16 Sep 2022

Understanding the Role of Reverse Logistics in SCM

Reverse logistics is the process that governs the movement of products from the customer to the manufacturer. Companies use it to reduce costs, faster return processing, minimize waste, and promote better sustainability.

Understanding the Role of Reverse Logistics in SCM

Supply chain management (SCM) is the process of managing and optimizing the flow of goods and services to ensure streamlined business supplies and maximize customer satisfaction. By efficiently managing the supply chain, businesses can ensure that their products reach their customers on time. Logistics is a critical part of SCM. To ensure that each stage of converting raw material into the final product and delivering it to the end customer, it is vital that logistics run flawlessly at every stage. Diverse types of logistics are required for various stages of SCM, including integrated logistics, I/O logistics, and Procurement logistics. The concept of reverse logistics involves the return of products from the customer to the seller and the manufacturer. This blog post will give a detailed overview of what role it plays in SCM. Read on.

What Is Reverse Logistics?

Reverse logistics is the process of supply chain management that starts with the end customer and moves the products back to the seller. The reverse logistics is required because whenever a customer receives a product, there can be cases where there is a manufacturing defect or any other problem with the product. Also, for recyclable products, customers can send them back to the manufacturer and contribute to sustainability. In that case, the customer will return the products to the manufacturer. Ensuring the proper return of the products to the seller requires optimization of SCM. Sometimes, the end customer may also be responsible for dispersing the product to the seller.

Importance of Reverse Logistics in Supply Chain Management (SCM)

In the present market scenario, when competition among businesses is neck to neck, reverse logistics is crucial in increasing sustainability and maintaining a good flow of goods. It not only creates value for the customer but also decreases risks and reduces costs. Manufacturers can use the disposed-off products in new ways or can refurbish the product and make it available to the customers at a discounted price which in turn increases their market base. As more countries are making it mandatory for industries to focus on more sustainable practices, it can be their way to progress towards sustainability. Another advantage of reverse logistics?is that it creates value for the customer and helps companies build their brand with heightened customer satisfaction. As increased customers are being considerate about where their products come from, it is beneficial for the companies they show their customers they are trying their best to maintain sustainability in their business. Also, as the customers can return their products quickly, it increases their ease of buying and builds trust, which is another benefit for the companies.

What are the Types of Reverse Logistics?

Various elements of in the process are termed components that focus on return management and policies. These components account for unsold goods, remanufacturing, packaging, and delivery failures.

Reverse Logistics Components

  • Returns Management: The objective of this component is to deal with the product return from customers. It needs to be fast, straightforward, and controllable. A company's reputation depends on its return policies. In general, it is extending a return policy, such as offering store credits for a faulty product.
  • Return Policy and Procedure (RPP): The policies that a company shares with its customers about returns are called RPP. These policies must be communicated to the customers effectively and with consistency. Also, the employees must adhere to them.
  • Remanufacturing and Refurbishment: Remanufacturing is another component of reverse logistics management which includes refurbishing and reconditioning. This activity involves repairing and rebuilding products. Companies can recover reusable and interchangeable parts from other products and use them to rebuild the product. This is known as the cannibalization of parts. Reconditioning of the products includes cleaning and reassembling products.
  • Packaging Management: This component deals with reusing packaging materials to reduce waste and promote environmental sustainability.
  • Unsold Goods: Unsold goods that return from retailers to manufacturers also come under?reverse logistics in SCM. These can be because of poor sales, exceeded inventory, or refusal to deliver.
  • Delivery failures: When delivery fails, it returns to the sorting center. From there, the staff reattempts the delivery, or the item is sent back to the point of origin.
  • Rental and Leasing: When a piece of equipment is leased or rented, it returns after the end of the contract. After that, the company may redeploy, remarket, or recycle the equipment.
  • Repairs and Maintenance: Some companies provide maintenance and repair services as a part of a product agreement. If any such issue arises, the company may repair and return it to a customer or sell it to another customer after repair.

How Does Reverse Logistics work?

Reverse logistics process in supply chain

The process involves five steps, including:

  • Process the Return
    Whenever a customer contacts the seller that they want to return the product, it starts the return process. The return request from the customer needs to be authorized after identification of the product's condition. Scheduling return shipment, approving refund or replacement of a defective good.
  • Deal with Returns
    After the product returned by the customer arrives at the facility, the team that manages the returns inspects it and categorizes the return. Categorize the return in the following options: Repair, Recycle, and scrap.
  • Keep the Product Moving
    Remember that you can only reduce costs if you keep your products moving. Try to reduce daily waste by continuously sending the returned products to their respective department according to their categories. For example, if a product is repairable, it should be sent to the repair department without delay to ensure logistics mobility.
  • Repair
    Once the product reaches the repair department, the team determines whether the product can be repaired or not. If the product is not repairable, sell the sellable items from the product.
  • Recycle
    Any product or parts you cannot reuse, repair, or resell, should be sent for recycling.

How to Optimize Reverse Logistics to Maximize Value in Your Supply Chain?

To have the maximum impact of reverse logistics on the supply chain management, optimization is the key which can be done by taking the following steps:

  • Plan delivery runs and add on-demand returns to increase drop density.
  • Manage the technical skills of the delivery and logistics team.
  • Treat the reverse customer feedback and experience as any other.
  • Digitize your reverse and returns logistics.
  • Use advanced analytics for return analysis.
  • Implement AI and machine learning for reverse logistics solutions for accurate analysis.

FAQ's

Explain the difference between reverse logistics and traditional logistics.

Traditional logistics is the process of moving goods from their initial stages, that is, raw materials, to manufacturers, then retailers and customers. On the other hand, reverse logistics starts with the end customers and moves in the reverse direction returning the products to the required point of the supply chain.

What Are the Five Rs of Reverse Logistics?

The five Rs include Returns, Reselling, Repairs, Recycling, and Replacement. All these factors have their own KPIs to track improvement and reduce losses.

What is an example of reverse logistics?

One of the best examples is the return policy of Levi Strauss. They use their return policy to enhance sustainability in the textile sector, and they reprocess fibers into raw materials and turn them into new jeans.

What are the main reasons for reverse logistics?

The reasons include attaining customer satisfaction, promoting sustainability, valuable business insights, enhancing the value of goods, and reducing costs.

What is the future of reverse logistics?

Future of reverse logistics will be the integration of SCM software that will help determine the needs for minimizing disruptions from returns, document all the process after the products is received, and integration all this data with the supply chain.

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