Report: The Reverse Logistics Opportunity For 3PLs |
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Articles - General Reverse Logistics | |||||||||||||||||
Written by Paul Rupnow | |||||||||||||||||
Thursday, 26 February 2004 | |||||||||||||||||
CEOs and the senior management of 3rd Party Logistics Providers (3PL's) and Outsourced Service Providers (3PSP's) need to take a close look at Reverse Logistics as an excellent strategic source of value added revenues. To help you understand Reverse Logistics Services we have created an introductory report: The Reverse Logistics Opportunity - What Is Reverse Logistics, Who Needs Help, And Why You Need To Do It Part 1 - The Reverse Logistics OpportunityWhat Is Reverse Logistics, Who Needs Help and Why You Need To Do It It is time to rethink Returns. Reverse Logistics is an excellent strategic source of value added revenues. Manufacturers, Distributors and Retailers are struggling with the Reverse Supply Chain. Industry experts suggest the annual costs of Reverse Logistics total $35 billion. Product Returns handling is an important process of the supply chain that is not well handled. Economic pressures for corporate profits are forcing manufacturers and retailers to look very hard at cost controls. Reverse Logistics is one of the few remaining opportunities that has NOT yet received much attention. Many Manufacturers and Retailers are looking to outsource Reverse Logistics and Product returns since it is not a strategic part of their business. They currently have very inefficient, slow and expensive processes for handling returns. Few tools or systems exist to assist in handling returns effectively. Considerable value is lost when these Returned Assets are not processed quickly and completely. 3rd Party Logistics Providers and Outsourced Service Providers are ideally suited to manage Reverse Logistics since the skill sets used to process forward and reverse logistics are similar. Reverse Logistics, however, encompasses much more than accepting inbound shipments from your client's customers. Traditionally, Product Returns are something that 3PL's try to avoid. However, with a solid understanding of Reverse Logistics needs and processing, Reverse Logistics represents a quick and excellent source of high volume transaction fees that can be generated from your existing facilities and skill sets.
Reverse Logistics Services is an opportunity for outsource providers to:
What Is Reverse Logistics?The Reverse Logistics Executive Council is a collaboration of manufacturers, retailers and academics. They have defined Reverse Logistics as follows: Reverse Logistics is the process of moving goods from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products. Reverse Logistics activities include:
With most companies, handling Product Returns also includes an important transaction with the customer who is returning the goods. This may involve the shipment of a replacement in the case of goods returned for a warranty issue. For other customers, it may also involve the issuance of a credit or refund. The SCOR Model (Supply Chain Optimization Review) developed by the Supply-Chain Council now includes Reverse Logistics.
Traditional Supply Chain improvement strategies have tended to focus on the forward logistics processes. New forces and an understanding of the connection to revenue and customer satisfaction are moving Reverse Logistics higher in the supply chain agenda. Reverse Logistics is an Important Emerging IssueCompanies and Industry associations are developing groups and panels to address key Reverse Logistics topics, for example:
Who Needs Help Managing ReturnsIndustry experts suggest the annual costs of reverse logistics totals $35 billion according to "Going Backwards: Reverse Logistics Trends and Practices" book published by the Reverse Logistics Executive Council. "When it comes to returned product, there's a fair amount of money often left on the table," says Dr. Dale Rogers, the Director of the Center for Logistics Management and a Professor of Supply Chain Management at the University of Nevada. "Manufacturers need to be aggressive in managing what happens. They need to have a plan and make good decisions to get value out of returns" (Industry Week, Apr 16, 2001)
Source: Going Backwards: Reverse Logistics Trends and Practices book published by the Reverse Logistics Executive Council Many products are returned to the Retailers shortly after a consumer purchases the product, and as a result Retailers have a large problem managing returns. As well, Manufacturers must deal with returns from Retailers, the channels of distribution, or end customers with warranty issues. For example in 2001 there were about 40 million desktops and mobile Personal Computers sold. About 9 million (23%) of these were sold through Retail Stores. The Retailer experienced a Return Rate of about 10% or 900,000 Units. Each of these units is estimated to cost the Retailer $40-$50 to process and ship back to the manufacturer or to dispose of the units. The manufacturers estimate that each Return costs them about $500 each. This adds up to a whopping $486 million. Each return is taking the manufacturers from 4 to 12 weeks to fully process. (Source: Ease of Use / PC Quality Roundtable) Returns are a small percentage of sales for the retailer or manufacturer, however, in high volume environments like consumer goods, this small percentage adds up to a large reverse logistics problem. The Returns ProcessThe Returns processes can be summarized in the diagram below. In processing a returned unit, 2 groups need to be satisfied: the end customer who returned the unit and the company that now needs to handle the returned unit and try to recapture value from it.
An overview of the returns process is as follows: Retailers: Retailers need to handle returns from their customers. These returns arrive in a variety of conditions, many with open boxes, some with defective units and many with no faults. A retailer needs to process these returns and maximize value from these returned items by getting them back on the store shelf, returning them to the manufacturer for credit, liquidating them through some other channel or scrapping them. Manufacturers: Manufacturers need to handle returns from multiple sources such as end-user customers, retailers, value added resellers or distributors. The manufacturers typically require their customers to obtain an approved RMA (Returned Materials Authorization) or RA (Return Authorization) before accepting any product returns. These returns arrive in various quantities. The returns may be new stock, damaged stock, open box or defective. The manufacturer's main concern is to satisfy the customer or distribution channel partner who is returning the goods by exchanging the unit, repairing the unit or issuing a credit. The returned units need to be processed and then returned to inventory, repackaged, returned to vendor, repaired or scrapped. The manufacturer needs to maximize value on these returned units by processing them quickly to yield the highest price through secondary market channels. Why Customers Want To Outsource Product ReturnsCurrently most retailers and manufacturers struggle with handling and processing returns internally. Many manufacturers will conclude that handling product returns is not a strategic core competency and will look for an outsourced provider, as they have done with Forward Logistics Most retailers and manufacturers struggle with returns for many reasons such as:
Why 3PL Providers Can HelpOutsource Logistics providers and 3PLs are ideally suited to help handle Reverse Logistics and generate significant savings since Reverse Logistics is an easy extension of the existing business services of 3PL operations:
Goals of Reverse Logistics ServicesTo be successful you need to satisfy the goals of your customer and the goals your company:
What Do Customers Want?Outsourcing Reverse Logistics should be handled like other outsourcing decisions. The customers will be looking for:
Specific to Reverse Logistics handling Clients will be looking for:
How Reverse Logistics Differs From Forward LogisticsLogistics typically refers to moving product in the forward direction. Reverse Logistics involves moving the product in the reverse direction, from the customer or channel partners back to the manufacturer. The biggest differences are as follows:
Tradition and New RealitiesHistorically Logistics providers avoid Product returns and reverse logistics. Returned goods are viewed as inventory no one wants, collecting dust in the back corner of the warehouse, with no transaction fees, no storage fees and lots of hassle to get the client to make a quick decision on disposal. While this scenario will never change for many logistics customers, the reality of today's economic, retail and manufacturing environment is forcing many companies to handle their product returns more carefully.
Why Returns and Reverse Logistics Are Profitable, Value Added Business For 3PLsThe current challenge for most companies is just getting a Return fully processed, never mind effectively, inexpensively or in a timely manner. The management of Reverse Logistics is a painful process for manufacturers and retailers. It also represents a small part of their business and they are often not willing to commit the people, systems or resources to this area to manage it well. Few standards exist to define how to process and manage returns, but these processes are related to forward logistics processes. As a result, it is an easy extension of the existing 3PL business, creating a lot of value for your customers. This translates into profits. Since there is room for improvement at your customers operations, the emphasis will be on organized delivery of good Reverse Logistics services, not on price. Who Is Providing Reverse Logistics Services NowWhile many 3PL's and Outsource service providers claim to provide Reverse Logistics Services, few are doing more than very basic receiving of a small volume of returned goods. There are several companies that have specialized in handling returned goods. Many of these companies appear to be very successful and growing. Key Messages for The CEOs Of Outsourced Logistics ProvidersReverse Logistics is a significant strategic opportunity for your company:
Reverse Logistics
written by Prof Dr Arcot Purna Prasad, Fri, Sep 27, 2013 Good Material about reverse logistics Interesting article
written by Stan Wilson, Thu, Jan 31, 2019 thanks, this is a great summary for our 3PL management team to focus on our client's needs |
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