REVERSE LOGISTICS AND

REVERSE FLOW IN SCM

ASHISH KUMAR
ROLL NO 12, MBA FULL TIME 3RD
SEMESTER
SCHOOL OF MANAGEMENT
STUDIES,
COCHIN UNIVERSITY OF SCIENCE
AND TECHNOLOGY, KOCHI-682022.
1

IN A COMPETITIVE ENVIRONMENT, THE PHILOSOPHY OF

ACCEPTING PRODUCT RETURNS AS AN EDGE OVER
COMPETITORS HAS RESULTED IN HUGE CHALLENGES TO
LOGISTICS MANAGEMENT
TODAY, LOGISTICAL SUPPORT MEANS GOING BEYOND
FORWARD LOGISTICS TO INCLUDE PRODUCT RECALL,
PRODUCT - DISPOSAL AND PRODUCT RECYCLING ETC.
THE LOGISTICS OBJECTIVES INCLUDE REVERSE
MATERIALS FLOW SYSTEM TO EXTEND LIFE CYCLE
SUPPORT TO THE PRODUCT
REVERSE LOGISTICAL COMPETENCY IS THE RESULT OF
WORLDWIDE ATTENTION TOWARDS ENVIRONMENTAL &
ECOLOGICAL PROBLEMS
2

 Logistics (Forward)

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 origin to the point of consumption for the
purpose of conforming to customer requirements
- Council of Logistics, 1988 Reverse Logistics

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
- Rogers and Tibben-Lembke -

REVERSE LOGISTICS A COMPETITIVE TOOL

TO REMAIN COMPETITIVE AND DIFFERENTIATED, THE ORGANISATION
ACROSS THE WORLD ARE SHOWING SPEED AND RELIABILITY IN
SERVICE OFFERINGS SUCH AS

REPLACING DEFECTIVE GOODS

REPAIRING OF USED PRODUCTS

REFURBISHING THE RETURNED PRODUCTS

CALLING BACK SUB-STANDARD OR HARMFUL GOODS

DISPOSING-OFF PRODUCT WASTE

THESE SERVICES ADD TO THE COMPETITIVENESS OF AN ORGN.

OPERATING IN A REGULATORY ENVIRONMENT & CREATE CUSTOMER
VALUE BY PROVIDING A CLEAN ENVIRONMENT THROUGH REVERSE
LOGISTICS SERVICES WITHOUT ANY EXTRA COST TO THE CUSTOMER.

DEFINITION
REVERSE LOGISTICS MAY BE DEFINED AS A PROCESS OF
MOVING GOODS FROM THEIR PLACE OF USE, BACK TO THEIR
PLACE OF MANUFACTURE FOR RE-PROCESSING, RE-FILLING,
REPAIRS OR RECYCLING / WASTE DISPOSAL.
IT IS A PLANNED PROCESS OF MOVEMENT OF GOODS IN
REVERSE
DIRECTION IN AN EFFECTIVE AND COST EFFICIENT MANNER,
THROUGH AN ORGANISED NETWORK.
IT IS AN INTEGRATED SYSTEM IN AN ORGANISATIONS
SUPPLY
CHAIN MANAGEMENT
REVERSE LOGISTICS REFERS TO THE SKILLS OF LOGISTICS
MANAGEMENT TO REDUCE, MANAGE & DISPOSE-OFF WASTE
ARISING FROM PRODUCTS & INPUTS

THE REVERSE FLOW LOGISTIC PROCESS

REASONS FOR REVERSE LOGISTICS

RETURN OF GOODS FROM CUSTOMER FOR NON PERFORMANCE

SHORT TERM RENTAL RETURNS

RETURNS SENT TO MANUFACTURER FOR REPAIRS / RE-FILLING

REUSABLE CONTAINERS / PACKAGES

RETURN OF INPUTS NOT USED BY MANUFACTURER / GOODS

NOT
SOLD BY DISTRIBUTORS

EXCHANGE OF NEW PRODUCT FOR THE OLD ONES

GOODS SENT FOR UP- GRADATION / MODIFICATION

RECYCLING OF PRODUCT
7

SCOPE OF REVERSE LOGISTICS

REVERSE LOGISTICS, THOUGH CONSIDERED AS A DRAIN ON
COMPANY PROFITS, IN TODAYS COMPETITIVE MARKETS, MORE
AND MORE MANUFACTURING FIRMS ARE PLANNING OF
INCORPORATING THE REVERSE LOGISTICS SYSTEM IN THEIR
SUPPLY CHAIN PROCESS FOR FOLLOWING REASONS:

GROWING CONCERN FOR ENVIRONMENT POLLUTION

GOVEMNMENT REGULATIONS ON PRODUCT RECYCLING AND
WASTE DISPOSAL
GROWING CONSUMERISM
STIFF COMPETITION

THE REVERSE LOGISTICS NETWORK CAN BE USED FOR VARIOUS

PURPOSES SUCH AS REFILLING, REPAIRS, RE- FURBISHING,
RE- MANUFACTURING ETC. DEPENDING ON THE NATURE OF THE
PRODUCT, UNIT VALUE, SALES VOLUME AND DISTRIBUTION
CHANNELS.

1. REPAIRS AND REFURBISHING

REPAIR IS A REGULAR FEATURE IN SERVICE BASED PRODUCTS
UNDER A WARRANTY PERIOD AND ALMOST ALL CONSUMER
DURABLES NEED REPAIRS ON A REGULAR BASIS.
REFURBISHING IS DONE TO GOODS RETURNED BY DAMAGE,
DEFECTS
OR BELOW PAR PERFORMANCE DURING THE WARRANTY PERIOD.
MANUFACTURER ESTABLISH THE REVERSE LOGISTICS SYSTEM, NOT
ONLY FOR OFFERING FREE SERVICE DURING THE WARRANTY
PERIOD
BUT ALSO FOR EXTENDING THE SERVICES BEYOND THE WARRANTY
PERIOD ON A CHARGEABLE BASIS.
THE SYSTEM OPERATES THROUGH THE COMPANYS SERVICE
CENTERS WHERE REPAIR AND REFURBISHING TAKES PLACE.
COLLECTION OF DEFECTIVE PRODUCTS IS DONE, THROUGH THE
DEALERS NETWORK. THESE COLLECTED PRODUCTS ARE SENT
TO THE NEAREST SERVICE CENTRE FOR OVERHAUL, REPAIRS OR
REFURBISHING.

REPAIRS

STORES

PRODUCTION

WAREHOUSE

RETURNS

SUPPLIERS

CUSTOMERS
DISPOSAL

REVERSE LOGISTICS FLOW

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2. RE-FILLING
REVERSE LOGISTICS IS INTEGRATED TO THEIR CHAIN BECAUSE OF
THE REUSABLE NATURE OF PACKAGES SUCH AS GLASS BOTTLES,
TIN / PLASTIC CONTAINERS & METAL CYLINDERS ETC.
IN CASE OF SOFT DRINKS, THE DELIVERY VAN DELIVERS FILLED
BOTTLES TO RETAILERS (A, B, C ) ENROUT AND COLLECTS
THE SAME NUMBER OF EMPTY BOTTLES FROM THEM FOR
DELIVERY TO THE FACTORY.
NO EXTRA TRANSPORTATION COSTS ARE INVOLVED IN THE
PROCESS
AS THE SAME DELIVERY VAN ORIGINATES AND TERMINATES ITS
JOURNEY AT THE FACTORY WHERE THESE REUSABLE BOTTLES ARE
REFILLED FOR RE-DELIVERY TO CUSTOMERS.
THE ARRANGEMENT IS DONE THROUGH A HUB AND SPOKE
DISTRIBUTION SYSTEM.

11

A2

A3

DISTRIBUTION
AREA (A)

A1

C1

B2

B1

DISTRIBUTION
AREA (B)

BOTTLING
PLANT

DISTRIBUTION
AREA (C)

C2

B3
C3
B4

REVERSE GOODS FLOW FOR REFILLING

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3. PRODUCTS RECALL
THIS IS AN EMERGENCY SITUATION WHEREIN THE PRODUCTS
DISTRIBUTED IN THE MARKET ARE CALLED BACK TO THE FACTORY
BECAUSE OF ANY OF THE FOLLOWING REASONS:
1.
2.
3.
4.
5.
6.
7.
8.
9.

PRODUCT NOT GIVING THE GUARANTEED PERFORMANCE

QUALITY COMPLAINTS FROM MANY CUSTOMERS
DEFECTIVE PRODUCTS CAUSING HARM TO HUMAN LIFE
PRODUCTS BEYOND EXPIRY DATE
PRODUCTS WITH DEFECTIVE DESIGN
INCOMPLETE PRODUCT
VIOLATION OF GOVERNMENT REGULATIONS
ETHICAL CONSIDERATIONS
SAVE THE COMPANY IMAGE

PRODUCT RECALL PUTS A HUGE FINANCIAL BURDEN ON THE

COMPANY BUT IN THE COMPETITIVE SCENARIO THE COMPANIES
CONSIDER RE-CALL AS AN OPPORTUNITY TO INCREASE
CUSTOMER
SATISFACTION.
13

4. RECYCLING AND WASTE DISPOSAL

LEFTOVER MATERIALS, USED PRODUCTS AND WRAPPER /
PACKAGES
WASTES ARE CAUSING ENVIRONMENTAL POLLUTION & CREATING
PROBLEMS FOR DISPOSAL.
IN MANY COUNTRIES,GOVERNMENTS ARE DEVISING REGULATIONS
TO
MAKE MANUFACTURERS RESPONSIBLE FOR MINIMISING WASTE BY
WAY OF RECYCLING PRODUCTS.
RECYCLING PROCESS

COLLECTING WASTE MATERIAL & DELIVERING THEM TO ENTITY

RESPONSIBLE FOR RECYCLING
PROCESSING RECYCLABLES TO CREATE SECONDARY INPUTS
USING SECONDARY MATERIALS FOR MANUFACTURING NEW
PRODUCTS
RETURNING THE PRODUCTS TO THE MANUFACTURER FOR
RECOVERING THE INPUTS FOR RE-USE

14

5. RE-MANUTACTURING
MANUFACTURERS IN DEVELOPED COUNTRIES ARE PUTTING IN
PRACTICE A NEW CONCEPT OF RE-MANUFACTURING.
DURING THE USAGE OF THE PRODUCT IT UNDERGOES WEAR &
TEAR.
WORN OUT PARTS ARE REPLACED WITH NEW ONES AND THE
PERFORMANCE OF THE PRODUCT IS UPGRADED TO THE LEVEL OF A
NEW ONE.
SIMILARLY, EQUIPMENT SOLD CAN BE CHECKED AFTER USE TO THE
REMANUFACTURING PROCESS AND BE BROUGHT BACK TO THE
REMANUFACTURING UNIT.
THE INVESTMENT IN REMANUFACTURING & RELATED REVERSE
LOGISTICS SUPPLY CHAIN CAN BE JUSTIFIED ON THE BASIS OF
ECONOMIES OF SCALE.

15

SYSTEM DESIGN CONSIDERATIONS

(DRIVERS IN REVERSE LOGISTICS)
THE SUCCESS OF REVERSE LOGISTICS SYSTEM IN ACHIEVING
THE DESIRED OBJECTIVES DEPENDS ON THE EFFICIENCY AND
EFFECTIVENESS OF FOLLOWING SUB-SYSTEMS

1. PRODUCT LOCATION
THE FIRST STEP IN THE CALL BACK PROCESS IS TO IDENTIFY
THE PRODUCT LOCATION IN THE PHYSICAL DISTRIBUTION SYSTEM OF
THE FIRM.
PRODUCT LOCATION BECOMES MORE DIFFICULT AFTER IT IS SOLD
AND HANDED OVER TO THE CUSTOMER.
IT IS A BIT EASIER IN THE CASE OF INDUSTRIAL OR HIGH VALUE
PRODUCTS DUE TO THE LIMITED NUMBER OF CUSTOMERS &
PERSONAL INTERACTION WITH THE CLIENTS DUE TO DIRECT
SELLING.

16

2. PRODUCT COLLECTION SYSTEM

ONCE THE PRODUCT LOCATION IS IDENTIFIED, THE COLLECTION
MECHANISM GETS INTO OPERATION.
THIS CAN BE DONE EITHER THROUGH COMPANYS FIELD FORCE,
CHANNEL MEMBERS OR THIRD PARTY. HOWEVER, PROPER
INSTRUCTIONS HAVE TO BE GIVEN TO MOTIVATE THE CUSTOMER
FOR
RETURNING THE PRODUCTS.
3. RECYCLING / DISPOSAL CENTRES
THESE MAY BE THE COMPANYS PLANT/ WAREHOUSES OR SOME
FIXED LOCATION IN THE REVERSE LOGISTICS NETWORK.
THE CALLED BACK PRODUCTS ARE INSPECTED BEFORE THEY ARE
FURTHER PROCESSED FOR FURTHER REPAIRS, REFURBISHING,
REMANUFACTURING OR WASTE DISPOSAL.
INVESTMENTS IN FACILITIES FOR THESE ACTIVITIES DEPEND ON
THE
OBJECTIVES OF THE SYSTEM, COST IMPLICATION, COMPLEXITY OF
THE OPERATIONS & EXPECTED GAINS.
17

4. DOCUMENTATION SYSTEM
TRACING THE PRODUCT LOCATION BECOMES EASIER IF PROPER
DOCUMENTATION IS MAINTAINED AT EACH CHANNEL LEVEL.
HOWEVER, AT THE TIME OF HANDING OVER THE PRODUCT TO
THE CUSTOMER, THE DETAILED INFORMATION IF COLLECTED
THROUGH PROPER DOCUMENTATION, CAN FORM A GOOD
DATABASE
THAT CAN BE USED IN CASE OF PRODUCT CALL BACKS.

18

COST IMPLICATIONS
THE REVERSE LOGISTICS SYSTEM IS A COST CENTRE.
HOWEVER,
THESE COSTS ARE INCURRED FOR ACHIEVING COMPANYS
CERTAIN
OBJECTIVES AND CAN BE ATTRIBUTED TO THE FOLLOWING
ACTIVITIES
1. PRODUCT LOCATION (INVESTMENT & OPERATING COSTS)
2. TRANSPORTATION
3. PRODUCT COLLECTION (CUSTOMERS > RETAILERS > PLANT)
4. DISPOSAL (PLANT > SUPPLIERS / DISPOSAL)
5. REFILLING, REPAIRS, REFURBISHING, REMANUFACTURING,
RECYCLLING

6.

DOCUMENTATION (FOR PRODUCT TRACKING AND TRACING

DURING ENTRY, EXIT AND FLOW IN THE SYSTEM)
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BARRIERS TO GOOD REVERSE

LOGISTICS
1. LEGAL ISSUES
UNDER INDIAN REGULATIONS EXCISE PAID GOODS ONCE SOLD BY
THE MANUFACTURER CANNOT BE BROUGHT BACK TO THE PLANT
WITHOUT PROPER DOCUMENTATION AND DECLARATION TO
EXCISE AUTHORITIES.
THIS IS A VERY CUMBERSOME & TIME CONSUMING PROCESS AND
NON-COMPLIANCE MAY MEAN THAT THE MANUFACTURER WILL
HAVE TO FACE LEGAL ACTION.
2. MANY ORGANIZATIONS TERM REVERSE GOODS AS JUNK AND
THEY DONT WANT TO WASTE THEIR RESOURCES ON THESE
JUNKS
3.

THE GOODS ARE CONSIDERED UNWORTHY OF ANY INVESTMENT

20

Eight categories of reverse flows:

Products that have failed; are unwanted, damaged, or
defective; but can be repaired or remanufactured and
resold
Products that are old, obsolete, or near the end of their
shelf life but still have some value for salvage or resale
Products that are unsold from retailers, usually referred
to as overstocks that have resale value
Products being recalled due to a safety or quality defect
that may be repaired or salvaged
Products needing pull and replace repair before being
put back in service
Products that can be recycled such as pallets, containers,
computer inkjet cartridges, etc.
Products or parts that can be remanufactured and resold
Scrap metal that can be recovered and used as a raw
material for further manufacturing
21

Reverse Logistics Systems versus

Closed Loops

Reverse logisticsThe process of moving or

transporting goods from their final destination for the
purpose of capturing value or for proper disposal.
Reserve logistics involves the processes for sending
new or used products back up stream for repair,
reuse, refurbishing, resale, recycling, or
scrap/salvage.
Closed loop supply chainsDesigned and managed to
explicitly consider both forward and reverse flows
activities in a supply chain.
Explicitly designed and managed for both flows
22

 Customer Returns
A variety of reasons for customer returns can be
given (as indicated previously) including defective or
unwanted items, warranty problems, recalls, and
miss-shipments.
Environmental Challenges
Recycling and environmental concerns are
frequently viewed simultaneously because of their
association with regulatory policy at the local, state,
and/or federal level.
Economic Value
Value has become an important for businesses and
even some nonprofit organizations.
Making reverse flows profitable is a challenge as well as
an opportunity.

23

Achieving a Value Stream for Reverse

Flows
These barriers may be internal or external and may including
the following:
Priority relative to other issues and potential projects or
programs in the organization
Inattention or lack of buy-in from top level
management in the organization
Financial resources necessary for operations and asset
infrastructure
Personnel resources required to develop and implement
the reverse flows program
Adequacy of material and information systems to support
the returns program
Local, state, and federal restrictions and/or regulations
The economic value added of utilizing a 3PL has to be
considered.
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The Reverse Logistics Educational

Council recommends consideration of
the following:
AvoidanceProducing high-quality products and
developing processes to minimize or eliminate returns
Gate keepingChecking and screening merchandise at the
entry point into the reverse flows process to eliminate
unnecessary returns or minimize handling
Reducing reverse cycle timesAnalyzing processes to
enable and facilitate compression of time for returns to
enhance value recapture
Information systemsDeveloping effective information
systems to improve product visibility, reduce uncertainty,
and maximize economies of scale.
Returns centersDeveloping optimum locations and facility
layouts for returns centers to facilitate network flow

25

The Reverse Logistics Educational

Council recommends consideration of
the following:(cont.)
Asset recoveryClassifying and disposing of returned items,
surplus, scrap, and obsolete items to maximize returns and
minimize cost
PricingNegotiating the best price for products being returned
and resold
OutsourcingConsidering a relationship with a third-party
organization to handle and manage reverse flows in cases
where existing personnel, infrastructure, experience, and/or
capital may not be adequate to implement a successful program
Zero returnsDeveloping a policy to exclude returns by giving a
returns allowance and/or destroying the product in the field
Financial managementDeveloping guidelines and financial
procedures to properly account for charges against sales and
related financial issues when items are returned by customers

26

Summary
Forward flows in the supply chain have traditionally
received the most attention, and reverse flows have
often been ignored or mismanaged.
Effective supply chain and logistics management
requires that reverse flows be accorded careful
attention as important elements of a supply chain.
Good management of reverse flows can reduce costs,
enhance sales, and positively affect the profit margin of
a company.
Globalization of business and the associated more
complex supply chains have added new challenges for
proper reverse flows management.
The scope and magnitude of flows has increased
dramatically because of customer service policies,
catalog and Internet sales, and environmental policies.
27

Summary (cont.)
The scope and magnitude of flows has increased
dramatically because of customer service policies, catalog
and Internet sales, and environmental policies.
Reverse logistics systems and closed loop supply chains
are similar concepts, but they have distinctive
characteristics and procedures.
The major forces affecting the volume of goods being
handled in the reverse flows processes of organizations
are customer returns, environmental policies, and issues
and economic benefits for organizations.
Proactive management of reverse flows can lead to the
creation of a value stream as opposed to a waste stream.
When designing a returns flow program, consideration
needs to be given to the various types of returns with the
development of procedures and processes for each one.
Forward flow costs are usually well defined, making
tradeoffs easier to analyze. Care needs to be given to
developing realistic costs for reverse flows in order to
analyze tradeoffs.
28

CONCLUSIONS

More firms will give considerable attention on reverse logistics

Efficient handling and disposition of returned product can

make a competitive difference.

Excellent reverse logistics practices add to the companys

bottom line.

Aspects to reduce the cost of reverse

logistics:
Improved Gatekeeping technology
Partial returns credit
Earlier disposition decisions
Faster processing / shorter cycle
times
Better data management
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CONCLUSIONS

Within reverse logistics, maintaining the environment and

making profits are complementary.
Fewer disposed products can benefit companies and the
environment.
Alternate uses of resources by extending products normal
life cycles.
Cost effective and ecologically friendly solutions.

Reverse logistics is not simply a

matter of driving the truck the
opposite way.

30

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