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6/2/04
The
Increasing Necessity for Reverse Logistics
Written
by:
Scott Hudson, SCRC |
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Due
to environmental regulations and consumer pressures
to increase customer service, companies are focusing
on reverse logistics. Reverse logistics can lead
to improved relationships with supply chain partners,
improved profits through reduced costs, and improved
efficiencies and higher recovery rates for returns
(2). In “An Examination of Reverse Logistics
Practices,” Rogers and Tibben-Lenbke define
reverse logistics as:
| “The
process of planning, implementing, and controlling
the efficient, cost effective flow of raw
materials, in-process inventory, finished
goods, and related information from the point
of consumption to the point of origin for
the purpose of recapturing or creating value
or proper disposal (1).” |
The concept of reverse logistics is very important
in the European business environment and is slowly
gaining importance to American businesses (3). In
both regions, the cost of land filling and increased
restrictions on what can be placed into a landfill
are causing companies to invest in reverse logistics
processes (1). In Europe for example, environmental
regulations require tire manufactures to recover
and recycle one old tire for every tire produced
(4). Manufacturers must have an efficient system
to recover the tires to comply with this regulation.
Some statistics
Reverse logistics accounts for 3 percent to 4 percent
of a company’s total logistics costs. Companies
can save 10 percent from their annual logistics
bill by implementing an efficient reverse logistics
system. Twenty percent of this amount is saved in
labor costs and the remaining 80 percent is saved
in lowered freight costs and reduced pipeline inventory
(5).
The Automotive Parts Rebuilders Association (APRA)
estimates that worldwide in the automotive industry
alone, 155,000 railroad cars (or a train 1,100 miles
long) could be filled annually by the raw materials
saved by remanufacturing (1). The automotive industry
remanufactured auto parts market was estimated to
be more than $36 billion in 1999 (1). This is an
example of the potential of utilizing reverse logistics
to save money and to practice environmental sustainability.
Process to implement reverse logistics system
Reverse logistics includes handling, storage, transportation,
inspection, repair, repackaging, refunds, and customer
service (6). Retrieving the product is the first
step in the process. The quality and quantity of
products retrieved must be coordinated with other
distributors and customers. Then the product must
be efficiently transported to a central location,
where it is inspected and sorted. In this step,
processes must be in place to determine what products
can be saved, reworked, remanufactured, resold or
disposed. Automated tracking and testing systems
can be used for parts of the sorting process.
Then, the appropriate products can be reconditioned.
Design for disassembly (DFD) is a method of designing
products, such as electrical devices, so they can
be easily pulled apart, reconditioned, and reused
(5). The products that are not reconditioned are
recycled, resold for parts, or disposed. The final
step is distribution and sales of the reconditioned
products. Companies must create a market for the
refurbished products, which can be sold to the general
public at cost or at a discounted price, or sold
to foreign markets.
Companies
with successful reverse logistics processes
Bosch, an automotive and industrial technology
company, builds sensors into its power tools that
indicate if the motor is worth reconditioning.
The sensors reduce inspection and disposition
costs, allowing the company to realize profits
on the remanufactured power tools (4).
General Motors (GM) simplified its process
for returning automotive parts by allowing parts
to be returned to a single facility using GM’s
pre-printed shipping labels. This less costly
process enhanced GM’s relationships with
its customers and supply chain partners (2).
Volvo, a Swedish car manufacturer, anticipated
the Swedish government passing a resolution holding
auto manufactures accountable for disposal of
vehicles. Volvo implemented a reverse logistics
process of salvaging and dismantling cars. The
company generated revenues by selling the used
metal, plastics and car parts (2).
Reverse logistics is a growing area of emphasis
by many companies. Each company, regardless of
industry, can implement a reverse logistics process
that saves money or even generates new profits.
A company can also recycle products or packaging
to improve its environmentally friendly practices.
References:
(1) Rogers, Dale S. and Tibben-Lenbke, Ronald.
An Examination of Reverse Logistics Practices.
Journal of Business Logistics. Vol. 22, No. 2,
2001.
(2) Stock, James. Speh, Thomas. and Shear, Herbert.
May Happy (Product) Returns. Harvard Business
Review. Vol. 80. Issue 7. July 2002.
(3) Cottrill, Ken. Reversal of Fortunes. Traffic
World. June 16, 2003.
(4) Guide Jr., Daniel and Wassenhove, Luk. The
Reverse Supply Chain. Harvard Business Review.
February 2002.
(5) Minahan, Tim. Manufacturers take aim at end
of supply chain. Purchasing. April 23, 1998.
(6) Gooley, Toby. The Who, What and Where of Reverse
Logistics. Logistics Management. February 2003.
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