REVERSE LOGISTIC

We usually think of logistics as managing the flow of materials from your point of purchase to your point of consumption. However, there is also a reverse logistical flow, from the point of consumption to the point of origin, which needs to be managed.

This reverse logistical flow is common for most companies. For example, beverage manufacturers have to manage all packaging (bottles) returns from points of sale to their distribution centers. Steelmakers largely use the scrap generated by their customers as a production input, and for that they use load collection centers. The aluminum can industry is notable for its great use of recycled raw materials, having developed innovative means of collecting discarded cans.

There are also other industry sectors where the reverse logistics management process is more recent, such as in the electronics, retail and automobile industries. These sectors also have to deal with the return flow of packaging, customer returns or the reuse of materials for production.

This is not a new phenomenon and examples such as the use of scrap metal in the production and recycling of glass have been around for a long time. On the other hand, it has been observed that the scope and scale of recycling activities and reuse of products and packaging has increased considerably in recent years. Some of the causes for this are discussed below:

Environmental issues

There is a clear tendency for environmental legislation to move towards making companies increasingly responsible for the entire life cycle of their products. This means being legally responsible for their destination after delivery of products to customers and the impact they have on the environment.

A second aspect concerns the increase in the ecological awareness of consumers who expect companies to reduce the negative impacts of their activities on the environment. This has generated actions on the part of some companies that aim to communicate an “environmentally correct” institutional image to the public.

Competition – Differentiation by service

Retailers believe that customers value companies that have more liberal product return policies. This is a perceived advantage where suppliers or retailers bear the risk for damaged products. This involves, of course, a structure for receiving, sorting and shipping returned products.

This is a trend that is reinforced by the existence of consumer protection legislation, guaranteeing them the right to return or exchange.

Cost reduction

Initiatives related to reverse logistics have brought considerable returns to companies. Savings with the use of returnable packaging or with the reuse of materials for production have brought gains that stimulate more and more new initiatives.

In addition, development efforts and improvements in reverse logistics processes can also produce considerable returns, which justify the investments made.

In the following sections of this article, basic concepts related to reverse logistics will be presented and some of the critical factors that influence the efficiency of reverse logistics processes will be discussed.

THE REVERSE LOGISTICS PROCESS AND THE LIFE CYCLE CONCEPT

Behind the concept of reverse logistics is a broader concept that is the "life cycle". The life of a product, from a logistical point of view, does not end with its delivery to the customer. Products become obsolete, damaged, or non-functioning and must be returned to their point of origin to be properly disposed of, repaired, or reused.

From a financial point of view, it is evident that in addition to the costs of purchasing raw materials, production, storage and storage, the life cycle of a product also includes other costs that are related to the entire management of its reverse flow. From an environmental point of view, this is a way of assessing what impact a product has on the environment throughout its lifetime. This systemic approach is essential to plan the use of logistical resources in order to contemplate all stages of the product life cycle.

In this context, we can then define reverse logistics as the process of planning, implementing and controlling the flow of raw materials, in-process inventory and finished products (and their information flow) from the point of consumption to the point of origin, with the purpose of recapturing value or performing proper disposal.

The reverse logistics process generates reused materials that return to the traditional supply, production and distribution process, as shown in figure 1.

This process is generally composed of a set of activities that a company performs to collect, separate, pack and ship used, damaged or obsolete items from points of consumption to reprocessing, resale or disposal sites.

There are variants regarding the type of reprocessing that materials can have, depending on the conditions in which they enter the reverse logistics system. The materials can return to the supplier when there are agreements in this sense. They can be resold if they are still in suitable commercial conditions. They can be refurbished, provided there is economic justification. They can be recycled if there is no possibility of recovery. All these alternatives generate reused materials, which enter the direct logistics system again. As a last resort, the destination may be its final disposal (figure 2).

CHARACTERIZATION OF REVERSE LOGISTICS

The nature of the reverse logistics process, that is, which activities will be carried out depends on the type of material and the reason why they enter the system. Materials can be divided into two large groups: products and packaging. In the case of products, reverse logistics flows will occur due to the need for repair, recycling, or simply because customers return them.

Table 1 below shows return rates due to customers, typical of some industries. Note that return rates are quite variable by industry and that, in some of them, such as catalog sales, the efficient management of the reverse flow is essential for the business.

The reverse flow of products can also be used to keep inventories low, lowering the risk of holding low-turn items. This is common practice in the recording industry. As this industry works with a large number of items and a large number of launches, the risk for retailers when acquiring stock becomes very high. To encourage the purchase of the entire product mix, some companies accept the return of items that do not sell well. Although this return cost is significant, it is believed that sales losses would be much greater if this practice were not adopted.

In the case of packaging, reverse logistics flows happen basically due to its reuse or due to legal restrictions as in Germany, for example, which prevents its disposal in the environment. As environmental restrictions in Brazil regarding transport packaging are not so strict, the decision on the use of returnable or reusable packaging is restricted to economic factors.

There is a wide variety of returnable containers and packaging, but they have a considerably higher acquisition cost than one-way packaging. However, the greater the number of times that returnable packaging is used, the lower the cost per trip, which tends to be lower than the cost of one-way packaging.

CRITICAL FACTORS THAT INFLUENCE THE EFFICIENCY OF THE REVERSE LOGISTICS PROCESS

Depending on how the reverse logistics process is planned and controlled, it will be more or less efficient. Some of the factors identified as being critical and that contribute positively to the performance of the reverse logistics system are commented below:

• good input controls

At the beginning of the reverse logistics process, it is necessary to correctly identify the state of the materials that return so that they can follow the correct reverse flow or even prevent materials that should not enter the flow from doing so. For example, identifying products that can be resold, products that can be refurbished or that will have to be fully recycled.

Reverse logistics systems that do not have good entry controls make the entire subsequent process difficult, generating rework. They can also be a source of friction between suppliers and customers due to lack of confidence about the causes of returns. Personnel training is a key issue in achieving good entry controls.

• Standardized and mapped processes

One of the biggest difficulties in reverse logistics is that it is treated as a sporadic, contingent process and not as a regular process. Having correctly mapped processes and formalized procedures is a fundamental condition for gaining control and achieving improvements.

• Reduced Cycle Time

Cycle time refers to the time between identifying the need for recycling, disposal or return of products and their actual processing. Long cycle times add unnecessary costs because they delay cash generation (from scrap sales, for example) and take up space, among other things.

Factors that lead to high cycle times are inefficient input controls, lack of structure (equipment, people) dedicated to the reverse flow and lack of clear procedures to handle the “exceptions” that are, in fact, quite frequent.

• Information systems

The ability to track returns, measure cycle times, measure supplier performance (product failures, for example) provides crucial information for negotiating, improving performance and identifying abuses by consumers when returning products. Building or even acquiring these information systems is a big challenge. There are practically no systems on the market capable of dealing with the level of variations and flexibility required by the reverse logistics process.

• Planned Logistics Network

As in the direct logistics process, the implementation of reverse logistics processes requires the definition of an adequate logistics infrastructure to handle the incoming flows of used materials and outgoing flows of processed materials. Processing and storage facilities and transport systems must be developed to efficiently link the consumption points where used materials are to be collected to the facilities where they will be used in the future.

Issues of movement scale and even lack of correct planning can lead to the same installations used in the direct flow being used in the reverse flow, which is not always the best option.

Centralized facilities dedicated to receiving, sorting, storing, processing, packaging and shipping returned materials can be a good solution, provided there is sufficient scale.

• Collaborative relationships between customers and suppliers

In the context of reverse flows that exist between retailers and industries, where returns caused by damaged products occur, questions arise related to the level of trust between the parties involved. Conflicts related to the interpretation of who is responsible for damage caused to products are common.

Retailers tend to assume that damage is caused by shipping problems or even manufacturing defects. Suppliers may suspect that retailer abuse is taking place or that this is the result of poor planning. In extreme situations, this can lead to dysfunctions such as refusal to accept returns, delay in crediting returns and the adoption of costly control measures.

It is clear that more advanced reverse logistics practices can only be implemented if organizations involved in reverse logistics develop more collaborative relationships.

CONCLUSION

Reverse logistics is still, in general, a low priority area. This is reflected in the small number of companies that have departments dedicated to the subject. It can be said that we are at an early stage with regard to the development of reverse logistics practices. This reality, as we have seen, is changing in response to external pressures such as stricter environmental legislation, the need to reduce costs and the need to offer more service through more liberal return policies.

This trend should generate an increase in the reverse charge flow and, of course, its cost. Therefore, efforts will be needed to increase efficiency, with initiatives to better structure reverse logistics systems. The same planning concepts as in the direct logistics flow should be applied, such as studies of the location of facilities and applications of decision support systems (routing, scheduling of deliveries, etc.)

This requires overcoming additional challenges, given the basic need to develop standardized procedures for the reverse logistics activity. Especially when we refer to the industry-retail relationship, we note that this is a system predominantly characterized by exceptions, more than the rule. One of the symptoms of this situation is the practically non-existence of information systems focused on the reverse logistics process.

A topic to be explored on another occasion concerns the use of service providers in the reverse logistics process. As this is an activity where economy of scale is a relevant factor and where reverse flow volumes are still small, a viable option is through outsourcing. It is already common in Brazil to operate companies that provide pallet return flow management services. If we consider the broader scope of reverse logistics, there is also room for operators that provide higher value-added services such as tracking and reprocessing of used products.

BIBLIOGRAPHY

Stock, James R., Development and Implementation of Reverse Logistics Programs, Oak Brook, IL: Council of Logistics Management; 1998.

Rogers, Dale S.; Tibben-Lembke, Ronald S. Going Backwards: Reverse Logistics Practice; IL: Reverse Logistics Executive Council, 1999.

Moritz Fleischmann; Patrick Beullens; Jacqueline M Bloemhof-Ruwaard; Luk Van Wassenhove; The impact of product recovery on logistics network design; Production and Operations Management; Muncie; Summer 2001;

Ballou, Ronald H.; Business Logistics Management, Fourth Edition.; Prentic Hall; 1998.