Reverse logistics strategies play an important role in the shipping industry. Therefore, it only makes to look into the underlying principles, benefits and motivations behind the success of this practice among shippers worldwide, even its history if showing an interest in this particular area. This article tackles all these aspects, as well as takes a closer look at the various ways in which reverse logistics strategies are used by shippers worldwide.
Reverse logistics – a definition
For starters, the field of reverse logistics covers all those operations that involve products and materials being reused, from the planning of an efficient and cost effective flow of raw materials, finished goods, in-process inventory and relevant information between a point of consumption and one of origin to its implementation and monitoring, all for value restoration and effective disposal purposes. More specifically, it deals with the movement of goods from a final destination for value restoration and effective disposal purposes. Remanufacturing and reconditioning activities are also recognised as reverse logistics operations, as are all operations involving the management and sale of returned hardware. The general area of logistics integrates all the processes that ensure an effective promotion of products to the customer. With reverse logistics, on the other hand, this whole process stops at the distributor or manufacturer.
Normally, the road of products through the supply chain stops at the customer or distributor. Reverse logistics deals with the processes that follow the sale of these products. In the event of the products being defective, they are to be returned, in which case it is the manufacturer’s responsibility to ship, test, dismantle, repair, recycle or dispose of the product. In these cases, the products will take a reverse route through the supply chain network so as to be prevented from use, hence the concept of reverse logistics.
Reverse logistics – an introduction
The fact that various ways to reuse products and materials of all kinds have been explored for a long period of time is no news. However, reverse logistics only emerged as a concept approximately two decades ago. In time, it has grown to be recognised as a research field, as well as a practice, yet its importance and underlying principles still fail to be understood fully. Therefore, it is still deemed expensive and repetitive by some of the participants to the shipping industry, as revealed by a study that was conducted by two professors of the University of Nevada a few years back. Nearly 40 per cent of the participants to the study in question failed to see the importance of developing a solid reverse logistics plan, while 34.3 per cent of them claimed to not have the necessary equipment and one third claimed to be inhibited by company policies.
While the interest in reverse logistics is limited in the business world, in the academic world it is prominent, researchers constantly tackling it since 1993 in their attempt to demonstrate its potential to improve performance by shippers, as well as the area of customer relations.
The evolution of reverse logistics on the e-commerce freight shipping market
The processing of returns has proven cumbersome not only from an operational point of view, but financially as well. Therefore, reverse logistics stands out as one of the particularly challenging areas of e-commerce freight shipping. However, successful reverse logistics strategies are associated with higher customer satisfaction levels as well as lower resource investments, storage costs and distribution costs. Contrary to popular opinion, goods tend to be returned in very large amounts, ranging between as little as 3 per cent with some companies to as much as 50 per cent across all industries. In this context, it should also be noted that returns consume 3 to 5 per cent of the total revenues of companies. Thus, in the case of brick-and-mortar retail operations, for instance, the costs of returns amount to 3-4 times the costs of outbound shipments. In industries such as that of book publishing, catalogue retailing or greeting card retailing, the number of returns reaches as high as 20 per cent of the total product volume. Moreover, the status quo of reverse logistics allows the development and management of customer relationships and loyalty by retailers.
Reverse logistics versus traditional logistics
According to the Council of Supply Chain Management Professionals, traditional logistics, also known as forward logistics, covers all those operations that involve products and materials being reused, from the planning of an efficient and cost effective flow of raw materials, finished goods, in-process inventory and relevant information between a point of origin and a point of consumption to its implementation and monitoring, all for customer satisfaction purposes. As mentioned earlier, by contrast, reverse logistics covers all those operations that involve products and materials being reused, from the planning of an efficient and cost effective flow of raw materials, finished goods, in-process inventory and relevant information between a point of consumption and one of origin to its implementation and monitoring, all for value restoration and effective disposal purposes.
In this context, a closer look at the traditional logistics flow will reveal, for starters, the role of sales forecasts as tools serving for sale requirement projection purposes. Demand for various products results in their being shipped to the distribution centre and further on to retail stores. It should be noted that all shipments will be accompanied by advanced shipping notices (ASN). In reverse logistics, on the other hand, such activities do not reflect planning by companies, but initiatives by consumers. Also, reverse logistics involves returned goods being collected using a variety of means and methods and shipped to the distribution centre. At the same time, all the relevant pieces of information with regard to the goods in question (i.e. description, condition upon return, customer details, etc.) are forwarded to the return processing centre. However, it is unfortunate that the current status quo of reverse logistics is affecting the process of data collection in that it is rarely completed within satisfactory standards, if completed at all.