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Reverse logistics is the backward flow of what we all wish to be only a forward movement or process.  Any company who expects zero returns in this age of online shopping, direct to store shipments, direct to home shipments is living in a fantasy world.  With all these ‘new’ methods of consumer shopping delivery mistakes are increasing exponentially.

Commanding the returns or reverse logistics will have a direct impact on your costs of doing business, on the ROI’s of the company and the level of customer service necessary to compete in the economy.

Reverse logistics has always been seen as a negative, let alone a necessity. It is a situation where all parties lose – the dissatisfied customer, your supplier who gets the item back and the manufacturer who wasted sufficient resources creating and distributing those products.

However, attitudes are changing about reverse logistics and it is slowly gaining momentum within companies.  Considering reverse logistics as part of the supply chain process will enhance the logic of return product flow and optimizing the business process. 

Is reverse logistics good business practice or merely based on a tough economy?

Visit a large retailer after the holidays and the returns lines outweigh the purchase lines. Is the retailer’s business all returns? The length of the return lines may be a by-product of the complexity of the forward product delivery process. However, it also show the intricacy of the reverse logistics process – processing credit cards, giving cash back, customers returning the wrong item to the wrong store, fraud and theft and return of defective products.

At first glance we only consider the return on the retailers but it is much more involved.  The products being returned have an effect on the manufacturers, raw material suppliers and transportation costs.  Obviously, this is not good for business as a whole.

Two major factors have contributed to the lack of attention given to reverse logistics.  Who wishes to draw attention to the mistakes and incorrect decisions that returns represent when improvements can be made in other areas? Secondly, labor savings and quality are easier to improve.  But as the supply chain takes a more important role in a business companies are scrutinizing all logistics costs and that includes returns.

Real costs versus profitability?!

We need to understand that real cost are tied to returns. How well a company manages the returns reflects on ability to provide total customer service. A manufacturer can meet its delivery deadlines and then be greeted by customer returns due to logistics failures. If the experience of returning product is a negative one all the forward logistic customer service if for naught and can lose the customer.

Well handled returns result in asset recovery and or brand protection but most companies handle reverse logistics poorly. When goods arrive at a return center they should be assessed.  Once condition is determined then final disposition can be addressed – repair, upgrade, refurbish, remanufacture and recycle.  After these dispositions are determined the n item can be returned to customer, routed to a warehouse or sold in a secondary market.

While the recent discussions of reverse logistics made be warranted caution is always the watchword of the day. Is reverse logistics for real or is it merely another round of business enthusiasm?  Prior to putting reverse logistics into action there should be plans, systems and people in place to optimize this process.

Return on Investment

Reverse logistics is all about costs – cost of the goods, costs to move and store them and the cost of keeping non returned inventory sinuous.

One aspect to controlling reverse logistics is to implement an information system which provides business intelligence allowing for adjustments to marketing, manufacturing, and ordering and delivery process.  The returns system should be tied to the Warehouse Management System that manages the inventory.

The one industry that seems to be making great strides in this area is the online ordering and catalog companies. These companies are becoming more in sync with their customer buying trends and are predicting the percentage of returns. 

The following are some suggestions to attack and implement reverse logistics in most companies:

  1. 1- All logistic activities must be considered part of the overall supply chain. This is true for reverse logistics.  A manufacturer should send product development personnel to a return center to learn how to design products to prevent returns in the future.
  2. 2- Reverse logistics should be accomplished in a designated return center as opposed to a distribution center.
  3. 3- Intelligent gate keeping – scorecards like return merchandise authorizations can help reduce returns.
  4. 4- Several WMS suppliers have return processing modules with disposition logic. 

Although focusing on reverse logistics is hard as it shines on company errors it should not be dismissed as merely the latest fad and never as a half measure.  Reverse logistics centers on the very heart of manufacturers, distributors and retailer’s profitability.  It would be nice to do business in a world devoid of returns but that world has yet to be invented. 

Focus on reverse logistics and real costs and satisfying customer needs will lead to the building of sales.

In any period of economic challenges it is vital to enhance every dollar and minute mean something. Time is money. Waste within a company’s supply chain, either internal or external, are a huge expense of time and money that can drastically decreased through more efficient supply chain processes.

Most companies in order to be successful must find methods which decrease waste and activities that do not add value. 

One method is to implement the use of Electronic Data Interchange (EDI). EDI is used to standardize work such as accounts payables and receivables, order processing, warehousing and logistics, and inventory management. EDI can be integrated with existing in-house systems such as WMS or ERP to augment their current functionality.

Following are the four areas where most of the inefficiency lies – many consider these the core of supply chain:

Order Processing – The typical internal procedure for EDI is: order comes in via fax or e-mail, order is manually entered and inventory management is alerted to the order.:


The process is wasteful and inefficient as it is not paperless. EDI is designed to centralize the data in processing an order, including customer information, forms, computerized next step processes.  In addition, Warehouse Management Systems can aid in the procurement and monitoring of inventory. At the same time it will also decrease man-hours needed to physically check inventory levels.

Inventory and Raw Materials – Implementation of just-in-time practices will permit a company to increase their cost savings. JIT will decrease the cost of inventory, increase inventory turns and assist in reaching a near perfect order measurement timeframe. The cost of warehousing inventory is avoidable as electronic communications makes procurement of raw materials a simple process. The supply fulfillment process will show exactly what is required without the additional costs.  With the carrying out of this process the cost of obsolescence is lessened as well as the cost of warehousing, insurance and taxes.

Material Acquisition – In procuring raw materials for order fulfillment several wasteful processes are taking place; proper quantity, placing orders via phone or fax, writing purchase orders and sending those purchase orders to suppliers. Implementing electronic data interchange and integrating it with the warehouse management system the ordering steps are reduced from four to two.  Another method to reduce purchasing costs is to find vendors where are located in close proximity to one another and willing to share transportation costs.

Compensation and Reimbursement – The actions in sending and receiving payments squanders valuable resources.  Electronic payments will dramatically decrease costs such as paper checks, printer paper, toner, stamps, etc,.  EDI systems can create invoices from purchase orders and payment actions from invoices.

Electronic Data Interchange is a central process for any firm to reduce the cost of business and save money. It will replace many wasteful processes within the supply chain including order processing, logistics and compensation.

In today’s challenged economic environment it is important that every process is as proficient as humanly possible so that money is not hemorrhaged through inefficiencies.