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Reverse Logistics: an Underused but Highly Effective Tool

In the high-tech and electronics industry, cutting costs is often difficult and nearly impossible to do without impacting product quality, time to market, or customer service. Unwilling to compromise on such critical business factors, many electronics companies are turning to less conventional means to drive cost savings and as a result, are often finding ways to not only reduce costs but also improve operations and overall business practices.

Reverse logistics is one such area. A recent whitepaper, “Recovering Lost Profits by Improving Reverse Logistics,” written by Curtis Greve and Jerry Davis of Greve-Davis and commissioned by UPS, found that when effectively managed, reverse logistics can uncover hidden profits, reduce liability, and improve customer satisfaction.

According to the {complink 6398|Aberdeen Group Inc.}, the average manufacturer in 2010 spent between 9 and 15 percent of total revenue on returns. Had they recognized the value of an improved reverse logistics process, those same manufacturers could have instead increased revenue up to 5 percent of total annual sales that year. In fact, when viewed holistically — from the returns policy to product repairs to recycling and disposition — a strategically managed returns process can often produce profits rather than waste.

In order to identify areas of cost savings within the reverse supply chain, a company must first understand all that encompasses their business' returns process and conceptualize returns as another intricate part of their inbound shipping. By definition, reverse logistics is the process by which previously consumed products are received and processed for the purpose of recapturing value or ensuring proper disposal. When thought of in this broader perspective, companies can then review their returns processes from a more strategic standpoint and determine the areas of improvement most beneficial to their business.

As discussed in the Greve Davis whitepaper, three key areas of high-tech industry reverse logistics are: resale, regulatory compliance, and repairs. Depending on the company, the product, and the consumer base, each of these three areas can be of varying levels of importance in the structuring of a positive reverse logistics strategy.

  1. Resale.
  2. One key area specific to high-tech is the reclamation and resale of materials. The Environmental Protection Agency found that for every million cellphones recycled, 35,274 pounds of copper, 772 pounds of silver, 75 pounds of gold, and 33 pounds of palladium could be reclaimed, reused, and resold to manufacturers across industries. These reclaimed metals could be worth more than $2.3 million based on 2011 metal prices.

    For those who cannot reclaim rare materials, many have focused their resale operations on the secondary market, reselling refurbished products back to retailers and consumers. According to the Consumer Electronics Association, 96 million mobile phones were returned in 2010, each worth between 35 and 75 percent of their original market value once refurbished. Based on these numbers, an electronics manufacturer could see more than $20 million in added revenue if the company were to resell as few as 250,000 of its returned phones. Not only does this impact a company's bottom line, but also it impacts the environment, and as a result, a company's reputation as environmentally responsible.

  3. Regulatory compliance.
  4. From product recalls to disposition, regulations abound in the high-tech industry. Having a well-defined reverse logistics process in place can help a company avoid thousands and sometimes millions of dollars in fines and penalties. In 2010, more than 1,000 different products were recalled in the US, each with the potential to generate regulatory fines and penalties, lawsuits, and sales loss. Those companies equipped with a returns process that could quickly pull the recalled product back out of the marketplace minimized their likelihood of incurring additional fees or damages.

    In addition to recalls, proper product disposal is a growing battle in the high-tech industry. More than 35 states have instilled regulations around the proper disposal of electronics and 11 have banned the disposal of personal computers in their landfills, with substantial fines to the manufacturer if their product is found. By proactively addressing these issues with a well-devised returns process, companies can avoid unnecessary fines, sustain customer satisfaction, protect their bottom line, and build their corporate reputation through minimizing e-waste.

  5. Repairs.
  6. Warranty claims and repairs are a major part of the reverse logistics process, requiring plans for receiving, tracking, processing, repairing, and ultimately redelivering the product to the consumer. Over the years, the level of high-tech returns has become increasingly apparent, resulting in a new $19 billion sub-industry dedicated to electronic repairs.

    Many high-tech companies have acknowledged this irreversible trend, as well as its impact on efficiency and customer satisfaction, and have implemented highly efficient reverse logistics operations to process and redistribute repaired products back to their customers in a timely and cost effective manner. Many are even turning to advanced exchange programs in which the manufacturer works with the returns provider to deliver a replacement item to the customer at the same time that they pick up the defective item, eliminating consumer downtime and reducing shipping costs.

For many companies, the reverse logistics process has been overlooked and under-acknowledged as a key component of business success. In fact, according to UPS's annual “Change in the (Supply) Chain Survey,” conducted by IDC Manufacturing Insights among high-tech manufacturers, 19 percent of US high-tech companies called reverse logistics a “weak link” in their supply chain. In an industry where quality is everything and core costs are high, companies must look beyond the normal cost-cutting measures and consider operations across the board to find strategic value add and operational efficiency.

For more information on reverse logistics strategies and specific steps on how to analyze your own company's reverse logistics processes, download the full Curtis Greve whitepaper. You can also download “Four Ways to Use Reverse Solutions in Your High-Tech Business” as a tool to help your company assess how reverse logistics can impact your bottom line.

3 comments on “Reverse Logistics: an Underused but Highly Effective Tool

  1. Barbara Jorgensen
    June 4, 2012

    The more I read about this, the more convinced I am that revrese logistics plays a growing role in the electronics supply chain. One aspect that OEMs can improve on is ease of doing business. Our mobile service carrier does not take our old cells phones when we upgrade. Unless we are able to make a certain town-wide collection date, we just keep the things until…well, we still have them. Even donating them becomes problematic. If I were to get a prepaid box to send my old phones back to the manufacturer along with my new phone, I'd send them back in a minute.

  2. bolaji ojo
    June 4, 2012

    Jim, You made the case convincingly for companies to adopt reverse logistics. However, not much of this goes in several end markets. Automotives come to mind. Why is this the case?

  3. Jim Gerard
    June 7, 2012

    Bolaji:
    Thank you for your question. Reverse logistics is so much more than the name suggests. It can be nearly any activity that occurs in the end market – or after the point-of-sale. In the automotive market, for example, original equipment manufacturers (OEMs) deal with warranty issues, such as parts recalls or pulling back the precious metals in catalytic converters. Ensuring the product is returned to the correct location using the most efficient transportation mode is important – whether it's a radio, transmission or any warranty part. Further to the retail side of the industry, eBay states that a part or accessory is sold online every one second and an engine or component sells every 25 seconds. With the ongoing growth of online sales, returns is one component of reverse logistics that continues to play an increasingly important role in customer satisfaction and repeat sales.

    Regards,
    Jim

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