FREE ESSAY ON REVERSE LOGISTICS AS AN INTEGRAL PART OF SUPPLY CHAIN MANAGEMENT.

REVERSE LOGISTICS AS AN INTEGRAL PART OF SUPPLY CHAIN MANAGEMENT.

TABLE OF CONTENTS
1.Introduction 2
- What is reverse logistics?
- Why reverse logistics is so important?
2. Body 4
- Components
- International Reverse Logistics
- Outsourcing
3. Conclusion 11
References 12
Introduction
Most of us think of logistics as a one-way street. Products are manufactured, packaged,
stored in a warehouse, sold, and then shipped off to the customer ... end of story. Yet
for many logistics managers today, that's not the end of the story. In addition to
managing outbound goods, they also are responsible for reverse logistics--the flow of
returned goods and packaging, including customer service and final disposition of
returned items. 
The need to manage waste materials and returned goods is growing in all kinds of
industries. Today, companies like Xerox, Eastman Kodak, Mobil, Home Depot, and Ethan
Allen Furniture - to name just a few - have recycling programs that meet the needs of
their individual industries. There are many reasons for the explosive growth of what's
come to be known as reverse logistics over the past five years or so. The most prominent
is increasing public awareness of the social costs of excess waste. A large-scale
recycling program, therefore, generates goodwill among consumers and industrial
customers. As support for recycling grows, moreover, companies want to be perceived as
good citizens that are committed to protecting the environment. Another important reason
is the need to control costs. Frequently, manufacturers treat recovery of products and
packaging as an afterthought. A well-managed reverse-logistics program, however, can
bring enormous savings in inventory-carrying, transportation, and waste-disposal costs.
For these and other reasons, more and more companies are launching reverse-logistics
programs today. Unfortunately, it's often assumed that reverse logistics is simply a
matter of reversing the outbound distribution process. In fact, recycling and returns
management have their own unique and complex issues that affect logistics operations. A
brief overview of those issues highlights the five main areas you should consider before
starting a reverse-logistics program.
A related issue is what kind of resources you are willing to commit to a
reverse-logistics program. The obvious answer is that the level of potential benefits
will influence how much a company will invest in such a program. Too often, though,
companies shortchange themselves by failing to devote sufficient time, money, and
personnel to the project. A lot of times, [reverse logistics] becomes a side job for
somebody. It's not their focus or a high priority, says Cindie Vaughan, supervisor of
reverse logistics for Consolidated Freightways.
If no one is proactively managing the process, it's bound to result in higher costs and
missed opportunities for savings and profits. A solution for many companies that have
limited resources for reverse logistics is outsourcing that function to third parties or
transportation companies. It's up to the shipper, though, to examine the cost and service
benefits, then decide how much of the process should be outsourced. As with any
outsourcing decision, it's a matter of being able to focus on your core competencies and
freeing up your people to work on products rather than expend your assets on [reverse
logistics], suggests Brett Chyatte, senior marketing specialist for reverse logistics at
Federal Express.
Components
The primary components of the reverse-logistics operation are retrieval, transportation,
and disposition. The retrieval stage deals with where the waste or products should be
picked up and by whom. Much depends on the nature of the item being returned; if it's
clothing, for example, a carrier can handle all of the pickup and documentation tasks at
the consumer's door.
If, on the other hand, the items are oversized, heavy, hazardous, or very delicate,
special training may be necessary for both customers and carriers. Burnham, for example,
dismantles photocopiers for several customers that sell or lease the reconditioned
machines. Drivers are trained to remove internal components that could cause damage in
transit, protect glass, secure all moving parts, and pack them for transportation.
Hazardous materials, meanwhile, must be flawlessly handled, but field locations and
distributors may not have the necessary expertise. Michael LeMirande, business
development manager for Redwood Systems, says he often tutors auto dealers in how to
manage returns of such items as engines and transmissions. The battery and most fluids in
automobiles are classified as hazardous, so there are specific procedures for preparing
them for transportation, he says.
A company that does not control the transportation of returns is asking for trouble, says
consultant Ken Miller of Gardner, Mass. Most often, the manufacturer pays the freight for
returned goods. Yet typically the customer estimates the weight, guesses at the
bill-of-lading description, and routes the shipment via a carrier that has no pricing
agreement in place with the manufacturer, he says. As a result, incorrect weights and
product classifications can lead to $500 bills that should have been $50. To prevent
thousands of dollars in excess freight charges, Miller suggests that shippers provide the
carrier routing, correct weight, description, and class to customers when they call for a
return authorization. Better yet, he says, customer-service representatives could
complete the bill of lading for the customer showing all three of those items.
The biggest questions related to product disposition are whether to handle returns in
centralized or regional facilities and how incoming shipments should be processed. The
answer depends on the type of product and what will happen to it after it is returned.
More and more shippers are opting for centralized returns processing because it increases
their control over a product's life cycle and allows for better data collection. That is
especially true for manufacturers of high-value goods with short shelf lives, such as
computers and telecommunications equipment that need to be repaired and sold as quickly
as possible, notes FedEx's Chyatte. It also creates opportunities for shipment
consolidations, which can reduce transportation costs and ensure better utilization of
reusable containers and other equipment. Centralized returns-processing also helps
shippers document returned products that are exported to secondary markets overseas,
supporting claims for duty refunds under U.S. Customs' duty-drawback program, adds Buzzy
Wyland, executive vice president of GENCO Distribution System.
A successful reverse-logistics program depends heavily on gathering meaningful
information that can help manage the returns process while tracking costs, says Wyland.
You want software that will facilitate the smooth, efficient backflow of product from the
customer-service desk all the way to the final disposition, he says. Too often, companies
add the information component at the end onto a finished program, which can create
bottlenecks and inefficiencies, he notes. What's important is not to wait until you have
a pile of returned stuff. You have to plan for it upstream and build the software into
the system.
The Internet is becoming an effective tool for gathering and disseminating information in
a reverse-logistics environment. Federal Express, for example, has developed a
returns-management system called NetReturn that relies on the Internet to capture
customer information, schedule pick.ups, arrange transportation, and track the status of
returned goods. All the customer has to do is call the merchant and request a return
authorization. Once the shipper transmits the shipment details, the information system
takes over. It even prompts the merchant to follow up when items are not picked up as
scheduled.
The tax, finance, and credit implications of the program is an area that may not be very
visible to logistics managers, but it is one of the primary reasons upper management will
support a reverse-logistics program. The act of returning goods sets off a flurry of
finance-related activities, including issuing refunds and credits, accounting for
inventory costs, and tracking tax liabilities.
Logistics can help make those activities easier and more accurate by collecting and
providing the necessary information. For example, retailers and manufacturers
traditionally have clashed over the issue of credits and refunds for returned products,
says Wyland. Retailers sent back a product and deducted for what they sent back from
their payments. For manufacturers, it was an annual nightmare trying to reconcile the
physical product with the paperwork, he says. Now, with the proper information gathering
and dissemination, manufacturers can immediately reconcile their customers' claims. There
are enormous financial benefits to managing returns this way, Wyland says. Before,
manufacturers didn't know their profitability until they reconciled at the end of the
year. Now, they don't have to carry unreconciled claims and they don't have to build cash
reserves to cover those claims. The net effect is a reduction in the cost of doing
business, he says.
The benefits of a reverse-logistics program are legion. To get the greatest payback
possible, though, shippers must devote the necessary time and resources to the project.
Reverse logistics, in fact, should be part of the overall business strategy for any
manufacturer and retailer, says LeMirande of Redwood Systems. Companies today often don't
consider reverse logistics when they plan their sales and operations strategies, he says,
but they should: If you're not including reverse logistics in your supply-chain strategy,
you're cutting your supply chain off short.
International Reverse Logistics
Whether goods and materials are being returned for repair, refurbishing, recycling, or
resale, reverse logistics has its own unique considerations. And when companies need to
manage returns across international borders, reverse logistics becomes an even more
complex process. 
That complexity--not to mention the cost of freight, which often outweighs the benefits
of taking the item back--discourages many companies from bothering with international
returns, says Kevin Sheehan, president of Dallas, Texas-based Processors Unlimited. His
company, which recently was acquired by USF Logistics, manages reverse logistics at 45
processing centers nationwide. 
Yet sometimes there are compelling reasons to become involved in reverse logistics
internationally. In some instances, a returned product can be sold to recover some of the
costs incurred, says Dale Rogers, professor of supply chain management at the University
of Nevada-Reno. If you can recover some asset value out of the refurbished product above
the cost of transportation, it may make sense to ship it outside the country, he says.
And if a company imports items into the United States and they are returned by the end
customer unused, he adds, it may be possible to resell them in a third country and claim
a refund on the original import duties under duty-drawback regulations. There are many
other factors that affect a company's decision to handle returns internationally,
including customer goodwill, the desire to keep name-brand products out of secondary
sales channels, and environmental concerns. Here's a look at why three shippers made that
decision and how they manage international returns.
Witco Corp., a global manufacturer of specialty chemicals based in Greenwich, Conn., for
example, faces several challenges when managing returns of reusable stainless-steel totes
from customers in Canada. The company must keep track of the individual containers, which
are shipped with chemicals inside, emptied by the customer, and then returned for
cleaning and reuse. It also must ensure compliance with both U.S. and Canadian
transportation law because the totes often contain hazardous chemicals and residues.
Finally, Witco must prepare proper documentation to allow the totes to clear customs on
both legs of the round-trip journey. With a large number of containers moving back and
forth between the two countries, the potential for confusion and error would appear to be
great. But the $1.9 billion company maintains tight control over its equipment with the
help of its third-party service provider, CF Reverse Logistics, a division of
Consolidated Freightways. About three years ago, Witco hired CF to track, monitor, and
arrange the return of the reusable equipment, reports Sheldon Ellis, Witco's
international logistics manager. Customers call a toll-free number to notify the company
when the empty totes will be ready for pickup. All they need to do is tell [CF] the tote
number, Ellis says. Because CF tracks the totes by identification number from the time
they leave the manufacturing plant, the carrier knows where home base is for each
container, he explains. CF picks up the empty tote, then follows Witco's routing
guidelines to ship it back to its point of origin. Rather than ask customers to create
export documentation for the containers they use, Ellis has CF prepare most of the
necessary paperwork. A customs broker selected by Witco clears the totes at the U.S.
border. No duty applies, because the containers themselves are not being bought or sold.
Outsourcing helps Service Merchandise manage returns
For retailers, managing returned goods can be a costly headache. That's because consumers
are a fickle lot, returning items because the color didn't match their bathroom towels or
the clock they bought ticked too loudly. In addition, retailers also frequently must
return out-of-season or obsolete stock, goods damaged in transit, and items that have not
been sold within a certain timeframe.
Many retailers opt to keep the entire process in house. Others, though, find that
outsourcing is an efficient, cost-effective means of keeping the returned-goods monster
under control. One such company is Service Merchandise, based in Brentwood, Tenn. Service
Merchandise sells a wide variety of consumer goods, including jewelry, furniture, kitchen
items, and home electronics from 385 stores in 35 states. The company also has a
mail-order business.
All product returns are handled at a returns-processing center operated by Service
Merchandise in Bowling Green, Ky., reports Paul Minor, director of transportation. Volume
at the returns center averages between 30 and 40 million pounds annually, which
represents a lot of inventory costs and lost revenues.
About two years ago, company managers recognized that a more organized approach to
managing returns offered the potential for significant cost savings. The logistics
department, though, was unable to dedicate full-time resources to the project. The
solution? Service Merchandise turned to a third-party logistics service provider to
manage this aspect of its business. The third party operates a customer-service center
for Service Merchandise with a toll-free number. When a store needs to return something,
an employee calls to get authorization. Redwood also provides the stores with specific
instructions for packaging, shipping, and documentation.
Based on cost and volume guidelines established by Service Merchandise, the third party
arranges transportation to the Bowling Green facility using pre-approved carriers. Our
volume guidelines are based on the number of skids and on the storage space available in
the stores, Minor explains. We want the largest shipments possible so we can reach better
weight breaks Redwood analyzes individual store and regional demand, costs, and routing
efficiencies to determine the best way to bring the merchandise to the returns center.
Conclusion
Technologies available today can be incorporated into re-engineered business processes.
Time-consuming manual processes can be reduced or even eliminated, driving out even more
costs. Technologies currently under development will integrate item-level tracking with
wireless communication to update business systems in real time. Organizations will be
able to stay in touch with their customers' products in the supply chain, regardless of
time or geography.
Improved item-level information will enhance the business process to keep customers
better informed and minimize product returns. Properly approached, reverse logistics can
take the problem aspect out of your process and convert these costs into investments for
profitable, long-term customer relationships.
Bibliography
Selected References
Tom Andel: Reverse logistics. A second chance to profit. Transportation and Distribution
Magazine. July, 1997
Toby B. Gooley: There and back again. Logistics Management Distribution Report. Apr 30,
1999
Kathleen Hickey: Rite Aid in Reverse. Traffic World. June,1999.
IS THIRD PARTY LOGISTICS IN YOUR FUTURE? Modern Material Handling. Dec,2000.
Ken Krizner: A marriage between technology and operations leads ReturnBuy's attempt to
re-invent reverse logistics.(Industry Trend or Event) Frontline Solutions, Feb. 1997.
Mitchell E. MacDonald: Put it in reverse! Logistics Management Distribution Report. May
1, 1997 
Ronald A. Marguilis: Reverse logistics. Take it back ! Materials Management and
Distribution. Nov, 1996
John Pogorelec: Reverse logistics is doable, important.(Technology Information) Frontline
Solutions. Sept. 2000.
Greg Raimer: IN REVERSE. Materials Management and Distribution magazine. Sept, 1997.
Beth Schwartz: Reverse logistics strengthens supply chains. Transportation and
Distribution Magazine. May, 2000.