SCM 2016: REVERSE SUPPLY CHAIN

This document gives us insights into 2012 how Reverse Supply chain will pan out in various industries in the year 2016

SCM-2016
Reverse Supply Chain

SCM 2016: REVERSE SUPPLY CHAIN

2012

Table of Contents
WHAT IS REVERSE SUPPLY CHAIN LOGISTICS.............................................................2 WHY REVERSE SUPPLY CHAINS?.................................................................................3 HOW IS A REVERSE SUPPLY CHAIN DIFFERENT??.......................................................4 APPLICATION OF REVERSE SUPPLY CHAIN IN VARIOUS INDUSTRIES...........................4 REVERSE SUPPLY CHAIN IN PHARMA INDUSTRY......................................................4 Recommendations...............................................................................................6 REVERSE SUPPLY CHAIN IN THE AUTOMOTIVE INDUSTRY.......................................7 REVERSE SUPPLY CHAIN IN THE PAPER/PUBLISHING INDUSTRY............................11 REASONS FOR RETURN IN THE PUBLISHING INDUSTRY......................................12 THE SEVEN RS OF REVERSE LOGISTICS.............................................................13 REVERSE LOGISTICS PUBLISHING SUPPLY CHAIN..................................................14 SCOPE FOR DEVELOPMENT IN THE FUTURE.......................................................14 REVERSE SUPPLY CHAIN IN CONSUMER ELECTRONICS INDUSTRY........................15 REVERSE LOGISTICS IN RETAIL INDUSTRY.............................................................17 Centralized Efficient Reverse Supply Chain........................................................18 Decentralized Reverse Supply Chain with Preponement....................................19 Conclusion................................................................................................................20 REFERENCES............................21 REFERENCES

SCM 2016: REVERSE SUPPLY CHAIN

2012

WHAT IS REVERSE SUPPLY CHAIN LOGISTICS

Supply Chain Logistics is defined by The Council of Logistics Managementas: The process of planning, implementing, and controlling theefficient, cost effective flow of raw materials, inprocess inventory, finished goods and related information from the point of origin to the point of consumption for the purpose ofconforming to customer requirements. Reverse Supply Chain Logistics includes all of the activities that are mentioned in the definition above. The difference is that reverse logistics encompasses all of these activities as theyoperate in reverse. Therefore, reverse logistics is:The process of planning, implementing, and controlling theefficient, cost effective flow of raw materials, in-processinventory, finished goods and related information from thepoint of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics. Reverse logistics is more than reusing containers and recycling packaging materials. Redesigning packaging to use less material, or reducing the energy and pollution fromtransportation are important activities, but they might be better placed in the realm of green logistics. If no goods or materials are being sent backward, the activity probably is not a reverse logistics activity. Reverse logistics also includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includesrecycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery.

WHY REVERSE SUPPLY CHAINS?

SCM 2016: REVERSE SUPPLY CHAIN

2012

Returns in an industry can be of three types, return of unsold product and secondly return of packaging material and thirdly return of used products in either a state where they cannot be reused or in a state where certain amount of reuse is possible. Typically the rate of returns is around 6-8% but this percentage varies by large amounts across industries. Some of the return rates across various industries are shown below and these show why it is important for the managers to manage the reverse supply chain.

SCM 2016: REVERSE SUPPLY CHAIN

2012

HOW IS A REVERSE SUPPLY CHAIN DIFFERENT??

APPLICATION OF REVERSE SUPPLY CHAIN IN VARIOUS INDUSTRIES

REVERSE SUPPLY CHAIN IN PHARMA INDUSTRY
In todays highly competitive and cut-throat business environment, need for an efficient supply chain has become utmost important. Today a company supply chain is not only defined by its ability to deliver the end product from supplier to customer but also the ability of phenomenon called Reverse Supply Chain which has been most often ignored by many. According to the council of Logistics Management - Reverse supply chain is defined 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. Reverse Supply chain also includes remanufacturing and refurbishing activities, processing returned merchandize due to damage, seasonal inventory, restock, salvage, recalls, excess inventory and recycling programs, obsolete equipment disposition and asset recovery. It also helps to get slow-moving products off the shelf, the distribution networks and warehouses.

SCM 2016: REVERSE SUPPLY CHAIN

2012

Currently, the pharmaceutical industry is experiencing unparalleled change and challenges. All of the usual suspects that impact business today are at play: globalization, treatment and pricing economics, government controls and technology. However, in an era of continuing consolidation, innovation abounds not only in R&D, but also in business models. Supply chain visibility is also essential for any pharmaceutical supply chain including reverse logistics, as counterfeiting and lost or stolen products continue to be a major concern for this industry. The wastage and spillover in pharmaceutical industries is also very high. A proper system would enable reduction in this wastage and spillover. Supply Chain plays a pivotal role in todays highly competitive business environment. The success of any business depends to a large extent on the efficiency of supply chain. Companies spend more time and money in fine-tuning their forward supply chains while ignoring their backward supply chains. Companies can no longer ignore reverse supply chains in todays competitive business environment. Efficient reverse supply chains bring many benefits to the companies. Pharmaceutical companies take back medicines from the retailers regularly. The research to analyze the practices of these companies in this reverse supply chain processes would facilitate further scope to know about reverse supply chains in this field. According to Healthcare Distribution Management Association (HDMA) estimates 3-4% of product going out from pharmaceutical warehouses ultimately comes back. Some redistributed, and some returned for disposition and destruction by a 3rd party processor or manufacturer. Of the estimated 3-4% of product returned, it is also estimated that approximately 1 -2% of pharmaceuticals manufactured will be returned for destruction with a resulting credit back to the manufacturers' trading partners. Recent publications indicate that manufacturers currently spend up to 4% of cost of goods sold (COGS) on non-value-add distribution functions like returns and reverse logistics. With such a large amount of product going through the reverse supply chain, returns should be an ideal touch point for mechanisms and technology to support a safer pharmaceutical supply chain.

SCM 2016: REVERSE SUPPLY CHAIN Recommendations

2012

Supply Chain Efficiencies - On the reverse logistics side, if the company performing the returns function on behalf of the manufacturer has adopted the right systems and technology to perform those tasks, there are a number of efficiencies that can be gained. First and foremost being the speed at which the provider can verify and process the return coming in on a daily basis. Maintaining an acceptable turn-a-round time from the time received to the scanning, processing and collecting of data necessary for the manufacturer to provide accurate and timely credit to their trading partners should be the goal. This is even more important when managing a product recall, when time and accuracy of reporting is most important. Timely processing will also help dramatically with the debit/credit reconciliation process which can pose major challenges to pharma manufacturers and their trading partners. Keys to compliance and bringing true value to the stakeholders can be accomplished by utilizing and adopting business practices and systems that help to facilitate quality outcomes. Some of which are: Returns processors need to revamp or build out their IT capabilities to respond to ever-changing industry needs and trends, including the installation of RFID and 2D barcode readers on their processing lines. Operating returns systems can also facilitate an on-line Return Authorization (RA) feature, which gives the customer the option to request an RA on-line. This will then allow the system to automatically determine which products are eligible for credit, as well as the estimated credit value along with streamlining of data to the manufacturer and their trading partners with the utilization of real-time data visibility through web-based management systems. From the RA request to receipt and processing of the returned items, all the way to disposition, the manufacturer will have access to data as it is generated during the returns process. Providing access to the data and a suite of "Dashboard" management reports containing key trend and timeline comparisons can provide the manufacturer and their trading partners with valuable historical and current snapshots of product that is being returned. Integration of QA Processes is also a critical success factor. Part of this should involve the joint development and maintaining of performance metrics between the service provider and their business partners. Building performance metrics into the service agreement should also be given consideration, with on-going measurement of results taking place on a quarterly or yearly basis. Specific to processing turnaround time, there is at least one returns company which has established a standard of a maximum of five days for turnaround time with their clients. A formal and comprehensive training curriculum is also a key element to quality outcomes.

SCM 2016: REVERSE SUPPLY CHAIN

2012

Anyone involved with the receipt and processing of returned product should be fully trained on the aspects of customer procedures, equipment operation and materials handling. A system which supports multi-validated processing, or "double checking" the data which is captured should also be utilized. Intelligent Redeployment In summary, reverse logistics, once thought to be a very minor piece of the supply chain, has evolved to the point where these services, whether they are managed internally or outsourced to a professional returns company, are considered to be a significant part of managing product flow in the supply chain. For a good number of years, returns have been managed in a very mechanical and labor-intensive way, but with the adoption of the latest in technology, and more flexible operating systems, reverse logistics is taking on a whole new look - one that is adapting to the needs and changes that are taking place in the marketplace.

REVERSE SUPPLY CHAIN IN THE AUTOMOTIVE INDUSTRY

The Reverse supply chain concepts become all the more important in those fields dealing with ever so durable products because of the need to cover long periods of time of their llife and what next is to be done to these live parts or components to ensure minimum wastage and maximum contribution or profit. These days it has become also important to ensure that minimum dumping occurs and landfills and other places for dumping are regulated. So to ensure all this reverse supply chain plays a key role in an automotive scenario. Some of the examples of where reverse supply chain can be used are listed below Warranty returns for products and their disposition management. Refurbishing activities of equipments Remanufacturing activities of finished products Manage the levels of surplus Manage the returns and machines coming back from leasing business

SCM 2016: REVERSE SUPPLY CHAIN

2012

Listed below are the key processes by which the automotive industry presently indulges in reverse supply chain processes

In the automotive sector, the key differentiating factor that will help it go along a long way is the concentration on the Reverse logistics part of this reverse supply chain The automobile industry is one of the largest industries in the world and as mentioned earlier it deals with some of the costliest durable deals. These consumer goods are easily some of the most careful investments made by people and are an expensive good for the customer. Therefore reverse logistics should play an important role for this industry. The roles played are as follows Usage of scrap parts and take the salvage parts from the used vehicles Refurbish and remanufacture used parts and procurement for the same Meet dealer requirements of stock balance of new parts

SCM 2016: REVERSE SUPPLY CHAIN

2012

Considering the importance of Reverse logistics a Centre for Vehicle recycle development has been former. The VEHICLE RECYCLING DEVELOPMENT CENTRE formed by the Big 3 automakers of America plans to increase the recyclability of cars. The main focus of VRDC Is to learning to build vehicles that has the recyclable potential and those vehicles that can be disassembled easily. While there have already been enough study being made in the field of DFA in automotive design, this centre one step ahead and concentrates on Design for Disassemble (DFD).The logic behind DFD is to minimize the usage of permanent fasteners like chemical bonds and welds and use minimum number of parts being fastened by temporary fastening processes like snap fits and screws etc which would make disassembly easier and make products easily recyclable. These processes offer many positive effects. The most prolific being the fact that it aids heavily in remanufacturing. The automobile industry has been one of the well knownindustries being used for old remanufactured products. Infact sale of used cars has been one of the biggest thriving businesses across the world. The impact of car leasing also has a huge effect on these remanufacturing phenomenon. According to the Auto Parts Remanufacturers Association (APRA), the market for remanufactured auto parts is estimated at $34 billion, annually. The APRA also estimates there are 12,000 remanufacturing firms (including large-scale companies) involved in the auto parts industry. One particular company remanufactures more than four million alternators, starters and water pumps every year. Between 90% to 95% of all starters and alternators sold for replacement are remanufactured The key concern for automakers is to make use and maintain a closed loop system for their parts. For example, when a vehicle needs a new steering system, they hope that there will be a customer who needs a replacement of the existing steering system and he would bring it to the dealer. The dealer will then send this old steering system to the automaker for remanufacturing. This is where reverse logistics plays a huge role. With the help of this key assumption, we believe that the automaker will have this standard supply of steering systems that he will remanufacture and pass it onto the customer as and when the need arises. The estimated cost of reverse logistics in the Indian auto and auto components industry is around 0.5% to 1% of total sales

10

SCM 2016: REVERSE SUPPLY CHAIN

2012

EMERGING TRENDS IN REVERSE SUPPLY CHAIN IN AUTO INDUSTRY:

Reverse supply chain totally centralized

Decentralized reverse supply chain with preponement Decentralized Reverse Supply

REVERSE SUPPLY CHAIN IN THE PAPER/PUBLISHING INDUSTRY

Historically reverse supply chain has not been considered important in the paper industry, typically because in the past the number of publishers were less as compared to the demand for the books in the market. But in the last few years as the number of publishers has increased and the demand for books reduces it has become more important for reverse supply chain to be used
11

SCM 2016: REVERSE SUPPLY CHAIN

2012

in the publishing industry. Earlier it was considered easier to destroy the books than to return it to the publisher, this option has become less favorable in the past few years because of the following reasons: 1. The retailer might sell the books at very low prices to customers and employees who may in turn sell it again at a usual price, resulting in huge losses to the publisher. 2. Destroying books also needs to be registered in the auditing and financial books of the retailers; this makes it better for them if they could return the books to the publishing house. 3. As greater focus on Environment becomes an important part of the Publishing industry destroying books is being considered a waste of natural resources. 4. Improvements in the recycling technologies have made reusing paper economically viable for large publishing houses. In the publishing industry because of the entry of new large-scale book retailers , the square foot selling area has increased as a result the number of books required to stock these stores have also increased. Due to the ease in publishing new books the number of books written by authors has also significantly increased. As new and new publishers mushroom the life of a book continues to become shorter which leads to almost 30% to 35% books not being sold by retailers. In large retail book stalls selling 70% of the books on the rack is considered a good performance. It is in this light that the importance of reverse supply chain has become important in the Publishing Industry.

REASONS FOR RETURN IN THE PUBLISHING INDUSTRY

In the case of the Publishing Industry return is defined as return of books, papers, and magazines from the downstream user (customer/ retailer) back to the publisher for various reasons. Reverse supply chain here would be the processes and management action taken once the book is returned. The entire process involves customers, booksellers, wholesalers and publishing houses. The various reasons for returns in the publishing industry are:
12

Unclear product market positioning;

SCM 2016: REVERSE SUPPLY CHAIN

2012

Quality problem; Design and binding problems; Inaccurate forecasting; Unreasonable pricing; Slow information flow; Lack of marketing support; Weak sales function; Bad store presentation; Weak logistics support; Weak transportation support; Lack of control over return frequency, quantity, and items; Serious back order and late delivery due to the small order quantity; Long return process cycle; Returned products in large variety yet in small quantity; A large quantity of returned products due to the fixed return period; Significant increase in returns at the terminal period of sales for best-sellers; Cash flow problem; Oversupply of new book titles to the current market demand; Inappropriate selection of a product mix; Discrepancy between the return list and actual items and quantities; Long distribution channel; Frequent promotional activities resulting in lots of returns at the end ofpromotion. Different consumer preference among different geographic regions; High transportation costs due to difficulty in transportation arrangement inadvance. No rigid discipline in stock-taking and stocking activities; and Too many distributors involved.

THE SEVEN RS OF REVERSE LOGISTICS Reuse the packaging is reused or a product is sent back for resaleto another customer.

Repair/repackage where a moderate amount of repair and/orrepacking will allow the product to be reused.

13

SCM 2016: REVERSE SUPPLY CHAIN

2012

Recycling where the product is broken down and mined forcomponents that can be reused or resold. Reconditioning When a product is cleaned to its basic elements,which are reused. Refurbishing Similar to reconditioning, except with perhaps morework involved in repairing the product. Remanufacturing Similar to reconditioning, but requiring moreextensive work; often requires completely disassembling theproduct.

14

SCM 2016: REVERSE SUPPLY CHAIN

2012

REVERSE LOGISTICS PUBLISHING SUPPLY CHAIN

SCOPE FOR DEVELOPMENT IN THE FUTURE

Currently for small publishers it makes more economic sense to destroy the returnable than to invest in reverse supply chain logistics, but as publishers become large and demand for book becomes more and more difficult to predict reverse logistics will have to become an important part of the Publishing industry.

15

SCM 2016: REVERSE SUPPLY CHAIN

2012

REVERSE SUPPLY CHAIN IN CONSUMER ELECTRONICS INDUSTRY

From the time Business has started, forward supply chain was the focus of the industry. The focus was on delivering value from the Supplier to manufacturer to distributor to wholesaler to retailer and finally to the end customer. The supply chain field has seen a lot of changes and some of the links that existed in the past are not there in the present and some new links have been added. For example the Dells direct Model disposes of the retailer and wholesaler and distributer and a logistics partner has been added between the manufacturer and the customer. The supply chain was focused on being delivering the value only in the forward direction. The reverse direction was only thought of as a direction where only information flows back to the supplier to improve customer awareness and getting orders for products. In the future, reverse supply chain will be the focus to deliver value back into the supply chain. As the world gets more and more IT enabled, online retailing will be a global phenomenon in 2016. In such a scenario reverse supply chain takes a more prominent role. The concepts of returns, use of IT in managing value back to the supplier will give the business a new strategic advantage and direction for creating and maximizing value. Consumer electronics industry is witnessing a sea of change in the current century. Products that were discarded as possible only in the realm of imagination in the past decade are real today. For example the now ubiquitous embedded chips have changed the way humans live in the world. Every little thing is now made easier using consumer electronics. In reverse supply chain in consumer electronics, the focus can be in both business to business and business to consumer segments. The consumer electronics industry is a challenging industry to focus for both B2C and B2B market because of the short life cycle nature of its products. As world grows older, fresh technologies and upgrading of the existing technology makes the current product obsolete. For example, the normal PCs today are being replaced by more powerful laptops. The replaced desktops most often end up as an e-waste. The reverse supply chain can play a major role in this capturing and maximizing the value in this field. There is a big opportunity for used PCs in the developing countries and countries with struggling economies. The reuse of these so called obsolete PCs from the developed countries can be reused in the developing and emerging countries to help deliver a better value to the population in both the
16

SCM 2016: REVERSE SUPPLY CHAIN

2012

countries. To a person who is buying a new PC or a laptop to replace his existing one reverse supply chain can help him to claim value which he never thought existed. To a person in the emerging and developing countries, buying the latest PC or laptop may not be financially viable to them. But, they will be open to buy the used PC from the developed countries, because technology obsoleteness is different at different countries. The reverse supply chain can help in claiming value in both these transactions. The reverse supply chain can help the manufacturer or supplier to get the old product, in this case the PC, back from his new customer and refurbish it a little and deliver it to the customer in the emerging market. This capability of reverse supply chain helps all the parties in this value chain claim value that they never thought existed. In the establishing a reverse supply chain, a lot of new players can come into the game and stake claim to the value. In the consumer electronics industry, while using reverse supply chain to get the products back from the customer, there exists a new set of services that can be performed. The reclaimed products also needs to be serviced and warranty needs to be given for that in the developing countries to make sure that the customer in the emerging market who buys the used PC does not believe that he is a sink for obsolete product. He should also fell that he is claiming some value as part of being in this value chain. The services of refurbishing the product to get it ready for the new market, servicing the product once sold into the new market and warranty repair for the product sold can be outsourced to another player and can open up new avenues for growth in the value chain. This is how reverse supply chain in 2016can help in discovering value that no one saw existed in the value chain. The importance of reverse supply chain comes into focus in Consumer Electronics industry because o the following factors The short life cycle of the products The growing demand of new and exciting products that stretch the imagination The demand fluctuations that are caused by different factors. Low cost of manufacturing in developing countries Increased awareness of hazards of improper disposal of e-waste

Reverse supply chain also takes a prominent role while considering the issues of sustainability of business. We have seen that the developing countries have been a dump yard for e-waste for the developed countries. As mentioned above, this was mainly due to products becoming obsolete
17

SCM 2016: REVERSE SUPPLY CHAIN

2012

due to the rapid changes and strides that we make in technology. This has mandated the developing countries to take a note of this grave situation and have started making legislations to handle the e-waste being dumped into their country. They have started forcing the OEM companies to handle the e-waste that they generate due to product obsolescence by themselves. The industries have themselves started creating policies within the organization to reduce the carbon foot print that they leave in this world when a product of the company is sld. This has made the companies to realize the economic sense of the reverse supply chain opportunities.

REVERSE LOGISTICS IN RETAIL INDUSTRY

Reverse logistics (RL) is becoming an important aspect of supply chain management. Many companies that, previously, did not devote much time or energy to the management and understanding of reverse logistics have begun to pay attention. Firms have begun to benchmark return operations with best- inclass operators. Third parties specializing in returns have seen demand for their services greatly increased. Leading-edge companies are recognizing the strategic value of a RL system for the return of stale or obsolete goods. Those firms can maintain goods on the retail shelf fresh and in demand.

A typical forward supply chain is shown in Fig.1

18

SCM 2016: REVERSE SUPPLY CHAIN

2012

Centralized Efficient Reverse Supply Chain An efficient reverse supply chain focuses on processing product reruns at an overall lower cost. The cost efficiencies in the supply chain are obtained by centralizing the testing and evaluation of the returned product at a central facility, after which credit is issued. The retailer or reseller doesnt partake in any product evaluation at their end. Shipping costs are minimized by shipping the returns to the vendor in bulk. The model achieves economies of scales at each level, thus enabling minimization of processing costs.

19

SCM 2016: REVERSE SUPPLY CHAIN

2012

Decentralized Reverse Supply Chain with Preponement In the previous model, we saw that product differentiation is delayed until all returns are shipped to the central facility. On the other hand, for products like PCs where the asset value loss over time is relatively high, we can prepone the testing and evaluation of the returned product using a decentralized model so that the unused productscan be restocked immediately.

20

SCM 2016: REVERSE SUPPLY CHAIN

2012

Conclusion
As seen in the above pages, Reverse supply chain is a very important factor in many industries such as Retail, automobile etc.Be it return of products, return of packaged material or return of used products, reverse supply chain makes the whole supply chain very efficient and helps in decreasing costs. Applications ranging from warranty returns, remanufacturing of finished products, recycling repairing, packaging, reconditioning has shown us that reverse supply chain is a necessity part of the organization. As the future pans out it will be highly likely that companies will go forward in making reverse supply chain as efficient as possible by using various new techniques and models.

21

SCM 2016: REVERSE SUPPLY CHAIN

2012

REFERENCES
1. Guldem Elbus ,(2011)The importance of Reverse Logistics:, International Journal of Business and Management Studies, 2. V. Daniel R. Guide Jr. and Luk N. Van Wassenhove(2002), The Reverse Supply Chain, Harvard Business Review. 3. Dr. Dale S. Rogers and Dr. Ronald S. Tibben-Lembke(1998), Going Backwards: Reverse Logistics Trends and Practices, Reverse Logistics Executive Council. 4. Nandan Kumar,(2009)Reverse Supply Chain: Completing the Supply Chain Loop. Cognizant 20-20 insights, 5. Joy Field,Robert Shroufe,(2007) The use of recycled materials in manufacturing: Implications for supply chain management and operations strategy, International Journal of Production Research. 6. Carter, C.R. and Ellram, L. (1998), Reverse logistics: a review of the literature and framework for future investigation, Journal of Business Logistics. 7. Rogers D., Tibben Lembke D (1999), Going Backwards: Reverse Logistics Trends and Practices, USA: Reverse Logistics Executive Council. 8. Automotive Parts Rebuilders Association,(1998) Rebuilding/Remanufacturing:Saving the Worlds Environment, (Fairfax, VA: Automotive PartsRebuilders Association, 1998) 22

SCM 2016: REVERSE SUPPLY CHAIN 9. Dr.MihaelaMoise, The importance of reverse logistics for retail activity

2012

23