What Exactly Is Reverse Logistics?

Reverse Logistics

A summer job I had during my University years involved the dismantling of old computer input/output machines and the recovery and salvage of all of the parts.  For me it was good experience and good money.  At the same time the disassembly of most every part of the machines for refurbishment, reuse, and recovery also seemed to be a worthy cause.  It was Reverse Logistics before I knew what that was.

I considered it to be salvage, reclamation and repair activity.  Over the ensuing years I was involved from time to time in other activities that involved quality problems, returns, repair, reclamation or recycling of some kind.

And then at some point all of these activities were included under the banner of “Reverse Logistics”.

What on earth is Reverse Logistics?

So What Is Reverse Logistics?

Reverse logistics and repair

The term “Reverse Logistics” was first coined by James R. Stock in 1992.  That’s why I had not heard it at all earlier in my career.  I was certainly familiar with Repair, Recycling, Reclamation, Salvage and ReUse to that point but Reverse Logistics seemed like an odd phrase.

But once explained the phrase Reverse Logistics made sense.  Simply put it involves any activity associated with the backward movement of parts or goods or services back up through any stage, or stages, of the Supply Chain.

The Reverse Logistics Association (RLA) defines it as “All activity associated with a product/service AFTER the point of sale”.

Wikipedia defines it as “the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal … in the case of Reverse Logistics the resource goes at least one step back in the Supply Chain”.

And CSCMP defines it 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.”

I prefer the simpler definition provided by the RLA.  While it is admirable to think that there should be planning, efficiency, value and cost effectiveness inherent in reverse logistics these are, to me in my experience, noble objectives of the process, not necessarily given attributes of the process.

It is notable that Reverse Logistics is often called Aftermarket Services as well.  Whatever title is used it is an umbrella term which includes all activities such as Repair, Refurbishment, Warranty Management, Recycling, Scrap Management, Remanufacturing, Reuse, Call Centre Management, and all of the physical activities associated with the movement and processing of goods in all of these areas.

And Why Is Reverse Logistics Important?

When I was a young boy I remember times at which  my mother wanted to return some product she had bought, for a variety of reasons.  It was nearly impossible to return something.  The retailers would fight tooth and nail to stop anyone from returning anything.  They would be downright nasty with their customers who tried to return anything.  And my mother was not alone in this experience.

Fast forward to today.  In the exponentially growing E-Commerce market place customers expect, and demand, a hassle free returns policy.  They will check out the returns policy before making a purchase.  They will go elsewhere if there is not an easy returns policy and practice.  And they will use the returns process, a lot!

It is estimated that the E-Commerce market in 2018 will be about $1.5 Trillion worldwide.  And as much as 30% of those purchases will be returned.  Add that to the returns rate in the brick and mortar retail industry and there are over $650 Million worth of returns annually!

The Global Waste Management Industry is over $300 Billion.  The Global Recycling Industry is over $200 Billion.

Now think about your Cell Phone or your Smart Phone.  There are billions of these devices in the market.  Almost half of people who own one of these devices will drop it, break it, damage it or otherwise have it stop working or malfunction.  Many (and by many I mean hundreds of millions) of these devices will be returned somewhere for repair and refurbishment.

The cost and expense of all of this is enormous.  The impact of a Company’s Reverse Logistics operation on Brand value, customer satisfaction, and company growth and profitability can be the difference between success and failure!

And that is why Reverse Logistics is so important!

How Good Is Your Reverse Logistics Operation?

Case 1 – The Bad!

Working in the Book Retail Industry was an eye opener for me.  Unbeknownst to me beforehand I learned that in the Book industry a Retailer can more or less order whatever they want from a Publisher.  And they can return 100% of what they don’t sell, without penalty!  Wow!

I’d never heard of such a thing.  What it meant was that the company had not spent any time to develop better forecasting, planning, and inventory management systems and processes.  They didn’t need to because they could return anything they didn’t want.  There was still the need to handle, package, move and otherwise manage all of these returned goods, but there was no incentive to do it well.

Needless to say they did not have the necessary Reverse Logistics processes in place when they ventured beyond the forgiving Book business and into the General Merchandising business where Customers demanded a Returns capability and the costs of poor management would be huge.

Once the CEO came into my office with a product that was “defective”.  The printing on the item was off centre.  The CEO said that the supplier had shipped us a poor quality product.  But I asked what the quality specification was and what the quality standard was for the item.  There was none!   If you define quality as conformance to a standard, then without a standard there could be no real assessment of what was good or bad quality.

From a Reverse Logistics standpoint we were starting at step one to say the least.

Case 2 – The Good

We managed all of the Smart Phone repairs for a large, Global name Brand company in the Western Hemisphere.  We could handle Level 1, 2, 3, and 4 Repairs.  Our Mexico based operation was completely dedicated to this capability.

All of the principles of Lean manufacturing were applied in the management of the operation and the daily, continuous improvement of every process.

We had experts in all aspects of Reverse Logistics on board.  And we could support a Customer for most every service that we were looking for help with.

We were able to add new products and new customers with relative ease rapidly and with great efficiency.

This was a World Class Reverse Logistics operation.

Conclusion

Reverse Logistics is an inherent part of most every Supply Chain in every industry.  If at any point in your end to end Supply Chain you have materials or goods moving back upstream then you have a case for a Reverse Logistics capability.

The size of the Reverse Logistics business is staggering.  And while it may seem more interesting to be working on the Forward Supply Chain the reality is that the Reverse Logistics Supply Chain can be equally interesting, informative and rewarding.

I certainly recommend to anyone in Supply Chain to take advantage of any and all opportunities to become involved in Reverse Logistics.  Having this experience will provide you with a great grounding in truly understanding the true, overall Supply Chain of any company and any industry!

Originally published on August 14, 2018.

2 thoughts on “What Exactly Is Reverse Logistics?”

  1. Interesting insight into reverse logistics, which should come into play in various industries. For example, for transportation companies that use security seals to send products from point A to point B, I can imagine reverse logistics saves them considerable expense.

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