Moving Ahead by Mastering the Reverse Supply Chain

May 21, 2009
Reverse logistics offers opportunities to reclaim otherwise lost revenues.

Reverse logistics -- the process of moving product back through the supply chain to accommodate overstocks, returns, defects and recalls -- can cost up to four to five times more than forward logistics, according to Jonathan Wright and Michael Joyce, with Accenture's Supply Chain Management practice. They report that, on average, it takes 12 times as many steps to process returns (assessing, repairing, repackaging, relabeling, restocking, reselling, etc.) as it does to manage outbound logistics. A study by the analyst firm Aberdeen Group indicates that reverse logistics in the United States costs companies roughly $100 billion per year.

Based on Accenture's findings, however, reverse logistics also represents a huge source of untapped value. "Consider, for example, companies' unprecedentedly high need to reduce operating costs. Savvy improvements to reverse logistics programs can help companies make near-immediate reductions in cash outlays," Wright and Joyce explain. Furthermore, they add, companies with efficient reverse supply chain capabilities have a better handle on customer service, and therefore have more capabilities to offer.

In the area of continuous improvement, they point out that "product failure and returns information can be fed back to sales or research departments to be used to identify root causes such as packaging or product design errors." Wright and Joyce offer the following best practices in reverse logistics management:

  • Explore new ways to reduce inventory levels. Simplifying returns and repair processing can increase the speed of inventory back through the supply chain. Similarly, improved demand planning can help improve inventory levels related to new product introductions or promotions. Inventory can be further improved by reworking products into saleable condition, cannibalizing items for spares, recycling usable parts and selling excesses to jobbers.
  • Implement "low-touch" returns operations. Leverage advanced technologies and processes to minimize handoffs and optimize throughput of items that must be returned.
  • Capture, analyze and utilize returns data to better understand and police the returns process, and improve the design of future products and services.
  • Outsource all or several components of the reverse supply chain, such as returns and/or warranty claims processing.
  • Increase the quality of complaint handling. Research shows that up to 20% of returned items are ultimately classified "no trouble found." In effect, these items could have been kept out of the reverse supply chain in the first place.
  • Implement a formal "warranty management transformation" program to reduce administrative costs, overpayments, fraud and problem-detection/correction efforts.
  • Implement programs focused on eliminating defects and (thus) the return of poor-quality items.
  • Align field/sales training and incentives to ensure that product given to customers meets their real needs (product features, delivery configuration, set-up guides, instruction books, technical support, etc).

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