18

Reverse Supply Chain

“Improperly handled returns erode 32-35% of potential profits of the business organization¹”

 

—Gartner2004”

INTRODUCTION

Companies spend more time and money in fine-tuning their forward supply chains while ignoring their backward supply chains. However, in today's competitive business environment when there is both external and internal pressure, companies can no longer ignore reverse supply chains. Efficient reverse supply chains bring many benefits to the companies. However, reverse supply chains are different from forward supply chains and most of the existing forward supply chains are not designed to handle reverse flow of materials.

Reverse supply chain process covers 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 value or proper disposal. Many companies do not have an awareness of the reverse supply chain and the costs associated with reverse flow of material. These companies lack in awareness, defined processes and support of the system. The reverse supply chain handles varying returns in terms of quantity and time. Hence, such system should be designed keeping in mind the flexibility nature of the returns. In general, reverse product flow programmes are complex in nature. It involves lots of paperwork and tracking to the users.

WHY REVERSE SUPPLY CHAIN?

According to Devangshu Dutta, director of a supply chain solutions company, ‘Nearly 20% of everything that is sold in America is returned’. This means it is imperative for the company to have a system to handle the reverse flow of materials.

The reasons for returns are varied. However, returns in business-to-business markets and business-to-customer markets are based on different reasons. Due to varied nature of reasons, the design of reverse flow network faces many challenges for which different strategies need to be evolved (Exhibit 18.1).

 

Exhibit 18.1 Returns and Reverse Supply Chain Challenges

	Business Markets	Consumer Markets
Reasons for returns	Product defects Recall Warranty Discontinued product Stock adjustments	Product defects Damages Warranty and service Recall End of use
Challenges	Non-uniform product quality and packaging which affects utilization andexpenses Outdated and possibly obsolete returned items	Unpredictable demand and no advance notice of returns High number of transactions necessitating efficient disposition
Scope	Refurbishing, repairs, remanufacturing to reduce the need to purchase new parts Detailed data required to perform root cause analysis	Refurbishing, repairs, remanufacturing while delivering customer service Seamless integration of supply chain partner for disposal Customer-focused strategy

 

Traditionally, in the supply chain of an organization there is one directional flow of goods, that is, from manufacturer to the end user. Almost, all of a logistician's attention has been focused on their ‘forward’ logistics activities. Once the product is sold and delivered to the user, the manufacturer feels that there is an end to his responsibility. The manufacturers consider that their responsibility is limited to the extent of replacement of defective products covered under warranty period or products damaged during transit. What is happening to the used materials, packaging waste, disposable product waste generated out of the finished products supplied by them? The left out material and the wrappers cause environmental pollution and create problems in disposal for the civic authority. However, in wake of the growing concern about environmental pollution, developed countries across the world, have started passing legislations, asking the manufacturers to take care of products discarded by their customers after usage. The leading corporations across the world are taking this as an opportunity to develop a system for reverse material flow. They are focusing on the ‘reverse’ logistics activities to use it as a tool for competitive advantage.

Reverse logistics may be defined as a process of moving the goods from their place of use, back to their place of manufacture for reprocessing, refilling, repairs or waste disposal. It is a planned process of goods movement in reverse direction done in effective and cost-efficient manner through an organized network. It can be a standalone or integrated system in the company's supply chain. The drivers for reverse logistics are:

• Economics
• Legislation
• Corporate social responsibility (CSR)
• Consumerism
• Competitiveness

In competitive markets, to retain the existing customers, the manufacturers are creating switching barriers by extending value added service to the customers. To remain competitive and differentiated, more and more firms across the world are showing speed and reliability in service offerings such as:

• Replacing defective goods
• Repairing the used product
• Refurbishing the returned product
• Calling back substandard or harmful goods
• Disposal of product waste

These additional services are adding to the competitiveness of the company operating in regulatory environment and creating customer value by providing clean environment through reverse logistics services without any extra cost to the customer. Today, corporations across the world are leveraging reverse logistics, for growth by enhancing the level of customer satisfaction beyond the traditional boundaries of product and service supply.

REVERSE SUPPLY CHAIN

According to authorities Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke, reverse logistics is:

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 value or proper disposal.

The council of supply chain management professionals define reverse supply chain² 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 value or proper disposal.

Wikipedia defines reverse logistics as:

As a process of removing new or used products from their initial point in a supply chain, such as returns from consumers, over stocked inventory, or outdated merchandise and redistributing them using disposition management rules that will result in maximized value at the end of the item's useful life.

To sum up, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or achieving proper disposal to the satisfaction of the customer or consumer. Remanufacturing and refurbishment activities may be part of the procedure. Reverse supply chain include processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls and excess inventory. It also includes recycling programmes, hazardous material programmes, obsolete equipment disposition and asset recovery. For a practitioner, the disposition choice is determined by the most profitable alternative:

• Reconditioning: When a product is cleaned and repaired to return it to a ‘like new’ state.
• Refurbishing: Similar to reconditioning, except with perhaps more work involved in repairing the product.
• Remanufacturing: Similar to refurbishing, but requiring more extensive work; often requires ompletely disassembling the product.
• Resell: When a returned product may be sold again as new.
• Recycle: When a product is reduced to its basic elements, which are reused—also referred to as ‘asset recovery’.

SCOPE OF REVERSE SUPPLY CHAIN

The reverse supply chain, though considered as a drain on the company's profits, but in today's competitive markets it can be leveraged as a tool for customer satisfaction. More and more manufacturing firms are thinking of incorporating reverse flow system in their supply chain process. The reasons for this are as follows:

• Growing public concern for environment pollution
• Government regulations on product recycling and waste disposal
• Growing consumerism
• Stiff competition

Reverse supply chain is important for asset utilization (re-utility), asset recovery (capture value), profit maximization, full environmental obligation (or regulatory compliance) and customer relations management. The reverse supply chain network can be used for various purposes such as refilling, repairs, refurbishing, remanufacturing, etc. Depending on the nature of the product, unit value, sales volume and distribution channel the reverse logistics can be organized and the system can be designed for the following activities.

Refilling

In industries such as soft drinks, wines, oil, LPG distribution, etc. reverse flow of used containers is integrated to their regular supply chain because of the reusable nature of the packages such as glass bottles, tin containers, metal cylinders, etc. In case of soft drinks the delivery van en route delivers the filled bottles to the retailers and collects the same number of empty bottles from them for delivery to the factory. No extra transportation costs are involved in the process as the delivery van originates and terminates its journey at factory where these reusable bottles are refilled for re-delivery to the customers. The arrangement deployed here is like hub and spoke distribution system in reverse flow system. For refilling of LPG cylinders, the similar arrangement is in use by the petroleum companies (Hindustan Petroleum, Bharat Petroleum). From the bottling plant, the truck load of filled LPG cylinders are dispatched to dealer's godown for delivery and on the return trip the same truck carries the empty cylinders for depositing at the bottling plant. In case of metal cylinders (due to the less damages and prolonged life), the recovery rate of the cylinders is to an extent of 99.9 per cent.

The logistics service suppliers who are supplying pallets³ on leased basis to their various clients for packing and moving the goods keep the pool of pallets at fixed locations. The customers draw the pallets for use and deposit the pallets at the assigned centre after usage. The damaged pallets are repaired or replaced regularly keeping the required quantity in the circulation. The return of the pallets is on the exchange basis between the buyer and seller with whom, the pallet supplier is a common link who co-ordinates the reverse logistics operation. This system is quite common in developed countries.

In India, the box containers used in multi-modal transportation system are leased by the container lease corporation Ltd. (CLCL), which keeps the inventory of empty box containers at inland container depots (ICDs) operated by container corporation of india (CCI) or private agencies. The customer requirements of containers for packaging and movement of goods in domestic or foreign markets are drawn from these depots. These containers are loaded at container freight stations operated by the CCI or others. The empty containers after de-stuffing of materials are deposited at the container depot near to the place of delivery for further reuse and reverse flow to the place of origin. Thus, the entire movement of containers in forward and reverse logistics is controlled by CLCL.

Shaw Wallace (leading wine manufacturer) has integrated the reverse flow of empty bottles with their regular forward distribution system. The empty bottles collects at the area distribution warehouse with the help of their dealers, who are in touch with hotels and scrap dealers who deploy his network to collect empty wine bottles from house holds, hotels, clubs, pubs, etc. The bottles thus collected at field warehouses are sent back to the factory for refilling. The empty bottles recovery is to an extend of 85–88 per cent of the supply.

Repairs and Refurbishing

This is a regular feature for serviced-based products under warranty period, which has to be incorporated by the manufacturers in their product offerings. Almost all consumer durables such as television sets, audio systems, washing machines, fans, refrigerators, and other consumer durables and all industrial products need repairs on a regular basis. The refurbishing is done for the goods returned by the customers during warranty period due to damage, defective piece or performance below the promised level, etc. For consumer durables and engineering products manufacturers in general keep in place the reverse logistics system for extending the service within warranty period (free of cost) and beyond the warranty period on a chargeable basis. In addition to extending value added services to the customers, these systems are major revenue earner for the company. The system operates through the company's service centres where the repair and the refurbishing take place. The collection of the products is done through dealer's network. The collected products are dispatched to the nearest service centre for overhaul, repair or refurbishing. The documentation and payment collection are responsibilities of the concerned dealer. For large value industrial product locating and coordinating, the customer is not posing any problem, as the number of customer is less and customer is personally known.

Product Recall

Product recall is calling back the products from the customers or requesting the customers to return the products. This may be due to safety concerns or design defects or labelling error at the manufacturer's end. The drive for product recall is cut throat competition, concern for environment and growing consumerism. Today product recalls are not uncommon. Many brand leaders recall their defective product from the market to guard their image or avoid costly court litigations. The reasons for recalls may be as follows:

1. Damage control.
2. Safety concerned for all users or accidents.
3. Design defects in product which may deteriorate the image of the company.
4. Avoid litigations for costly settlements.
5. Consumers’ life may be at risk.

Thus, product recalls can be handled and is it possible to build in a system for possible product recalls. Customers may demand damages through the courts resulting in financial implication for companies. The delay may be fatal for consumers in certain products like electric appliances, automobiles and food items/medicines. Many failures are due to poor design and ignoring safety aspects, like sharp corners in toys or loose parts or buttons on children garments during manufacturing. For normal defects, normal warranty procedures are adequate. However, product recalls are preventive in nature and can avoid costly litigations and financial and goodwill losses. For example, in 1977 Glaxo Laboratories (now Glaxo Smithkline Beecham), due to some problem in composition of baby milk powder in some batches, recalled the product from the market. This process of recalling products from market through channel partners or consumers is reverse logistics and normally results in heavy expenses. To call back widely distributed consumer products when they are out of marketing channels is quite cumbersome and expensive. The other dimension is the time; after the product defect is identified the recall process has to be expedited to avoid further damage to the company's image and goodwill. Even though there was immediate threat to the life of babies, Glaxo's decision in product recall was due to concerns to the society.

In another case in 2007, Mattel Inc. USA, a leading toys manufacturer in the United States recalled millions of toys from the market because of a small detachable and swallowable magnet in toys and lead (in paint) taint, which are hazardous to childern, in some toys manufactured for Mattel by Foshan, a China-based company. The recall ran into millions of dollars. A class-action lawsuit was filed against Mattel related to its recall of more than 1 million lead-tainted toys. Nokia Mobile phone batteries BL-5C (manufactured in China but for Matsushita, Japan) have been recalled (46 millions) for getting overheated and bursting during charging. IBM for its Lenovo brand computers recalled, in 2006, more than 5 lacks laptop batteries worldwide made by Sony Corporation because of a fire risk. In this case, both 1MB and Sony Corporation announced a global replacement programme of the company's lithium-ion batteries. In 1994, Maruti Udyog India recalled Maruti 800 cars due to some problem in front axle components which endangered customer safety on road. This recall was for axle replacement only. For Maruti it was easy to do that as customers were in finite numbers and their database was available with the dealers/company.

Product recalls are done under certain situation. It may be because of process failure, faulty product or packaging and labelling goes to market. The safety-related aspect is known only after product is sold off to consumers and put to use. In ‘product recall’ products sold to customers or available with dealers are called back to the factory in emergency situation. The reasons may be as follows:

• Product not giving the guaranteed performance.
• Quality complaints from many customers.
• Defective product causing harm to human life.
• Products beyond expiry date.
• Products with defective design.
• Incomplete product.
• Violation of government regulations.
• Ethical consideration.
• Save the company's image.

This type of situation may arise due to the reasons of production short cuts, bypassing stage inspections, employee negligence, human error or negligence by management. The product recall in such situation puts huge financial burden on the company. For handling such emergencies, no organization design in advance and keep in reserve reverse product flow system in anticipation of such eventualities. However, to handle such emergencies many firms have shown great deal of organizing ability to mobilize company's resource to achieve the time-bound objective.

A leading Indian auto manufacturer, after launching multi-utility vehicle, in the Indian markets in the 1980s, received large-scale complaints from customers due to defective gearbox design. All the vehicles dispatched to the customers were called back within a short time span deploying their dealer's network and company's sales force, for refitting the gearbox with improved design. In the mean time, the redesigning programme of gearbox was competed on a war footing.

Johnson & Johnson Health Care, a U.S.-based multinational company introduced milk powder in South African markets, as substitute for breast-fed milk for newborn babies. However, due to large scale deaths of the babies by consumption of the powered milk, Johnson called back the entire unsold powered milk stocks in the market under a time-bound programme and gave away compensation to the victims on the ethical grounds. The cause of the death was contaminated milk prepared under unhygienic conditions and not the milk powder. The company failed to educate the mothers on a hygienic process for milk preparation during the sales campaign.

The scope and effectiveness of the recall process is dependent on the type of the product, its distribution network, consumption pattern and unit value. The industrial products of high unit values, which are directly dispatched to the customers and the number of customers are limited, the recall process is very effective. The customer being knowledgeable fully extends his co-operation in the process. However, in case of mass consumed products distributed through multi-level channels structure, identifying the product location becomes a problem. It is easier to trace the product location within the boundaries of the channel network. Once the product is sold and handed over to the user, the degree of effectiveness of product recall process reduces drastically because of the following reasons:

• Lack of customer database
• No motivation on the part of customer to return the product
• Product not meant for critical use

For service-based products like consumer durables which are accompanied with warranty cards the product can be located, provided the documentation is maintained at the point of sale. This makes the recall process easy.

In the wake of the stiff competition and growing consumerism, many manufacturers have built up a system for product recall as value-added service to build competitiveness. The recall of defective products during warranty period is now the most common feature of the customer service offers. In fact, it is a cost burden on the part of the manufacturers. However, many companies are considering product recall as an opportunity in increasing customer satisfaction and asset recovery operation. Nestle India, for example, gets back the ‘Yoghurt’ every day from their distributors after its expiry of 24 hours shelf life. Similarly, Monginis, a Mumbai-based leading confectionary producer, collects the cakes for their distributors after its shelf life is over. The van delivering the fresh products to the distributors collects by default the products, which are not sold, once their shelf life is over.

Recycling and Waste Disposal

The left out materials, used products, and wrapper wastes cause environmental pollution and create problems for disposal. Hence in developed countries, the governments are devising regulations to make manufacturers responsible for minimizing the waste by way of recycling the products. The Germany is the first country in the world to implement such regulations. Legally, the manufacturer is responsible for taking back pallets, cardboard boxes, wrappers, strapping, etc., which are used for protecting the products during transit. They have implemented three stage packaging ordinance. In the first stage, the wrappers or packaging wastes are collected from households by the retailers. In the second stage, retailers send it to manufactures, which in the third stage is sent to packaging manufacturers for recycling or disposal. The levy for recycling is indicated on the product by green dots. In Germany, the FMCG manufacturers have jointly promoted DSD (Dealers System Deutschland) with common funding for collection of packaging waste of FMCG products. They have reduced cost of retrieving and recycling the packing waste through economies of scale by joining hands together. In the United States there exists a law to take back from the customer car batteries, soda bottles, etc.

In Europe, BMW, a leading auto manufacturer, is the first company, which has effectively developed a car recycling supply chain system. The car is mostly an assembly of components made out of metal, which can be easily recycled. For product refurbishing, SONY, a consumer electronic giant operating in the United States, uses its regular dealers network for reverse flow of video or audio systems returned by the customers within warranty period.

In India, the supreme court is in the process of imposing a ban on charging and discharging of automotive batteries on the grounds of pollution, and the union government is coming out with a new legislation making it mandatory to return used batteries to manufacturers for recycling and disposal.

Remanufacturing

The manufacturers in developed countries are putting into practice a new concept of ‘remanufacturing’ emerged in the late 1990s. According to them, during usage the product undergoes wear and tear. The worn parts are replaced with the new ones and the performance of the product is upgraded to the level of a new one. This is practised more in defence establishments, wherein the fighter planes after each flight are checked and their performance level is every time brought to the level of a new one without any compromise on the quality front. Similarly, the equipments sold in the markets, after use can be checked to qualify for remanufacturing process and brought to the remanufacturing unit. A leading cell phone giant in Europe has outsourced the remanufacturing activities to a few vendors in Europe and developed a separate network of reverse flow of the used or discarded products which have been used by the customer for a short period and discarded due to switching over to the latest models. They have identified a huge market for remanufactured products in developing countries. The investment in remanufacturing and related reverse logistics supply chain can be justified on economies of scale. Critics say that the remanufacturing will solve the problem of waste disposal in developed countries but create new dumping grounds in the developing countries.

The different activities in reverse supply chain process include collection, inspection and testing, sorting, reconditioning, disposal and redistribution. All these activities are required to be integrated to create value. And finally, the value needs to be delivered to the customers through the reverse supply chain network. Many good companies integrate the reverse supply chain network with its forward supply chain on costs consideration and assets utilization.

In a nutshell, the scope for reverse supply chain is immense and it can play an important role in publication houses, beverage industries, FMCG industry, pharmaceutical industry, automobile industry, petroleum industry, etc.

REVERSE SUPPLY CHAIN DESIGN

Irrespective of whether it is forward or reverse supply chain, the network design is of prime importance. In the reverse flow of material, the location of channel members, warehouses, company's manufacturing plant and their capacity to handle the reverse flow are the important determinants in its design. Many good companies handle the reverse flow of the material through their forward supply chain. The forward supply chain is designed in such a way to take up the reverse flow of the material. The structure of reverse supply chain can be divided into two segments. The first one is the convergent network wherein the companies collect the returned material at some convenient place or location and transfer the accumulated material to reworking/recovery facility. The other one is divergent network, wherein there is linkage with the customers to collect the reusable material. It is integrated with forward supply chain of the company. The strategic points in designing the reverse supply chain are as follows.

Collection of Returned/Used Products

The major cost component of reverse supply chain operations is product collection. In FMCG industry, the collection of defective material after it leaves the channel network becomes difficult. Locating the end user is difficult due lack of record/information. However, in case of high-value products, channel members have records to trace the end user and product which are under warranty claims. In reverse supply chain, retailers and distributors are deployed for collection of returns.

Testing/Grading Process

In this stage, only the products can be assigned for recovery opinion. Hence, the location of testing or grading operation is important as it decides the flow of goods. The cost of transportation may be significant as a percentage of value of the used product. In many cases, the testing and grading of recovered product is done at some central location as specialized and expensive testing equipments and skilled hand are required for this operation. In many cases, the geographically decentralized testing facility is used to avoid transportation cost for unwanted useless returns.

Reprocessing

This facility requires capital investments. The specialized equipments are required for recycling or product recovery. The facility can work profitably only on economies of scale. The recovery facility should be integrated with regular manufacturing line of the new products to share labour and equipments.

Redistribution

The redistribution of reworked products can be done by integrating with the forward supply chain. Here, consolidation and responsiveness in transportation are required to achieve efficiencies. Redistribution can also be done along with new products.

Reverse SC is also put in practice for recovering value from products. Recovery is actually only one of the activities of reverse SC. Other processes include collection, inspection/testing selection and sorting. Collection refers to bringing the products from the customer to a point of recovery. At this point, the products are inspected, that is, their quality is assessed and a decision is made on the type of recovery. Products can then be sorted and routed according to the recovery decision. Thus, we have the following:

• Collection
• Inspection/testing
• Selection
• Sorting
• Recovery

The product exchange offers in marketing for consumer durables are examples of value recovery (Figure 18.2) or value proposition of used products in secondary markets.

 

 

To run reverse supply chain process essentially, the following players are the most crucial:

• Forward supply chain actors, (supplier, manufacturer, wholesaler, retailer and sector organizations)
• Specialized reverse chain players (such as jobbers, recycling specialists, dedicated sector organizations or foundations, pool operators, kabadiwala, scrap dealers, etc.)
• Governmental institutions (national and state governments)
• Opportunistic players

These players will have to play roles to manage, execute and accommodate.

The companies which are working with customers for product replacements shows their concerns for customers, exhibit efficiencies and reduce cost by avoiding product obsolescence. In effect, it helps in release of tide up capital and unproductive occupied storage space. Many companies are using reverse logistics as differentiator to gain competitive advantage. Key drivers to design and implement cost-effective reverse supply chain are:

• Customer satisfaction and retention
• Reuse (beer bottles/gas cylinders)
• Recycle (paper packaging)
• Defective goods returns (within warranty period)
• Mass recalls (defective products)
• Products beyond expiry/usage dates
• Asset recovery/restock
• Excess inventory with channel partners

In conclusion, traditionally almost all manufacturing firms focus their attention on ‘forward’ logistics activities. During the last few years, changes in environmental laws, increased consumerism and stiff competition in markets have raised the requirement for effective reverse logistics to be used as a competitive weapon. For many years, soft drink manufacturers practised reverse logistics in glass bottle refilling. The cost advantage in reverse logistics is possible through economies of scale. Today, many big corporations, across the world have developed either reverse logistics systems or integrated the same into their forward logistics systems. The system design takes into consideration factors like the product locating system, product collection mechanism, documentation, product recycling/disposal centres, cist implication and legal aspects. In developed countries like Germany and the United States, stringent environmental regulations have prompted corporations to develop three-tier product waste recycling/disposal through reverse logistics.

When it comes to completing the end-to-end processing, companies should do two things: take a full view and understand the total cost of the supply chain, which includes having and dealing with returns and realize the opportunity that an analysis of the return part of the system offers in terms of finding and solving problems, better satisfying customers and consumers, and discovering a way to increase revenues.

SUBSYSTEMS IN REVERSE SUPPLY CHAIN

The success of the reserve logistics system to achieve desired objectives shall be depending on the efficiency and effectiveness of the following subsystem.

Product Location

The first step in the call back process is to identify the product location in the physical distribution system of the firm. The product may be lying in company's mother warehouse, distribution warehouse, dealer's godown, retailer or with the customer. Locating the product becomes easier and quick if it is within company's warehouse, depot, or distributor where tracking can be easily done. But once it enters retail network, particularly the FMCG or mass consumed low-unit priced products, the task becomes difficult because of large number of retailers, wider geographical spread and lack of proper documentation.

Locating the product becomes more difficult after it is sold and handed over to the customer. The product location is bit easier in case of industrial or high value product due to limited number of customers and personal touch with the clients due to direct selling.

Product Collection System

Once the product location is identified, the collection mechanism gets into operations. This can be either done through company's field force, channel members or third party. However, proper guidelines or instructions have to be given to motivate the customer for returning the products. The customer is the biggest hurdle in retrieval of products as he does not want to part with something which he owns. The collection centres are to be located conveniently so as to ensure wider coverage and minimum collection cost. The company's intermediaries are the most effective centres in product call back as far as the cost and the coverage are concerned. With the right training, they carry out the preliminary inspection of the called backed/returned products before inducting the same into the system for further processing.

Product Repairs/Recycling/Disposal Centres

These may be company's manufacturing plant or the mother warehouse where from the finished products were dispatched to the market or some fixed location in reverse logistics network. The called back products are inspected before they are further processed for repair, refurbishing, re-manufacturing or waste disposal. The investments in facilities for these activities depend on the objectives of the system, cost implication, complexity of the operations, and the expected gains.

Documentation System

The tracing of the product location become easier, if proper documentation is maintained at each channel level. However, at the time of handling over the product to the customer, the information on name of the user, address, contact phone numbers, application, and other personal data if collected through proper documentation, can form a good database which can be used in case of product call backs. The product warranty card with product and customer detailed duly filled at the point of sale is quite common for the service-based products such as consumer durables or industrial products. But in most of the cases, the warranty cards are handed over to the customer to show it as proof of purchase, at the time of claims during warranty period. Except for high value industrial products, no records are kept with retailers for consumer durables or mass-consumed products. The documentation system in reverse logistics ensures maintaining of customer-product database at the point of sale. To ensure smooth running of the system, a procedure is to be introduced for entry, exit and flow of the called back products in the system for tracking and tracing.

Cost Implications

The reverse logistics system is a cost centre. However, these costs are incurred for achieving certain company objectives and can be broadly subdivided into the following activity heads:

• Product location (by company staff, channels member or third party)
• Transportation

  – Product collection (Customers > retailers > plant)

  – Disposal (plant > suppliers > disposal)

• Refilling, repairs, refurbishing, remanufacturing and waste generation
• Documentation (for product tracking and tracing during entry, exit and flow in the system)
• Communication

Due to cost implication, the manufacturers invariably integrate the reverse logistics into their forward logistics system with little modifications. The same network components are geared up to accommodate the reverse flow of the products with same efficiency and effectiveness. The investment and operating costs involved in tuning the existing ‘forward’ flow system to ‘reverse’ flow shall be less than a separate stand alone system devoted only for reverse flow unless it is designed on scale of economies.

Legal Issues

Under Indian regulations, the excise paid goods once sold by the manufacturer cannot be brought back to the plant without proper documentation and declaration to the excise authority. This is a very cumbersome and time-consuming process and non-compliance may put manufacturer in a legal trap. For resale of repaired or refurbished goods both the excise and sales tax authorities are involved and clearing of such goods require documentations, certifications and declarations. Hence, such activities are normally carried out at service centres or at dealer's premise.

In reverse logistics the critical strategic points in design of network are: acquisition/collection of returned/used products, testing and grading operations, reprocessing, and redistribution/disposal. For reverse logistics to be successful the collaboration of supply chain is very important. Technologies like bar coding or RFID helps in making reverse logistics more effective and responsive

REVERSE SUPPLY CHAIN CHALLENGES

To design and deploy reverse supply chain is a complex task. The reverse supply chain may be a standalone system or may be integrated to the forward supply chain operations. However, the management has to face the following challenges in running the reverse supply chain.

Channel Member—Manufacturer Conflict

In case of FMCG or consumer durable products which are sold through the retailers or dealers, there is a difference in objectives of manufacturers and channel members. Many times there is a disagreement on timeliness of claims, condition of item and its importance to customers. The lack of proper inspection system to accept returns may aggravate the situation. The products damaged during transit sometimes cause disputes due to conflict of interest of two parties. However, at the end the customer suffers. Therefore, a proper return policy in place may avoid such conflicts arising out of interests.

Responsiveness

Many companies in the past have shown lack of interest in handling returns. According to them, large investments in product returns handling system is not justified. However, of late due to competitiveness in market, pressure from environmental agencies, returns legislation and strong consumerism have started thinking about reverse supply chain system. Inspite of all the company executives usually disagree with reverse supply chain issue resulting into lack of responsiveness. In many case they are reactive (late) than proactive.

Information System

The information system in the organization is designed to handle forward flow of the inventory. However, for returns handling the information is not designed to data collection and reporting. As a rule, those firms that manage their information well manage their supply chain well. This applies to reverse supply chain too.

Problems Related to Returns

Dr. Richard Dave of the Fritz institute of international logistics identified the following six symptoms of problems in returns:

• Returns arriving faster than processing or disposal.
• Large amount of returns inventory held in the warehouse.
• Unidentified and unauthorized returns.
• Lengthy returns processing cycle.
• Unknown total cost of returns processing.
• Customers have lost confidence in suppliers repair activities.

TRENDS IN MANAGING REVERSE SUPPLY CHAIN

Looking into the environmental factors such as consumerism, pro-consumer legislation, eco-balance pressure there is considerable attention on reverse supply chain designs and implementation and to use it as a tool for competitive advantage to create switching barriers to the consumers. Some of the trends observed are as follows.

Reverse Supply Chain Need Recognition

Many firms have become aware of the importance of reverse supply chain. However, they are yet to realize its importance as a strategic tool for customer satisfaction leading to sustainability. The firms need to focus on the following aspects in reverse supply chain:

• Returns policy formulation
• Standardization of process
• Returns categorization
• Documentation
• Quick response
• Data management
• Assigning responsibilities

Product Life Cycle Management

In future, companies should manage products from cradle-to-grave. This means the company has to support and manage products throughout its life cycle. This requires companies to provide proper logistics and marketing support base during the life cycle of the product. The basis of product life cycle is that all the products have a finite life and they move through various stages such as introduction, growth, maturity and decline.

As the product travels through its life cycle, the inventory-and returns-related issues change. The company needs to design its reverse supply chain to address the related issues during the life cycle of the product.

Data Collection and Information System

Most reverse chain systems are paper intensive, resulting in delay in information flow and further slowing the responsiveness. The system on IT platform will make a difference. Many leading companies are making use of bar coding or RFID technology in supply chain operation for system automation and speedier information flow and its analysis. The use of bar code or RFID will make the reverse supply chain system more effective and efficient. Another important technology, that is, EDI (electronic data interchange) which is used in supply chain operations for document transfer may also help in reverse supply chain for similar application. Improved data collection system will always help the decision-makers to act proactively and positively. The product tracking and tracing technology on IT platform will improve the competitiveness of the reverse supply chain system.

Web-based System

To accept the returns from customers, details such as product manufacturing and date of sale are required at the time of complaints or while registering returns. A web-based system will help to know the product history and other details to decide whether to accept the returns or not depending on the complaints, expiry date or warranty period. With the web-based information system, the middlemen also can take decisions and further know the batch numbers and manufacturing dates of the returns.

Third Party Engagement

Many companies earlier had the returns handling activities at a centralized location or centres. People were made responsible and assigned to do both forward and reverse supply chain jobs. Over the years, the companies have realized that under dual responsibilities the employees were not giving justice to returns management. However, the major trend in supply chain today is to engage a third party or an expert to perform your non-core activity. Many companies are assigning returns handling jobs to logistics service providers, who can perform it efficiently and cost effectively for the company.

REVIEW QUESTIONS

1. Discuss the role of ‘reverse supply chain’ in a company's competitiveness in today's business environment and the barriers in its implementations.
2. ‘Reverse supply chain competency is a result of concern to environment across the globe’. Explain.
3. How is ‘reverse supply chain’ used as a tool for competitive advantage?
4. Discuss the various design considerations for reverse supply chain system.
5. ‘Reverse supply chain’ is essential for implementing ‘green marketing’ concept. Discuss.
6. Explain how the manufacturer benefits from a reverse supply chain system.

INTERNET EXERCISES

1. With the growing economy, the increasing amount of disposed e-goods can induce environmental issues if they are not properly managed at product end of life. Investigate scope and design of reverse supply chain system for e-waste. For more information on e-waste in India visit http://india.ewasteguide.info
2. The Reverse Logistics Executive Council is a not-for-profit professional organization whose purpose is to develop best practice industry standards that take costs out of the system for consumers, retailers and manufacturers; provide on-going benchmark studies; return causal information in order to improve the entire reverse logistics process. Log on to http://www.rlec.org/index.html for more information on initiatives and practices in reverse supply chain in various industries
3. For live cases on reserve supply chain log on to http://thirdeyesight.in/articles.htm
4. Visit http://www.supplychain-forum.com/index.cfm to study latest developments in managing the reverse supply chain.

VIDEO LINKS

1. Reverse supply chain philips case http://www.youtube.com/watch?v=×fdgk_CyPYI
2. E-waste recycling—A simple step for a better future http://www.youtube.com/watch?v=Lh5Vft8Q0FY&feature=related
3. A reverse logistics story http://www.youtube.com/watch?v=h7tHKwYEZIk&feature=related

PROJECT ASSIGNMENT

1. Leading automobile companies in general recall from the market the entire batch of vehicles with defective designs or sub optimal performance. Select any such firm and study their entire reverse supply chain, its management, cost implications and time bound schedules.