NMIMS

Rise of
Reverse
Logistics
Going Backwards

NMIMS – MBA – 2nd Year

Shashank Yagnick, 9004073881

Tushar Jain, 9768836017

Introduction Merchandise might find its way back to the
manufacturer due to damage in transit,
Ever wondered what happened to the faulty restock, recalls or excess inventory. Another
keyboard of your laptop which you got set of reasons can be for hazardous material
replaced just few days back? Or for that extraction and recycling or environmental
matter, what was the future of the pair of friendly disposition. Many a times, value can
shoes which you had to return in exchange still be captured from the returned parts by
because the sole couldn't withstand the rough remanufacturing, refurbishing or repairing.
weather? Thus the returned “waste” part can actually
Well most of us, the consumers, are least help the company earn some additional
bothered about these so-called "discarded" revenue, which otherwise could have been
things. But is it the same for the companies as foregone by dumping the goods in a landfill. A
well? Are they focusing only on the activity of well managed Reverse Logistics can ensure
producing new goods, and ensuring that these important cost savings in transportation,
goods flow from their point of origin to their procurement, inventory holding and disposal.
point of consumption, while ignoring those
“waste” units that don’t find an end Some of the activities which can be performed
customer? as the goods find their ways back to the chain
are as follows:-
Well, not any further. The trends are clearly Return to RetailerResellReturn to
changing, and this brings us to our topic of SupplierResell Return to Manufacturer
discussion -the reverse logistics. But before SalvageReconditionRefurbishRemanuf
that, let’s see what all activities form the part actureReclaim MaterialsRecycleLandfill
of logistics.

Logistics is defined by The Council of Logistics Thus the returned product can be sold and if
Management as not, can be reconditioned or refurbished.
Even if this isn’t possible, certain materials
“The process of planning, implementing, and can be reclaimed and the goods can be
controlling the efficient, cost effective flow of dispossed off.
raw materials, in-process inventory, finished But from logistics perspective, the larger issue
goods and related information from the point common to all the above mentioned activities
of origin to the point of consumption for the is that how the firms should efficiently and
purpose of conforming to customer effectively move the products from where
requirements.” they are not required to where they can be
processed, reused or salvaged.
Reverse Logistics include all the activities that
are mentioned in the above definition, with Rise of Reverse Logistics
an exception that these activities now happen
Since few years back, reverse logistics was
in reverse. Whereas logistics ensure that
frowned upon as a "necesaary evil".
goods/information flow towards the point of
Companies were more focussed towards
consumption, reverse logistics is concentrated
pushing the goods to meet demand, while
towards the movement of goods from their
leaving returns and exchanges to the
final destination to their place of origin, for
intermediaries at store and warehouse level.
capturing value or for proper disposal.
But as the margins for manufacturers and efficiency. However, the problem is that not
retailers start becoming razor thin, they have all return situations are the same. The process
begun to appreciate the costs associated with needs to be unique for each return based on
reverse logistics, and hence a need to the product, the demand for it, or its
streamline the system and reduce the condition. Having all returned goods
expenses. A number of touchpoints appear in automatically sent back to a single
a reverse logistic setup, and improper clearinghouse might make sense
handling by companies of these tocuhpoints operationally, but it would make more sense,
can negatively impact profitability, customer to triage a returned good in the field, say, at
satisfaction and brand image. As a result, the store level, to determine whether it is
more and more companies are devising even repairable before going through the
sophisticated and efficient return approaches. trouble of shipping it back to the
clearinghouse.
In an Indian context, reverse logistics has the
potential to become a key route to cost One of the major challenges that come up in
optimization as the economy grows. It is a implementing Reverse Logistics processes is
sunrise industry within logistics, and is still in the Retailer – Manufacturer Conflict.
an evolution phase. The business
opportunities are high, but so are the Retailer – Manufacturer Conflict
execution risks, some of which are discussed
in the next columns. One difficulty that arises in managing returns
is the difference in objectives of the retailer
and the manufacturer. Whenever such
Challenges of Reverse Logistics incident occurs where the retailer wants to
Managing the flow of goods through the return an item to the manufacturer, there
forward-facing supply chain is difficult, but could be differences on any one of the
keeping the reverse supply chain running following points:
smoothly presents a number of challenges.
The reverse supply chain is frequently much · Condition of the item
more labour-intensive than the forward · Value of the item
supply chain. During forward logistics, the · Timeliness of response
cost of different activities involved is spread
across the entire volume of products. Retailer affirms that every product was sent
However, during reverse logistics, the same back in pristine state, and the damages, if any,
sets of activities are carried out and the costs must have occurred in transit or must be due
of activities are spread over very few products to some manufacturing defects. The
that have to be returned. manufacturer may suspect the retailer of
abusing return privileges because of poor
Reverse logistics processes must often be planning on his part, or of returning product
customized around each product coming back damaged by the retailer himself. Once this
into the supply chain rather than having a matter is resolved and the condition of the
standard process for all products. Historically, item is agreed upon, the value that the
in operations activities, companies have retailer should receive must be determined.
focused on creating standardization and The retailer may claim full credit, and the
routine so that people can do the same thing manufacturer may disagree on the claim and
over and over again and attain maximum
may have his reasons for not giving full credit. laws is required which might vary from one
These issues can be difficult to sort out. state to another in India.
After the refund has been decided, it does not
Mitigating challenges
reach the retailer quickly enough to sort out
matters. Ultimately, both the parties need to Currently, there seems to be some major
realize that they have to develop a working hurdles in the implementation of reverse
partnership to derive mutual benefit. logistics. As a result, many companies have
Obviously, neither can live without the other; elected to either implement new solutions to
they need to work together to reduce the better manage their reverse logistics process
number of returns coming back and speed up or, alternatively, to outsource their reverse
the processing of those that do come back. logistics operations to service providers to
Inefficiencies that lengthen the time for take advantage of economies of scale and
processing returns cause harm to both firms. specialized expertise in planning reverse
logistics operations. 
Some of the other key challenges are:
Regardless of the approach that a company
Meeting Customer’s Expectations takes in addressing its reverse logistics
challenge, a key goal of these initiatives is to
Meeting customer demands with effective improve visibility into the goods in motion
and efficient use of resources including throughout the reverse supply chain. That's
distribution capacity, inventory and labour. where the data come in, and that's why
information technology is playing such a
Managing Expenses
critical role in the growth of reverse logistics.
There is a substantially high investment to set It is critical for the customers — and for the
up a Reverse Logistics centre. Costs hike up by customers' customers — to be able to track
7-8% of material cost. The entire operation is the status of products in the reverse logistics
labour intensive as well. supply chain so that they can fulfil their own
service obligations.
Disposition of Products
Business Practices
This presents an uphill task to find a suitable
place/resource to handle, destroy or to Future Group – It started its reverse logistics
donate the product. in house two-years ago for its fashion and
furniture businesses. The company has
Infrastructure developed an expertise in this area and offers
to extend it to other retailers. The company
Lack of basic infrastructural facility for new
claims that average spending on reverse
business set up. Major hurdles are roads,
logistics comes to about 10-15% for garment
power and efficient telecommunication, IT
firms and 20% for furniture companies. But
infrastructure in smaller towns and villages.
since company owns its own warehouses and
Complicated Rules and Regulations other facilities, it plans to offer the service of
reverse logistics to other retailers as well
There are certain mandatory knowledge of whose products the retail giant is selling.
waste management laws, regulations and
processes. Proper understanding of taxation Cummins India Ltd – One of the major
manufacturers of engines in India, has
recently started with a RECON References
(reconditioning) business. The company
1) Rogers,D.,1998, "Going Backwards: Reverse
through its existing dealer and service Logistics Trends and Practices”, Accessed
network procures the used engine/generator through [Link]
and brings it back to the manufacturing
2) Shradha,N., 2009, "Reverse logistics gaining
facility. The engine is dismantled; all the parts ground in Indian Market", Accessed
are taken out and inspected. After re- through [Link]
machining/reconditioning of the parts, an [Link]

altogether new engine is created which is sold 3) Editorial, Bloomberg Business week, 2008,
as a second hand Cummins product with a "Reverse Logistics: From Trash to Cash", Accessed
company warranty, and at a lower cost as through [Link]
ntent/08_31/[Link]
compared to a new engine. Thus, the parts
which would have otherwise found their way 4) "Product Lifecycle", 2010,  Accessed
to a scrap dealer are now being used by the from [Link]
company to generate revenue.

Conclusion
Reverse logistics should be looked forward to
as separate domain rather than an area of
supply chain, so that it can be turned into an
area of opportunity, as opposed to a
necessary evil. Companies should try to create
competencies in this field so as to better
satisfy the customers and obtain market
advantage. Product returns are a fact of life
for manufacturers, retailers and logistic
service providers; the way forward is to turn
this area of cost into a profit centre. In total,
for various reasons - customer, costs,
revenue- reverse logistics will play an
increasingly important role in the future
strategies of the companies.