Putting a Lean Spin on Reverse Logistics

Reverse logistics—the processes involved with handling products returned by customers—is often overlooked during supply chain planning. As a result, it is frequently a source of waste, because companies lack Lean procedures for handling defective, damaged, mislabeled, or incorrectly shipped items when customers return them.

Recently, businesses have started paying more attention to their reverse logistics processes as a result of a greater focus on supply chain sustainability—a function affecting the environmental, risk, and waste costs of supply chain and logistics networks.

Reverse logistics exists in manufacturing, wholesale, and retail distribution and store operations, and must be managed as efficiently as possible, because returns can have a significant impact on the bottom line. In fact, returns—which affect four to five percent of consumer electronics sales, and up to half of sales in the publishing industry—reduce the average profitability of retailers and manufacturers by up to four percent.

Rethinking Reverse Logistics

Facilities that do not develop Lean procedures for returning, processing, repairing, and replacing products may create considerable waste. Efficiently managing the reverse logistics process, however, improves profitability and adds value for customers.

To reduce waste in distribution centers’ reverse logistics procedures, pay close attention to movement and processing, which can be major sources of inefficiency and waste. Consider facility layout, item flow, and worker movement. Workers must be able to sort and break down returns with minimal travel, so make sure all necessary information, tools, replacement packaging, and other materials are nearby. Process and activity charts can be useful in this analysis.

Building a Lean Returns Process

The actual returns process can include your company’s return policy (which can be generous or strict), Return Merchandise Authorization (RMA) procedure, operations outsourced to third-party logistics (3PL) providers, and technology tools. All these factors can have a tremendous impact on whether your returns process is efficient and Lean.

When developing your reverse logistics process, consider the following factors:

  • Prevention. Use Lean tools such as Quality at the Source to minimize returns.
  • Financial incentives. Avoid processes—such as charging returns back to the sales department—that cause RMA delays.
  • Core competencies. If your company lacks reverse logistics expertise, consider outsourcing this function to a 3PL that can manage it efficiently.
  • Suppliers. If you are a wholesaler or retailer, review the returns handling terms you have established with your vendors.
  • Cycle times. Evaluate the entire returns process—starting with the customer, RMA procedures, and reverse logistics network—to identify potential sources of waste.
  • Technology. Invest in the right tools to help you control and measure the reverse logistics process.

A well-planned reverse logistics operation can be a win-win proposition, because it fits well with today’s increased focus on sustainability, reduces costs, improves your company’s reputation, and satisfies customers. Ultimately, it can be used to establish a competitive advantage for your business.

Parts of this column are adapted from Lean Supply Chain & Logistics Management (McGraw-Hill; 2012) by Paul A. Myerson with permission from McGraw-Hill.

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