse logistics can include:

  • Damaged merchandise
  • Seasonal inventory
  • Restock
  • Salvage
  • Recalls
  • Recycling
  • Hazardous material
  • Obsolete equipment disposition
  • Asset recovery

Strategies for Success

As customers become increasingly sophisticated in their purchasing decisions and environmental laws take root, many retailers seek new ways to develop or enhance their return systems. Some companies have turned their networks into a competitive advantage by taking an active position that increases value for customers and builds loyalty.

Companies such as Eastman Kodak and Hewlett-Packard have implemented successful reuse and recycling programs. These initiatives reduce the amount of waste fed into the supply chain and the landfills, while lowering operating costs. The companies have been able to recover their costs from areas such as raw material and packaging procurement, manufacturing, waste disposal and regulatory compliance. Another reason consumers return items is because of faulty or difficult-to-read instruction manuals. Many companies realize the value in revising instructions to make them user friendly.

The system works best when retailers, vendors and logistics companies work together to reduce the percentage of returned merchandise and improve the return system flow. Logistics companies assist retailers with vendors that have unusually high return rates, especially on high-dollar items. To improve the return flow, logistics companies perform an audit for retailers before the freight is released from the warehouse. As part of the audit, a retail representative meets the shipment at delivery to make sure the inventory is accurate before it is unloaded. Conducting spot audits on both ends of the shipment can reduce discrepancies and greatly reduce claims.

The Challenges of Reverse Logistics

The pricing of electronics fluctuates quickly, so it's imperative that when merchandise is put into return mode it's handled expeditiously. The challenge for retailers and vendors is to process returns at a proficiency level that allows quick, efficient and cost-effective merchandise collection and return. Customer requirements facilitate demand for a high standard of service that includes accuracy and timeliness.

It's the logistic company's responsibility to shorten the link from return origination to the time of resell. One major challenge for logistics providers is performing all tasks for the retailer, including:

  • Collection and scanning
  • Credit store and invoice vendor
  • Product disposition

Protecting the Environment

Reverse logistics is based upon heightened environmental consciousness, public policy and the law. The main concept is that reusable packaging, as well as outdated, damaged or defective products, can best be recycled or reused by the original manufacturer. It also involves product system designs that make recovery and reuse possible, efficient and profitable. In reverse logistics, a measure of what gets thrown away is a measure of a product design and recovery process failure. While landfill sites worldwide are at their busiest, more companies are discovering it makes good business sense to be proactive on environmental issues concerning returned inventory.

NYK Logistics is one of the world's leading logistics providers, delivering fully integrated solutions tailored to meet the needs of customers. Services include warehousing & distribution, freight forwarding, reverse logistics, international network and IT solutions, and supply chain consulting.

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