The effectiveness of a supply chain is generally measured by the flow of goods from its origin to the end consumers. Fast and on-time delivery is what the companies strive for. However, the process does not end there. There are times when the customer returns or rejects the order due to reasons like incorrect or damaged product or simply because they do not desire the product anymore. In that case, the goods need to be transferred in the reverse order back to the origin for refurbishing, recycling or reselling. The system responsible for handling this reverse flow of goods is known as the reverse logistics system.
Reverse logistics stands for all types of processes related to the recall of products. It not just comprises the recall of finished goods but also of in-process inventory. Unfortunately, it presents a major operational challenge due to the cost of processing returns. It takes up a considerable chunk out of the total revenue. Sometimes returns are even more expensive than normal shipment as it does not happen in bulk.
There are some key factors that can help us understand and better manage the flow of returned products entering the supply chain.
- Volume: If the frequency of return of a similar type of a product is more than average, we need to look at the bigger picture and re-examine the production process.
- Revenue lost: The percentage of your sales revenue lost to the call back of the products needs to be examined and reduced.
- Returned product condition: If the product is failing after a particular period of operation, then the pattern of failure should be tracked, and the cycle should be stopped.
- Value: The potential value of the returned product should be tapped into and necessary steps should be taken to generate revenue by selling a part or the whole product after refurbishing.
Closely examining the reverse journey of the product back into the supply chain can help avoid committing the same or a similar kind of mistake in the future. There are several benefits that can be reaped out of maintaining an efficient reverse logistics system.
- It minimises the environmental impact by reusing the recalled material in manufacturing processes. Hence the resources are not misused. Also, the final product requires less processing and less energy to produce.
- It results in an increased level of customer satisfaction as the customers can reject the goods as per their requirements. They also feel a sense of security while making a purchase.
- It can lead to new business opportunity by utilising the rejected products and setting up a channel to sell those off at lower price after making suitable repairs to it.
To establish a successful reverse logistic management system, it has to be weaved into the whole supply chain management process. Logistics teams should be trained to understand the process and maintain the same quality standards as delivery. This can have a positive effect on cost cutting and boosting revenue.