Reframing Reverse Logistics: Better Business, Better World

Q: How can reverse logistics help provide a balance between profit maximization and sustainability?

A: The moment a product reaches its buyer, the job of the forward supply chain is done. Everything after that point,including aftersales service, warranty management, defective repairs, spare parts management, returns bring-back—as well as the associated transportation, liquidation/disposition including recycling, and buyback/exchange management—falls under the purview of reverse logistics (RL).

Many don’t realize it, but most of the activities that make a supply chain sustainable and "green" happen in the domain of reverse logistics.

Consider the 5R framework for RL: reduce, reuse, repair, resell, and recycle. If integrated thoroughly within an organizational structure, as returned items are processed through this framework, most products or their components will find a new use (contributing to profits) and there will not be much left to recycle in the end (improving sustainability).

When done right, RL is not a standalone entity. Rather, the activities involved in it are woven into the fabric of an organization’s supply chain.

Q: What three steps can a company take to have profitability and sustainability processes coexist?

A: Step one is to build a sustainability/profitability matrix. This exercise maps RL along two axes: profitability and sustainability. The goal is to move into the quadrant representing a positive profitability and a low carbon footprint.

Step two is to rethink the business case. Most business cases for RL and sustainability are deeply flawed. They often fail to quantify the value RL brings, including:

  • Increasing customer satisfaction and retention;
  • Reducing the cost of customer acquisition (through the sale of refurbished products);
  • Reducing greenhouse gas (GHG) emissions and consequently increasing share value and brand image;
  • The potential for deeper integration with business partners who value sustainability.

In a holistic business case, the importance of RL and sustainability are strategic, and processes are viewed as driving value.

The third step is to rethink the business model and review capabilities. Capabilities should be assessed along four key dimensions: people & KPIs, processes, technology & systems, and data. Assessing these variables enables organizations to drive toward a business model that is not only more profitable, but also sustainable.

Q: What’s next?

A: If companies critically examine legacy business models, follow this three-step process, and leverage the 5R framework, they will arrive at a business model that will be both profitable and sustainable. This is not a radical change. It is a shift in thinking that challenges us to pivot business processes in order to build successful business environments that also reduce the stress on our natural environment.

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