Volume - II & Issue No. 4 Oct.

- 2009
t.,

INDUSTRIAL ENGINEERING JOURNAL

Importance Of Reverse Logistics In Supply Chain Management

Dr B. E. Narkhede Anup Chaple Abstract Product flows in today's supply chains do not end once they have reached the customer. Many products lead a second and even third or fourth life after having accomplished their original task at their first customer. Consequently, a product may generate revenues multiple times, rather than a single time. Capturing this value requires a broadening of the supply chain perspective to include new processes, known as 'reverse logistics', as well as multiple interrelated usage cycles, linked by specific market interfaces. Coordinating the successive product uses is the key to maximizing the value generated. Profit making is not the only motivation for reverse logistics, legislation also imposing companies to be responsible for the contamination made by their products. Moreover this companies are learning to maintain green image, use information comes back with reverse flow for customer satisfaction. Keywords: Reverse Logistics, Supply Chain Management, Forward Logistics, 3PL, B2B, B2C. INTRODUCTION monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. 2. Source Choosing the suppliers that will deliver the goods and services which we need to create our product. 0. Make This is the manufacturing step. Scheduling the activities necessary for production, testing, packaging and preparation for delivery.

1. Deliver This is the part that many insiders refer to as logistics. Coordinating the receipt of orders from customers, developing a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. ion, to maintain green image and because it is imposed by legislation. Rogers and Tibben?Lembke (1998) estimated t 2. Return The problem part of the supply chain generally referred as Reverse Logistics. Creating a network for ndling customer receiving and recycling of packaging andfrom customers and supporting customers who have problems with can be returns defective and excess products back discarded products [4]. The supply chain management delivered products. Figure 1 representing the return flow clearly.
Order Fulfillment Customers

"a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time in order to minimize system wide costs while maintaining the desired service levels". SCM have five basic components: 1. Plan This is the strategic portion of SCM. We need a strategy for managing all the resources that go towards

meeting customer demand for our product or service. A big piece of planning is developing a set of metrics to
Information (customer requirements, orders) Recyde Reuse ' Remanufacture

Flow of

Fig. - 1 : A schematic of a Supply Chain [4] Typical Supply Chain Management have two types of flow of material, one from supplier to customer (Forward Logistics) and another is from customer to manufacturer (Reverse
Suppliers - I I . Manufacturers - 1 0 Distributors - 1 1 . Retailers

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Logistics). Material purchase, manufacturing, distribution to customers follows aftermarket customer services which includes customer service, depot repair, service logistics, replacement management, end-of-life manufacturing, recycling, refurbishment, etc [8]. ROLE OF LOGISTICS IN SUPPLY CHAIN The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible. So logistics can be defined as "Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services & people. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging." Forward logistics and Reverse logistics can be differentiated on the basis of direction of flow. Forward logistics can be defined as : [2] "Forward 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 origin to the point of consumption for the purpose of conforming to customer requirements". Reverse logistics includes all of the activities that are mentioned in the definition above. The difference is that reverse logistics encompasses all of these activities as they operate in reverse. Therefore, reverse logistics defined by Rogers and Tibben-Lembke (1999) as: [2] "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." Every time it is not necessary material to come back at point ...23... of origin, in reverse logistics material tends to come at very different points such as point of recovery or point of disposal. So the European Working Group on Reverse Logistics, RevLog, puts forward the following definition Dekker et al., (2003): "The process of planning, implementing and controlling flows of raw materials, in process inventory, and finished goods, from a manufacturing, distribution or use point, to a point of recovery or point of proper disposal." [2]

DRIVERS OF REVERSE LOGISTICS The driving forces behind reverse logistics can be categorized as economics, legislation and corporate citizenship. [5] Economics: A reverse logistics program can bring direct gains to companies from dwindling on the use of raw materials, from adding value with recovery, or from reducing disposal costs. Independents have also gone into the area because of the financial opportunities offered in the dispersed market if superfluous or discarded goods and materials. The indirect benefits include market protection, green image of company and improved customer/supplier relations. Legislation: Legislation refers to any jurisdiction indicating that a company should recover its products or accept them back. e.g. In European countries there has been an increase of environmentally related legislation, like on recycling quotas, packaging regulation and manufacturing take-back responsibility. Corporate citizenship: Corporate citizenship concerns a set of values or principles that impel a company or an organization to become responsibly engaged with reverse logistics. TYPE OF RETURNED PRODUCTS Generally, products are returned or discarded because either they do not function (anymore) properly or because they or their function are no longer needed. We can list them according to the usual supply chain hierarchy: starting with manufacturing, going to distribution until the products reach the customer. Therefore, we differentiate between manufacturing returns, distribution returns and customer returns. Figure 2 shows types of returns and reasons for returns. Manufacturing returns: We define manufacturing returns as all those cases where components or products have to be recovered in the production phase. This occurs for a variety of reasons. Raw materials may be left over; intermediate or final products may fail quality checks and have to be reworked and products may be left over during production, or byproducts may result from production. Distribution returns: Distribution returns refers to all those returns that are initiated during the distribution phase. It refers to product recalls, B2B commercial returns, stock adjustments and functional returns. Stock adjustments take place when an actor in the chain re-distributes stocks, for instance

Distribution

Customers

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between warehouses or shops, e.g. in case of seasonal products. Functional returns concern all the products which inherent function makes them going back and forward in the chain. An obvious example is the one of distribution carriers as pallets: their function is to carry other products and they can serve this purpose several times. Other examples are crates, containers and packaging. Customer Returns: The third group consists of customer returns, i.e. those returns initiated once the product has at least reached the final customer.
Raw Material Manufacturing Returns Raw material surplus Quality-conlrol returns Production leftoversby-products Manufacturing Distribution Returns Product recalls B2B commercial returns Stock adjustments Functional returns Customer Returns B2C commercial returns Warranty returns Service returns End-of-use returns End-of-His returns

4) Consumer goods industries: To fulfill the commitments of after sale service and buy back guarantee. 5) Pharmaceutical industries: To collect the expired formulations and drugs for environment friendly disposal. 6) Automobile industries: To fulfill the commitments of after sale service and buy back guarantee. 7) Computer industries: To fulfill the commitments of after sale service & replacement warranty. 8) Chemical industries: To recycle & reuse chemicals and proper disposal of waste. Return rates of products in some of the merchandise category in table 1. [11] are shown category Return Rates By Merchandise Category Business products Hard-goods gifts Home decoration Products High-tech products Casual apparel Shoes Fitted apparel High-fashion apparel <1% to 5 % 5% to 9% 5% to 10% 5% to 20% 10% to 20% 10% to 30% 20% to 30% 25% to 40%

Fig. - 2 : Type of returned products IMPORTANCE OF REVERSE LOGISTICS Next step to returns collected, companies can re-use them, re-sell them, leave them to a third party or destroy them. Moreover to benefit by these returns, companies can take advantage of information that comes back with return merchandise. Reverse logistics is important for: 1) Assets utilization ...24... 2) Assets recovery: To capture the value, which otherwise will be lost 3) Profit maximization: Cost reduction through recycling & reusing 4) To fulfill the Environmental obligations e.g.: Waste recycling, Hazardous waste management 5) Customer Relations Management, e.g. after sales service, buy back guarantee APPLICATION AREAS The list of industries where reverse logistic plays an important role: 1) Publication houses: To take back the unsold volumes for reuse. 2) Beverage industries: To collect & reuse the empty bottles e.g. Coca-Cola & Pepsi 3) Heavy industries: To collect and reuse the waste e.g. steel industries Table - 1: Return rates in different merchandise

ACTIVITIES INVOLVED IN REVERSE LOGISTICS Usually reverse logistics activities would be the processes a company uses to collect used, or damaged, stock balancing returns, or outdated products, as well as packaging and shipping materials from the end-user or the reseller. Once a product has been returned to a company, they have many options to choose. If the product can be returned to the supplier for a full refund, the firm may choose this option first. If the product has not been used, it may be resold to a different customer, or it may be sold through an outlet store. If the product cannot be sold "as is," or if the firm can significantly increase the selling price by reconditioning, refurbishing or remanufacturing the product, the firm may perform these activities before selling the product. If the firm does not perform these activities in-house, a third party firm (3PL) may be contracted, or the product can be sold outright

Ar

\ par Repair

....
Test

Disassembly Service Disassembly

Remanufacturing

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Disposal

to a reconditioning / remanufacturing /refurbishing firm. After performing these activities, the product may be sold as a reconditioned or remanufactured product, but not as new. If the product cannot be reconditioned in any way, because of its poor condition, legal implications, or environmental restrictions, the firm will try to dispose of the product for the least cost. Any valuable materials that can be reclaimed will be reclaimed, and any other recyclable materials will be removed before the remainder is finally sent to a landfill. Generally, packaging materials returned to a firm will be reused. Clearly, reusable totes and pallets will be used many times before disposal. Often, damaged totes and pallets can be refurbished and returned to use. This work may be done in-house, or using companies whose sole mission is to fix broken pallets and refurbish packaging. Once repairs can no longer be made, the reusable transport packaging must be disposed of. However, before it is sent to a landfill, all salvageable materials will be reclaimed. There are four main reverse logistic activities (See Fig. 3): a. Collection: Bringing the products from the customer to a point of recovery. b. Combined inspection / selection / sorting: Sorting of collected products according to their quality state & recovery route. 0. Re-processing or Direct recovery: When products need additional processing, option of reprocessing is used. Repair, refurbishing, remanufacturing, recycling, cannibalization & incineration are some of the reprocessing options used widely. In contrary, when condition of product is good direct
Non-used products, packaging or waste

Fig. -3 : Basic flow diagram of reverse logistics activities [7] recovery may be used. It includes Re-use (valuable components) and Re-sale (supply chain returns can be sold at a discount rate or at a secondary market). d. Redistribution: Bringing back the recovered products to the new users or to the same customer. Forward logistics is used for this purpose as per possible. TRANSPORTATION AND FACILITY LOCATION DECISIONS Transportation decisions associated with moving secondhand and recyclable materials can be difficult. The cost of transporting secondhand and recyclable materials can quickly exceed their value, eliminating any financial advantage the program might offer. If the total cost associated with recycling or reuse efforts exceeds the total cost of purchasing new materials, firms have no profit motive for implementing a reverse logistics system. Therefore, transportation decisions become crucial to recycling or reuse programs. [1] Cost usually drives the transportation decision for RL. Little attention is paid to the service level provided by the transportation mode chosen or specific carrier used. Contrary to the transportation decision criteria, the secondary market seldom justifies expensive transportation. Extreme pressure to minimize costs affects to only transportation mode choice but also facility location. Location analysis considers the potential impact transportation costs can have on the resale value of recycled products. Often, locations are chosen specifically to minimize future transportation outlays. [1] CONCLUSION From the theory of reverse logistics explained above, it can be concluded that the importance of the subject is not limited to used product market, it is equally important to all merchandise returns by any means. Due to discrete sources of retuning the products it becomes intricate. Reverse logistics is an important element of supply chain but still not recommended as important as forward logistics. Making logistics efficient, maintaining customer satisfaction very high, creating value from returns, reverse logistics can representing these very efficiently. Though RL may be imposing by legislation, companies can see

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.... ..\

Raw Material

\ , Manufacturing , Distribution ______________\...25... n Consumer

Recycling

lucrative opportunities to make profit from these activities. To become successful reverse logistics, the decisions of

transportation and facility locations are crucial as it directly affects cost for RL.

INDUSTRIAL ENGINEERING JOURNAL

REFERENCES
1] Bloomberg David J., Lemay Stephen, Hanna Joe B. (2005), "Logistics". Prentice Hall of India Pvt. Ltd., India. PP. 1-10, 200-217.

2]

Rogers Dale S., Tibben-Lembke Ronald S. (1998), "Going Backwards: Reverse Logistics Trends and Practices". Reverse Logistics Executive Council. PR119. Reverse Logistics Executive Council. www.rlec.org, Date of access-27/07/2007. 3] Tony Ar nold J. R., Chapman St ephen N. (2006), "Introduction to Materials Management". Dorling Kindersley (India) Pvt. Ltd., South Asia. PR1320. 4] David E Pyke, M. Eric Johnson (2001), "Supply Chain Management: Integration and Globalization in the Age of e-Business". The Tuck School of Business, Hanover PR24. Marisa P. de Brito and Rommert Dekker (2003), "A Framework for Reverse Logistics. Eramus Research Institute of Management", Netherlands. PR1-6. M. Victoria de la Fuente, Lorenzo Ros, Manuel Cardos (2007), "Integrating Forward and Reverse Supply Chains: Application to a metal-mechanic company". International

journal of Production Economics, Spain. PR3-4. Srivastava Samir K. (2006), "Network design for reverse logistics". The International Journal of Management Science. PR1-6. 7] Reverse Logistics Association. http:// www.reverselogisticstrends.com/index.php, Date of access- 27/07/2007. 0] 8] 9] GATI, 12th Annual General Meet-2007. The Economic Times, Date-15/1012007, Page no. 21. Narkhede B. E., Gupte Akshay (2006), "Supply Chain Management: An overview", Industrial Engg. Journal, Dec 2006, PR23-27.

0] Curt Barry (2003), "How to Develop A Reverse Logistics Strategy", Catalog Success Magazine. www.fcbco.com/ articles-whitepapers/Reverse-Logistics-Strategies.pdf, Date of access-03/11/2007.

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AUTHORS Dr B. E. Narkhede, Officer on Special Duty, Directorate of Tech, Edu. Maharashtra State, Mumbai. (On Deputation from V.J.T.I., Mumbai) Anup Chaple, Industrial Engineer, Siemens India Ltd,
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