Research into reverse logistics is relatively new and many companies are yet to grasp its importance within the supply chain. In fact, reverse logistics if often simply viewed as a costly headache. Studies show that effective management of reverse logistics has the capacity to improve shippers’ performance and customer service, but sadly its potential is often overlooked.
What is reverse logistics?
In a nutshell, traditional logistics encompasses all activities that deliver the product to the customer. Reverse logistics, on the hand, is where the product moves at least one step back in the supply chain. All operations related to the reuse and return of products and materials can be classified as reverse logistics.
Correct management of the reverse process includes the planning and controlling of the flow of materials, in-process inventory and finished products from the point of consumption back to the place of origin for the purpose of recapturing value or proper disposal. It includes remanufacturing and refurbishing of goods as well as the management and sale of surplus items and returned equipment within the hardware leasing industry.
When a customer returns a defective product the manufacturer must effectively manage the process of collecting the product, testing it, dismantling and fixing it, reusing or disposing of it. It is always hoped that some value can still be attained from a defective product either through repairing it or reusing it in some way such as through recycling.
Much can also be learnt through the testing of ineffective products to improve manufacture in the future. This is why reverse logistics can be so valuable.
The cost of reverse logistics in freight shipping
In the world of freight logistics reverse logistics presents a huge operational challenge due to the large volume and cost of processing returned items. The number of returned goods going backwards through the supply chain is higher than people normally realise. Studies show it can be as high as 50% of the total shipments across all industries and the estimated cost of these returns is thought to be 3%-5% of total revenue. Without a proper management program reverse logistics can be 3-4 times more costly than forward shipments. An effective reverse logistics management system has many benefits, including improving customer relations, saving on resource investment and cutting storage and distribution costs.
Stay posted for part 2 for an in depth look at the benefits of a reverse logistics management program.
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