Green Reverse Logistics Brings Many Happy Returns
Companies that combine the “reduce, reuse, recycle” mantra with the supply chain wisdom of managing costs and stamping out inefficiencies are developing reverse supply chains that help the Earth, the customer, and the bottom line.
The path to a greener supply chain is often paved with forward-looking ideas focused on environmentally friendly manufacturing, transportation, and distribution processes.
For some companies, however, the key to jump-starting supply chain sustainability can be found in reverse. By embracing reverse logistics strategies including returns management; product repair and refurbishment; recycling of goods and materials; and proper disposal of materials from unwanted goods, companies can move the sustainability needle while also cutting costs and reaping products with a longer shelf life.
And, by working to cut out inefficient returns processes that result in unnecessary transportation moves, reverse logistics proponents can reduce carbon emissions and improve air quality.
"Reverse logistics is inherently green," explains Gailen Vick, president of the Reverse Logistics Association, a trade organization focused on educating retailers, manufacturers, and third-party logistics providers about the benefits of reverse logistics. "Repairing, refurbishing, or recycling a product instead of throwing it in a landfill automatically does good for Mother Earth."
Considering the volume of consumer goods that ends up in landfills, it is clear that Mother Earth needs the help. In 2007, for example, only 414,000 tons, or 18 percent, of the 2.25 million tons of consumer "e-waste" (waste generated by electronic devices including cell phones, televisions, computers, and accessories) were collected for recycling, reports the U.S. Environmental Protection Agency. The remaining 82 percent, or 1.84 million tons, were mainly disposed of in landfills.
In addition, because repairing and refurbishing products helps extend the life of their goods, companies embracing the reverse logistics cycle can wait longer to produce new products—as well as the carbon emissions that come from manufacturing those goods.
"Manufacturing a new product always generates more carbon footprint than reusing an existing asset," Vick notes.
REVERSE IN THE SPOTLIGHT
Reverse logistics is currently in the spotlight thanks to the convergence of a down economy—which has supply chain executives turning over every stone in search of cost savings—and rising public interest in corporate environmental responsibility.
Indeed, 84 percent of shoppers responding to a 2008 CapGemini survey list sustainable manufacturing features as an important aspect when making buying decisions. As a result, companies that can tout their green supply chain practices are rewarded with both fiscal efficiency and a public relations boost.
"A properly executed reverse supply chain can yield both a monetary and public image benefit—two of the biggest impacts a company can achieve," says Brian Morris, director of engineering for ATC Logistics & Electronics (ATCLE), a 3PL in Fort Worth, Texas, that specializes in the electronics supply chain.
"Reverse logistics has been around for a long time, but it used to be an afterthought—’what do we do with this material?’ Now it is a forethought because reverse logistics closes the supply chain circle," Morris notes.
"Reverse logistics activities give companies a full green supply chain; they not only go to market with a green product, but they also have a way to get it out of the field that does not include a landfill," he says. "And, if a company can market a refurbished product that is just as good as a new one, it can cut manufacturing costs while promoting a green image through selling refurbished goods."
But while many companies have embraced sustainable reverse logistics practices out of a desire to be green, the bottom line is still the biggest motivating factor. At its core, reverse logistics must help companies efficiently handle returns and damaged or obsolete goods with an eye toward minimizing costs. Companies have championed recycling, repair, and remanufacturing operations because they realize concrete bottom-line benefits from these activities.
ELECTRONICS PLUG IN TO RECYCLING
One business sector that is championing these activities—and seeing the bottom-line benefits—is the electronics industry, largely because of skyrocketing growth in high-tech gadgets. Thanks to ever-changing technology, top sellers such as digital cameras, cell phones, video game systems, computers, televisions, and other electronic devices become obsolete in a few short years—leaving electronics manufacturers to deal with mountains of unwanted product.
For electronics manufacturers, recycling unwanted components is one key aspect of green reverse logistics. In 2007, Samsung, a global leader in the electronics industry, began its Recycling Direct program—partnering with take-back and recycling companies that do not incinerate, send materials to solid waste landfills, or export toxic waste to developing countries—and has since recycled 14 million pounds of waste from its consumer goods and IT products. The company has established drop-off locations across all 50 states in more than 200 fixed locations, where consumers can take unwanted electronics (both Samsung and non-Samsung brands).
"Our goal is to make it convenient for Samsung customers to recycle old TVs, phones, camcorders, printers, notebook computers, and other electronics at no charge," explains David Steel, senior vice president of marketing for Samsung North America.
The company has also teamed up with the U.S. Postal Service and third-party logistics company Newgistics to operate the Samsung Take-back And Recycling (S.T.A.R.) toner recycling program, which enables consumers to recycle used printer cartridges. Using a pre-paid Smart Label, customers can return old printer cartridges to Samsung by simply dropping them in any mailbox.
Through the S.T.A.R. program, Samsung ensures that empty cartridges are safely reprocessed into their major usable component materials (including plastics, metals, and packaging materials), then makes those reprocessed materials available for reuse in new manufacturing for a range of products.
"This program not only keeps our environment cleaner, but also helps set the standard for manufacturer responsibility in our industry," Steel says. "Our promise is that every returned empty cartridge is safely and responsibly recycled back into useful materials, and parts that cannot be recycled are treated and disposed of in a way that causes minimal environmental impact.
"We hold all our recycling partners to very high standards, auditing them twice each year, to ensure that we deliver on that promise," he adds.
Steel also credits the S.T.A.R. program with helping Samsung minimize the use of additional logistics operations in order to facilitate returns.
"By leveraging the existing infrastructure of Newgistics and the U.S. Postal Service, Samsung can conduct its recycling operations with minimal use of additional energy or materials consumption," Steel explains.
This approach to recycling returns yields convenience, as well as reduced time, energy, and resources for both Samsung and consumers.
THE REBIRTH OF REMANUFACTURING
In addition to recycling, electronics manufacturers such as Samsung have realized that repairing damaged products and reusing the materials from obsolete or damaged goods—rather than simply disposing of them—is a green, cost-effective way of doing business. The higher price points of new technology items such as LCD and plasma screens has led to a rebirth of remanufacturing, with electronics manufacturers finding ways to put products back in the marketplace to generate additional revenue.
This line of thought is fairly new for electronics companies—and consumers. Used and refurbished products now sit on store shelves next to new goods as a perfectly acceptable option.
"This is a significant change that has occurred during the last five years or so. It is OK now to buy refurbished electronics; in fact, it has even become a selling point in some cases, because refurbished products are seen as being greener," ATCLE’s Morris notes.
Once again, refurbishing also satisfies the executive suite’s need to keep a lid on costs. Although a refurbished device will not bring full market value, it can still generate revenue to help reduce operational expense.
"If, for instance, an electronics manufacturer can refurbish and sell a device within 70 to 80 percent of the original cost, it makes sense and should be considered," says Morris. "Otherwise, the cost benefit isn’t there and the expense can’t be justified."
JOINING THE GREEN CLUB
Electronics is not the only industry benefiting from sustainable reverse logistics operations. Golf club maker Callaway, for example, routinely accepts trade-ins of used golf clubs; after replacing the grips, the company sells the refurbished clubs. Consumers get a discounted price, Callaway earns additional revenue, and the landfills stay that much emptier.
"Is that green? You bet it is. Does that make good business sense? You bet it does," says RLA’s Vick.
Pharmaceutical companies are also getting a dose of green reverse logistics action. GENCO, a Pittsburgh, Pa.-based 3PL offering reverse logistics services, sends a large volume of pharmaceutical company returns to an incineration plant that converts the waste to energy in order to limit the environmental impact of the process. The plant creates two million kilowatt hours of electricity annually from this process, enough to light 220 homes for one year.
Another green reverse logistics example tracks to the rails: razor maker Gillette purchases high-caliber steel from worn-out rail tracks and uses it to manufacture its products. This partnership allows the railroads to dispose of unneeded steel in an environmentally friendly and cost-effective way, while helping Gillette cut purchasing costs and avoid the carbon emissions that would result from new steel production.
"Every industry should practice sustainable reverse logistics," Vick says.
TRANSPORTATION RIPE FOR REWARDS
Transportation is another major aspect of reverse logistics ripe for a green makeover. As with forward logistics, the execution of reverse logistics inherently requires large transportation volumes, which carry all the environmental risks of pollution, emissions, and increased carbon footprint. How then to transport returns effectively while still striving for sustainability?
One company found the answer in a UPS Supply Chain Solutions program called UPS Returns Flexible Access, which allows customers to tender return packages at any UPS or U.S. Postal Service (USPS) location, including their own mailboxes. For Buy Seasons, an online retailer of costumes and party supplies, the Flexible Access program proved to be an environmentally friendly and cost-effective way to manage returns.
Buy Seasons, whose flagship Web site BuyCostumes.com is the leading online-only retailer of costumes and costume accessories, processes a huge chunk of its total return volume in October and November, fueled in large part by Halloween costume sales. From August through October, the company’s daily volume of 4,000 to 7,000 shipments increases tenfold to 40,000 to 50,000 packages per day, so the number of returns also piles up after Halloween.
"We ship half our business volume in the ramp-up to Halloween; that big balloon of returns coming back in October and November has been ominous," says Terry Rowinski, vice president of operations for Buy Seasons.
Also scaring the company was the lack of environmental efficiency in its returns process. Because the company does not have an actual store, customers wanting to return merchandise had to drive to a postal location or UPS drop-off point. From there, additional transportation legs were required to ship the returns back to Buy Seasons’ warehouse in New Berlin, Wisc.
To rectify both the operational and environmental inefficiencies of its returns process, Buy Seasons adopted UPS’ Flexible Access program. Customers can now initiate a return, print a label, request package pickup, and track their return shipment online. They also have the option of dropping off return packages at any USPS location, including a home or office mailbox—eliminating the need for extra transportation legs.
"With this solution, our customers can have their postal carrier or local UPS driver pick up the return parcel and inject it back into the USPS stream, which ultimately flows to UPS," Rowinski explains. "The consumer doesn’t have to drive the extra miles to make a return, and UPS doesn’t have to send additional trucks to make a pickup. It’s convenient and it’s green."
The UPS solution also gives Buy Seasons better visibility into its returns volume, which has made the company more prepared to handle it. "We can be more predictive when planning warehouse staffing. The solution gives us full tracking so we know on any given day whether to expect 90 returns or 400 returns," Rowinski says.
Holding reverse logistics transportation moves to a minimum in order to keep a lid on costs and carbon footprint is especially challenging for spare parts and service logistics operations.
"Reverse logistics is a critical aspect of the service parts supply chain. For every part that goes out, there’s a part that has to come back," notes Todd Snyder, director of global service parts logistics solutions and implementations for UPS Supply Chain Solutions.
SPARING THE EARTH WHILE TRANSPORTING SPARES
The traditional process of executing service parts returns involves multiple steps, parties, and transportation legs—all of which add up to inefficient operations and wasteful environmental impact.
Typically, a field technician called to fix a copier, computer, or medical device receives a repair part from a field stocking location, performs on-site service, and has at least one defective part to return. The defective parts are usually shipped back to a third party’s central DC, then out to the manufacturer for repair, and finally back to that DC to be restocked and reused.
"This is not an efficient or green method," Snyder says. "Because this process requires a lot of transportation, it is more expensive for the manufacturer and increases carbon emissions."
UPS’ smart label program, Intelligent Authorized Return Services (IARS), helps attack both issues. The smart labels provide field technicians a way to send defective parts directly back to a manufacturer for repair, instead of going first to a central DC for triage and sorting. The program essentially cuts a leg of transportation from each reverse move, providing a more sustainable and cost-effective way for service parts operations to manage reverse logistics.
"With IARS, companies can eliminate some inefficiencies and achieve a more sustainable reverse supply chain," Snyder notes.
BEST-IN-CLASS REVERSE OPERATION
Electronics retail giant Best Buy has developed a similar solution to manage its repair parts reverse logistics through a partnership with Fidelitone, a Wauconda, Ill.-based 3PL. The solution—a virtual parts returns process—has helped Best Buy greatly reduce freight emissions and logistical carbon footprint, while cutting millions of dollars each year in freight costs and expediting its receipt of credit on parts returns.
"Best Buy’s order management and intelligence system gives field technicians the tools they need to make effective decisions so they don’t waste money and natural resources on shipping products unnecessarily," explains Josh Johnson, Fidelitone’s president.
Thanks to technology developed as part of the virtual parts returns process, Best Buy’s field technicians have the ability to determine immediately—based on business rules set up by Best Buy—whether a defective part is eligible for remanufacturing or is unusable.
A technician at a customer’s house repairing a flat-screen TV, for example, can take the damaged PC board out of the TV, find out where the replacement part was sent from, and determine what to do with the damaged part. If the PC board can be repaired, the technician ships it out for remanufacturing; if it can be reused or has value for its components, the technician will return it to Fidelitone; and if the PC board is unusable, it is disposed of immediately.
Having access to this information at their fingertips allows technicians to save Best Buy from engaging in unnecessary—and non-green—transportation.
"Shipping a product back to our warehouse or to another warehouse or remanufacturer only to have it thrown away is a sustainability nightmare because it’s an unneeded leg of freight," Johnson says. "Companies seeking to minimize environmental impact from their returns operations need to bring technology and processes together to create a more cost-effective and sustainable supply chain."
Achieving a cost-efficient, sustainable reverse supply chain is now a priority for many companies. To accomplish that goal, they are combining the green mantra of "reduce, reuse, recycle" with the age-old supply chain wisdom of managing costs and stamping out inefficiencies.
The result? The reverse supply chain has never looked greener, or more efficient.
An Inside Look at Refurbishing
When a consumer returns an electronics product because it is outdated or not functioning properly, they don’t likely give much thought to what happens next. But what happens next is at the heart of business for companies such as ATC Logistics & Electronics (ATCLE), which perform asset recovery, repair, and refurbishing services. Brian Morris, director of engineering for the Texas-based 3PL, gave Inbound Logistics a detailed explanation of the process involved in giving a returned product a new life:
“When we receive returns from customers, we do a test inspection to find out how many faults the product has. If there is nothing wrong with it, we can repackage it for sale. If it’s a faulty product, we identify the failure and determine what it takes to repair or refurbish that product,” Morris explains.
“The next step is to weigh the economics of the repair: given the cost of fixing a product, does it make sense to repair it? This goes back to the cost/benefit of conducting the testing and refurbishment processes. There must be an acceptable ratio to be profitable. The range is typically 70 to 80 percent of the product’s original cost.
“If a product is deemed worth fixing, we put it through our repair and refurbishment operation, and it emerges like new,” Morris continues. “If the product cannot be repaired, we look at its individual components. If the plastic housing is still in good shape, for instance, the plastic can be reclaimed and used to refurbish another product. Batteries are another key component. Most batteries are not exposed, so if they still hold a charge properly and are in good shape cosmetically, they are often put through reconditioning. After reconditioning, we use them as replacement batteries or sell them to other refurbishing operations. We also find uses for components such as keyboards and USB cables.
“Products with components that don’t make the grade are sorted into containers and sent to a recycling house,” he explains. “Recyclers crush and grind plastic components and send them to an injection mold facility, where that plastic is put back into production for new plastics manufacture. Circuit boards can be crushed and smelted, and the precious metals—such as titanium, copper, and small traces of gold—are removed and sold to another circuit board manufacturer or even a jewelry house.
“We are working to help manufacturers utilize refurbished and reclaimed parts so they can cut down on purchasing new parts. This helps them reduce costs, and it allows us to keep waste from piling up in landfills,” Morris concludes.