What is Reverse Logistics?
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.
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 from transportation 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.
A conservative estimate is that reverse logistics accounts for a significant portion of U.S. logistics costs. Logistics costs are estimated to account for approximately 10.7 percent of the U.S. economy. However, the exact amount of reverse logistics activity is difficult to determine because most companies do not know how large these are. Of the firms included in this research, reverse logistics costs accounted for approximately four percent of their total logistics costs. Applying this mean percentage to Gross Domestic Product (GDP), reverse logistics costs are estimated to be approximately a half percent of the total U.S. GDP. This would account to approximately ($ 11,667.515 Billions x 0.5%) $ 58.34 Billion in 2004 in the U.S. alone.
Returns Management is that part of supply chain management that includes returns, reverse logistics, gatekeeping, and avoidance.
This definition includes activities that are critical to supply chain management such as avoidance and gatekeeping. Avoidance involves finding ways to minimize the number of items that need to enter the return flow. It can include ensuring that the quality of product and user friendliness for the consumer is at the highest attainable level before being sold and shipped, or changing promotional programs that load the trade when there is no realistic chance that the product shipped to the customer will actually be sold.
Gatekeeping means making decisions to limit the number of items that are allowed into the reverse flow. Successful gatekeeping allows firms to control and reduce the rate of returns without damaging customer service. Gatekeeping eliminates the cost associated with returning products that should have not been returned or the cost of products that have been returned to the inappropriate destination. The point of entry into the reverse flow is the best point to evade unnecessary cost and management of materials by screening unwarranted returned merchandise.
Source: Dale S. Rogers, Douglas M. Lambert, Keely Croxton and Sebastian Garcia-Dastugue. (2002). The Returns Management Process. International Journal of Logistics Management. P. 5, V 13, no. 22.
Remanufacturing and Refurbishing can be classified into five categories. The first three categories: repair, refurbishing, and remanufacturing, involve product recondition and upgrade. These options differ with respect to the degree of improvement. Repair involves the least amount of effort to upgrade the product, and remanufacture involves the greatest.
Cannibalization is simply the recovery of a restricted set of reusable parts from used products. Recycling is the reuse of materials that were part of another product or subassembly...
For years, retailers and manufacturers have focused solely on massaging profitability into and out of the inventory management process—but only from a forward distribution perspective. Our research shows that the time has come to give similarly focused attention to the reverse logistics management function—and every company has one. Point of entry into the reverse logistics pipeline—or “gatekeeping,” as we call it— deserves much more attention. Gatekeeping is the screening of defective and unwarranted returned merchandise at the entry point into the reverse logistics process. Good gatekeeping is the first critical factor in making the entire reverse flow manageable and profitable...
"A" channel - the primary sales channel, carrying first quality goods that have not been available elsewhere.
Advance Ship Notice (ASN) - EDI transaction that informs users what, where, how, and when product is arriving.
Asset recovery - the classification and disposition of surplus, obsolete, scrap, waste and excess material products, and other assets, in a way that maximizes returns to the owner, while minimizing costs and liabilities associated with the dispositions.
"B" channel - secondary sales channel, for goods that have been through a reverse flow. Can carry first quality goods.
Barter companies - allow firms to get rid of unwanted inventories of first-quality and other goods, by trading for other products or for commodities such as airline tickets or advertising time.
Brokers - In reverse logistics, brokers are firms specializing in products that are at the end of their sales life. Often, willing to purchase any product, in any condition, given a low enough price. Often the customer of last resort for many returns.
Brown goods - electronics goods (such as computers, televisions, fax machines, and audio equipment).
Buy-out - when one manufacturer buys out a retailer's inventory of another manufacturer's product. This allows the buying manufacturer to replace its competitor's product with their own.
Cannibalization of demand - In reverse logistics, cannibalization of demand is when secondary market sales reduce sales in the "A" channel.
Cannibalization of parts - when parts or components are taken off of one item and used to repair or rebuild another unit of the same product.
Centralized Return Center (CRC) - a facility where a company's returns are processed.
Chargeback - a deduction from a vendor invoice for product return amount; sometimes occur without vendor permission.
Close-out liquidators - firms specializing in buying all of a retailer's product in some particular area; it usually happens when a retailer decides to get out of a particular area of business.
Controlled Tip - a sanitary landfill where refuse is sealed in cells formed from earth or clay.
Core - a valuable and reusable part or subassembly that can be remanufactured and sold as a replacement part; often found in the automotive industry.
Core charge - the amount charged by a supplier on a re-manufacturable product to encourage the consumer to return the defective item being replaced.
Design for Disassembly (DFD) - designing a product so it can be more easily disassembled at end-of-life.
Design for Logistics (DFL) - designing a product to function better logistically. Taking into consideration how the product will be handled, shipped, stored, etc.
Design For Manufacturing (DFM) - taking manufacturing concerns into account when designing a product, to enable easy manufacturing, cost effectiveness, or a higher standard of quality.
Design For Reverse Logistics (DFRL) - designing products so that their return flow functions better; designing reverse logistics requirements into product and packaging.
Disposition - how a product is disposed of, e.g. sold at an outlet, sold to a broker, sent to a landfill, etc.
Disposition cycle time - the duration of time from an item's initial return, to the item reaching its final disposition.
Duales System Deutschland (DSD) - the German organization responsible for collecting and recycling consumer packaging.
Electronic Data Interchange (EDI) - a system for business-to-business electronic communication.
Extended Producer Responsibility (EPR) - a requirement that the original producer of an item is responsible for ensuring its proper disposal.
Factory-renewed - a product that has been refurbished by the manufacturer; typically carries a full new-product warranty.
Footprint - building size, in square feet. A large footprint store requires a large number of square feet.
Gatekeeping - the screening of products entering the reverse logistics pipeline.
Gray market - products sold through unauthorized dealers or channels; generally do not carry a factory warranty.
Green Dot - a symbol on packaging sold in Germany that indicates that the product is eligible to be recycled through the Duales System Deutschland.
Green logistics - attempts to measure and minimize the ecological impact of logistics activities.
High learning products - items that require education or instruction before being able to operate; a computer, for example.
Insurance liquidators - secondary market companies specializing in buying products damaged in shipment and declared as losses by insurance companies.
Investment recovery - see asset recovery.
Irregular - products that do not meet the standards for first quality product, perhaps for cosmetic reasons, but which generally still satisfy most of the basic performance requirements.
Job-out liquidators - secondary market companies specializing in buying end-of-season products from retailers.
Landfill - a controlled environment for burying municipal solid waste.
Leachate - water that seeps through a landfill, picking up pollutants as it travels.
Liquidator - a secondary market company that buys product that has reached the end of its sales life in the "A" channel.
Lift - see buy-out.
Logistics - 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 origin to the point of consumption for the purpose of conforming to customer requirements.
Made-for-outlet - products made especially to be sold at outlet stores; generally of slightly lower quality that "A" channel products.
Marketing returns - unsold product a supplier has agreed to take back from the retail customer; usually overstocks; can be the result of product shipped to the retailer with the understanding that sales are guaranteed.
Municipal Solid Waste (MSW) - garbage generated by residences and small businesses.
Non-defective defectives - when customers return a product claiming it to be defective, when in fact, the problem is not with the product, but often with the customer's ability to properly operate the product.
Non-defective returns - a non-defective defective returned by a customer.
Outlet sales - products sold at an "outlet" store; typically irregular or off-season products.
Overstock - excess inventory; may be from ordering too much, order cancellations, or product's failure to sell.
Point of Sale (POS) - the point where ownership of the product transfers to the customer.
Point-of-Sale (POS) registration - collecting customer registration information for warranty purposes at the time the product is sold.
Partial returns credit - giving a customer a partial refund for a product because not all components of the product are present.
Prebate - providing a discounted purchase price on a product linked to the promise not sell the product to a re-manufacturer at the end of its life; paying the customer at the time of purchase for returning the product at end-of-life.
Preselling - contracting ahead of time (during the selling season) with a job-out company to purchase all remaining product at the end of the season.
Primary packaging - the first level of product packaging; for example, the tube that toothpaste is packed in, or a bottle that contains beer.
Producer pays - the principle that the manufacturer should pay for ensuring the recycling and proper disposal of product at end-of-life.
Reclaim materials - see recycling.
Reclamation centers - centralized processing facilities for returns; term used widely in the grocery industry.
Reconditioning - when a product is cleaned and repaired to return it to a "like new" state.
Recycle - when a product is reduced to its basic elements, which are reused.
Refurbishing - similar to reconditioning, except with perhaps more work involved in repairing the product.
Remanufacturing - similar to refurbishing, but requiring more extensive work; often requires completely disassembling the product.
Re-returns - when a customer tries to return for full price a product that was sold as a returned product.
Resell - when a returned product may be sold again as new.
Restocking fee - a charge to the consumer for accepting their returned product.
Return abuse - when a customer tries to return a product at a chain other than where they bought it, or for a price higher than what they paid for it, or after the warranty period has expired.
Returnable tote - transport packaging that can be used multiple times to move materials between or within facilities.
Return Authorization (RA) - authorization to return a product to a supplier.
Return Material Allowance (RMA) - authorization to return a product to a supplier.
Returns - products for which a customer wants a refund because the products either fail to meet his needs or fail to perform.
Returns allowance - the quantity of product that a customer is allowed to return; usually calculated as a percentage of total purchases.
Returns center - same as centralized return center.
Return to supplier - returning damaged products or customer returns to the vendor from whom they were purchased.
Return To Vendor (RTV) - same as return to supplier.
Reusable tote - same as returnable tote.
Reuse - using a product again for a purpose similar to the one for which it was designed.
Reverse distribution - the process of bringing products or packaging from the retail level through the distributor back to the supplier or manufacturer.
Reverse logistics - 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.
Radio Frequency Identification (RFID) - a technology in which a tag is attached to each item that broadcasts a unique, low-frequency radio signal.
Return Material Authorization (RMA) - permission to return a product to a supplier.
Rotable parts - using a closed loop of repairable products; when a customer sends in a broken product, a repaired product is sent, and the customer's product is repaired and stored to be sent to another customer.
Salvage - when a product is sold to a broker or some other low-revenue customer.
Sanitary landfill - a landfill scientifically designed to prevent groundwater contamination from leachate.
Secondary market - a collection of companies that specialize in selling products that have reached the end of their selling season in the "A" channel.
Secondary packaging - the second level of product packaging; for example, the box that contains a tube of toothpaste, or the carton that holds six bottles of beer.
Secure disposal - requiring a company to destroy the product under the supervision of a security guard to ensure the product is destroyed.
Secure returns - a reverse logistics process designed to minimize leakage of product; secure returns processes are designed to eliminate shrinkage and unwanted product disposition.
Source reduction - reducing usage of resources at the point of generation or production.
Supply chain position - the position in the channel that the firm occupies; this position could be manufacturer, wholesaler, distributor, retailer, or combinations of these.
Take-back - requiring manufacturers to collect product at end-of-life to reclaim materials and dispose of properly.
Tipping fees - the cost of disposing of one ton of garbage in a landfill.
Transport packaging - packaging used for transporting products from manufacturers to distributors or retailers.
Two-dimensional bar coding - a bar coding technology that allows much more information to be stored in a given space; instead of a single row of line, the bar code label consists of a two-dimensional grid of dots.
White goods - household appliances such as washers, dryers, refrigerators.
Zero returns - manufacturer never takes possession of returns. Destroyed in the field by retailer or third party.Bibliography and Publications:
Tibben-Lembke, Ronald, "The Impact of Reverse Logistics on Total Cost of Ownership," Journal of Marketing Theory and Practice, 1998, 6:4, 51-60.
Dale S. Rogers and Ronald S. Tibben-Lembke, "No Deposit, No Return: Reverse Logistics and Disposable Packaging," Proceedings of ISTA, Feb. 2001.
Tibben-Lembke, Ronald, and Rogers, Dale "Differences Between Forward and Reverse Logistics in a Retail Environment" Supply Chain Management: An International Journal 2002, 7:5.
Dale S. Rogers, Douglas M. Lambert, Keely Croxton and Sebastian Garcia-Dastugue. (2002). The Returns Management Process. International Journal of Logistics Management. P. 5, V 13, no. 22.
Tibben-Lembke, Ronald, "Life After Death: Reverse Logistics and the Product Life Cycle" International Journal of Physical Distribution and Logistics Management. 2002, 32:3, 223-244.
Tibben-Lembke, Ronald, "Strategic use of the Secondary Market for Retail Consumer Goods," California Management Review, 2004 (Winter), 46:2, 90-104.
Dale S. Rogers, Ronald S. Tibben-Lembke, Kasia Banasiak, Karl Brokmann, Timothy Johnson, "Reverse Logistics Challenges" Council of Logistics Management Annual Conference Proceedings, Oak Brook, IL: Council of Logistics Management.