Reverse logistics refers to all activity that is associated with a product or service following the point of sale, with the ultimate goal of optimizing or rendering the aftermarket activity more efficient. This in the long run saves money and environmental resources. In short, reverse logistics implies the process of implementation, planning, and control of cost-effective and efficient raw materials, process inventory, finished products, and related information from the point of origin for proper disposal or recapturing value. In reverse logistics, the goods are moved from their ultimate destination for capturing value or for ensuring appropriate disposal. The process can also implement refurbishing and remanufacturing activities.
Why Reverse Logistics is Important
Reverse logistics includes the materials or goods being sent backward, as well as processing, returned merchandise as a result of damage, restock, salvage, seasonal inventory, recalls as well as excess inventory. The process additionally incorporates hazardous material and recycling programs, the disposition of obsolete equipment, and asset recovery.
Distributors in the software industry aim to reduce their retailer returns by implementing timely delivery. However, retailers usually overestimate demands since appropriate forecasting for them entails no incentive. For software manufacturers, the product should be present on the retailers’ shelves. They frequently agree to block the channels. With the costs of a box of software being less than its price, some software manufacturers often contract with third parties for destroying millions of copies of a product. Due to such practices, the return rates in the industry are about 20%.
Releasing more software titles compels returns as the product life span for those titles contracts. As a result of reduced risk, a few retailers purchase the software which is purchased elsewhere. Some retailers also try to reduce returns and enhance inventory turnover through a reexamination of channel relationships. They have even started creating return policies of 30 days.
Succumbing to competitive pressure, the retail industry has made competitive weapons out of the return policies. If the pressure is greater, the solutions are innovative. The focus on the problem of returns was first assuaged by the grocery retailers who concentrated on developing reverse logistics innovations. For them, having good return management is critical as profit margins are slim. Hence, for them, innovations became reclamation centers.
Centralization of returns created additional benefits. Today, large retailers exercise increased power over the supply chain and are more powerful than the manufacturers. Not many manufacturers dictate policies to retailers like Wal-Mart. Few retailers accept returns that have been rejected by the manufacturers. In exceptional instances, retailers make allowances for a manufacturer’s products which according to them are not replaceable with identical products.
Retailers have made larger investments in technology for the improvement of their reverse logistics dynamics. It is said that manufacturers lose out to retailers in almost all categories of technology. It is seen that almost twice the number of retailers than manufacturers have implemented automated material handling equipment. Retailers use barcodes, computerized returns entry, computerized return tracking, EDI or electronic data interchange, and RF or radiofrequency for enhancing their reverse logistics management.
The practices of reverse logistics vary on the basis of channel position and industry. If an industry has greater operational costs, they have better systems and procedures of reverse logistics. For successful retailers, it is important to understand that handling reverse logistics successfully will positively affect their bottom line.