Discovering the Value of Reverse Logistics

Some people think of reverse logistics—the process of removing assets from their primary use channel to a secondary channel to maximize the assets’ value—as only handling customer returns or defective goods. But defective items account for only about 25 percent of the total value of all assets processed in reverse logistics operations.

Recalled product, overstocks, fixtures, recyclables, capital assets, end-of-life goods, and assets to be disposed of make up the majority of goods in the reverse logistics pipeline. For many companies, reverse logistics—which incorporates returns management, aftermarket and field services, refurbishing goods, repair activities, recycling, liquidation, and asset recall, repacking, and repurposing—presents an opportunity to streamline processes, leverage volumes, reduce expenses, and increase recovery values.

A company’s ability to effectively interact with customers during the return experience; process recalled and returned assets; deal fairly and accurately with all trading partners; financially account for the returns process; and responsibly manage the ultimate disposition of all assets impacts customer satisfaction, business reputation, sales, earnings, public opinion, and shareholder value.

Despite this far-reaching impact, some corporate executives may not realize the value of reverse logistics. One common attitude is to oversimplify reverse logistics as nothing more than returns. Executives with this mindset are missing an opportunity to add to their company’s bottom line.

An Unavoidable Truth

Another type of executive reaction to reverse logistics issues is resigned acceptance. Reverse logistics typically crosses departmental boundaries, and requires support from several functional areas, but many companies fail to dedicate sufficient internal resources to it.

Usually, no single executive is empowered to manage all the processes associated with reverse logistics operations, so they fly under the radar and get little or no support—until something goes wrong or the financials take a hit.

For these managers, reverse logistics presents an enormous problem. "If we build out a returns process, the merchants and stores get all the benefits, and I get all the headaches," says one senior supply chain executive.

To complicate matters, some sales executives and merchants resist addressing returns and recalls because they assume 100-percent sell-through, with a zero-defect rate. Manufacturers and store operations executives focus on selling product, and avoid dealing with returns.

Support From the Top

For these reasons, it typically takes a senior executive to champion the corporate reverse logistics effort. Benefitting from reverse logistics requires creating a network and process that can efficiently handle all the assets coming out of the supply chain. While this network requires resources, few investments have a bigger impact on profits.

Companies with best-in-class reverse logistics capabilities have, on average, a 12-percent advantage in customer satisfaction, according to a study conducted by the Aberdeen Group. The study also found that returns cost manufacturers nine to 14 percent of total sales. What other investment can potentially improve customer satisfaction by 12 percent, and improve profits by up to five percent of total sales?

Developing reverse logistics capabilities can have a significant financial benefit, and is well worth the time, effort, and resources.

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