Chapter 15 - Managing Reverse Flows in the Supply Chain

8/6/2019 Chapter 15 - Managing Reverse Flows in the Supply Chain

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Chapter 15 Managing Reverse Flows in the Supply

ChainLearning Objectives

Af ter reading this chapter, you should be able to do the f ollowing:

Understand why reverse f lows in the supply chain were traditionallyregarded as being unimportant to the f inancial success of companies.

Appreciate why global supply chains present special challenges f or reversef lows.

Discuss the reasons f or some of the early reverse logistics systems andclosed loop supply chains.

Understand why there has been a signif icant increase in the volume of itemsmoving in reverse in supply chains today and list the eight major categoriesof reverse f lows.

Appreciate the diff erence between reverse logistics systems and closed loopsupply chains and understand their respective characteristics.

Understand the three major f orces that drive reverse logistics systems anddescribe their diff erences and similarities.

Discuss the diff erences between value streams and waste streams f or reverse f lows.



Introduction

Traditionally, reverse f lows were not viewed as adding value f or

customers or revenue f or the manuf acturer or producer.

Inf ormation and f inancials (cash) are also an important dimension of

reverse logistics and closed loop supply chains.

Global supply chains present challenges and opportunities f or reverse

f lows Including green laws.



Importance and Magnitude of Reserve Flows

Transportation companies and warehouses have dealt with

returns.

Retailers lose 3 to 5% of gross sales to returns accounting f or

about 4.5% of the cost of logistics.

Internet returns are about double the counter sale returns.



Eight categories of reverse f lows:

Products that have f ailed; are unwanted, damaged, or def ective; but can

be repaired or remanuf actured and resold

Products that are old, obsolete, or near the end of their shelf lif e but still

have some value f or salvage or resale

Products that are unsold f rom retailers, usually ref erred to as overstocks

that have resale value

Products being recalled due to a saf ety or quality def ect that may be

repaired or salvaged



Eight categories of reverse f lows:

Products needing ³pull and replace´ repair bef ore being put back in

service

Products that can be recycled such as pallets, containers, computer

inkjet cartridges, etc.

Products or parts that can be remanuf actured and resold

Scrap metal that can be recovered and used as a raw material f or

f urther manuf acturing



Reverse Logistics Systems versus Closed Loops

Reverse logistics²The process of moving or transporting goods

f rom their f inal destination f or the purpose of capturing value or

f or proper disposal.

Reserve logistics involves the processes f or sending new or used

products ³back up stream´ f or repair, reuse, ref urbishing, resale,

recycling, or scrap/salvage.

Closed loop supply chains²Designed and managed to explicitly

consider both f orward and reverse f lows activities in a supplychain.

Explicitly designed and managed f or both f lows









Customer Returns A variety of reasons f or customer returns can be given (as indicated

previously) including def ective or unwanted items, warranty

problems, recalls, and miss-shipments.

Environmental Challenges

Recycling and environmental concerns are f requently viewedsimultaneously because of their association with regulatory policy at

the local, state, and/or f ederal level.

Economic Value

Value has become an important f or businesses and even some

nonprof it organizations.

Making reverse f lows prof itable is a challenge as well as an

opportunity.



Achieving a Value Stream f or Reverse Flows

These barriers may be internal or external and may including the

f ollowing:

Priority relative to other issues and potential projects or programs in the

organization

Inattention or lack o

f ³buy-in´

f rom top level management in the organization

Financial resources necessary f or operations and asset inf rastructure

Personnel resources required to develop and implement the reverse f lows

program

Adequacy of material and inf ormation systems to support the returns

program

Local, state, andf

ederal restrictions and/or regulations

The economic value added of utilizing a 3PL has to be considered.



The Reverse Logistics Educational Council recommends considerationof the f ollowing:

Avoidance²Producing high-quality products and developing processes to

minimize or eliminate returns

Gatekeeping²Checking and screening merchandise at the entry point into the

reverse f lows process to eliminate unnecessary returns or minimize handling Reducing reverse cycle times² Analyzing processes to enable and f acilitate

compression of time f or returns to enhance value recapture

Information systems²Developing eff ective inf ormation systems to improve

product visibility, reduce uncertainty, and maximize economies of scale.

Returns centers²Developing optimum locations and f acility layouts f or returns

centers to f acilitate network f low



The Reverse Logistics Educational Council recommends considerationof the f ollowing:

Asset recovery²Classif ying and disposing of returned items, surplus, scrap,

and obsolete items to maximize returns and minimize cost

Pricing²Negotiating the best price

f or products being returned and resold

Outsourcing²Considering a relationship with a third-party organization to

handle and manage reverse f lows in cases where existing personnel,

inf rastructure, experience, and/or capital may not be adequate to implement a

successf ul program

Zero returns²Developing a policy to exclude returns by giving a returns

allowance and/or ³destroying´ the product in the f ield

Financial management²Developing guidelines and f inancial procedures to

properly account f or charges against sales and related f inancial issues when

items are returned by customers



Summary

Forward f lows in the supply chain have traditionally received the most

attention, and reverse f lows have of ten been ignored or mismanaged.

Eff ective supply chain and logistics management requires that reverse

f lows be accorded caref ul attention as important elements of a supply

chain. Good management of reverse f lows can reduce costs, enhance sales,

and positively aff ect the prof it margin of a company.

Globalization of business and the associated more complex supply

chains have added new challenges f or proper reverse f lows

management.

The scope and magnitude of f lows has increased dramatically becauseof customer service policies, catalog and Internet sales, and

environmental policies.



Summary (cont.) The scope and magnitude of f lows has increased dramatically because

of customer service policies, catalog and Internet sales, andenvironmental policies.

Reverse logistics systems and closed loop supply chains are similar concepts, but they have distinctive characteristics and procedures.

The major f orces aff ecting the volume of goods being handled in the

reverse f lows processes of organizations are customer returns,environmental policies, and issues and economic benef its f or organizations.

Proactive management of reverse f lows can lead to the creation of avalue stream as opposed to a waste stream.

When designing a returns f low program, consideration needs to begiven to the various types of returns with the development of procedures

and processes f or each one. Forward f low costs are usually well def ined, making tradeoff s easier to

analyze. Care needs to be given to developing realistic costs f or reversef lows in order to analyze tradeoff s.

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Chapter 15 - Managing Reverse Flows in the Supply Chain