Procurement leaders must pay increased intention to reverse logistics to drive sustainability and recapture value throughout their supply chains.
According to The Reverse Logistics Association (RLA), reverse logistics (sometimes referred to as return logistics or aftermarket services) describes “all activity associated with a product or service after the point of sale.”
Meanwhile, the Council of Supply Chain Management Professionals (CSCMP) defines it as “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.”
In a typical supply chain, a product or service is transferred from the manufacturer to a buyer or retailer and ultimately to an end-user. In reverse logistics, the flow goes in the opposite direction but the journey is often a little more complicated because the product or service isn’t necessarily returned to its original manufacturer. Reverse logistics encompasses everything from a simple returns process, to dispositioning, quality testing, restocking, inventory management, repairing, refurbishing, repackaging, recycling, reusing, reselling, scrap management, and disposal.
Why is reverse logistics so important?
1. Consumer expectations
With retailers like Amazon dominating the eCommerce world, consumers have grown increasingly accustomed to a seamless, free, and highly efficient returns process. Most online shoppers will review a company’s returns policy before making a purchase and if it’s too laborious, they’ll likely spend their money elsewhere.
With eCommerce revenue predicted to grow to USD$5.4 trillion in 2022, procurement and supply chain professionals must make reverse logistics a top business priority.
2. Waste reduction
In far too many cases, organizations don’t have good visibility of how their returned products are being processed or disposed of. Implementing a proper reverse logistics program provides several environmental benefits. It will compel procurement professionals to think more strategically about how to reduce waste across their supply chain, thus preventing salvageable or recyclable materials from ending up in landfills.
Organisations might also establish centralised or local hubs to process returns and carry out repairs, which eliminates unnecessary long-haul shipments.
There are a few ways that the implementation of an effective reverse logistics program can ultimately drive value for the business.
Firstly, procurement teams will see a reduction in their administrative burden, processing times, and transportation costs. Fully integrating reverse logistics with existing supply chain operations makes it easier to monitor the full product lifecycle in real-time.
Secondly, reusing, recycling, reselling, or repurposing products and components will reduce spending on new materials.
Finally, organisations can incur fines and penalties for failing to recycle certain products or components. Reverse logistics will reduce the frequency of these instances.
It’s important for procurement teams to carefully track the profitability of their reverse logistics operations. For example, in some cases, the cost of returning a product might be higher than the profit you stand to gain from repairing and reselling it.
4. Brand reputation
Embracing reverse logistics is an important way for procurement professionals to boost their brand’s reputation, among both consumers and the workforce. Customers want to spend their money with brands that are committed to sustainability, while employees want to work for greener organisations.