Introduction
When it comes to logistics, many people view it as a linear process. This involves the production, packaging, warehousing, sale, and customer delivery of products, with the story concluding there. However, this perspective is incomplete for modern logistics managers. They not only handle the outbound logistics of goods but also oversee reverse logistics. This includes managing the return flow of goods and packaging, in addition to handling customer service and deciding what to do with returned items.
The demand for waste management and product return handling is increasing across various industries. Companies such as Xerox, Eastman Kodak, Mobil, Home Depot, and Ethan Allen Furniture now have recycling programs tailored to their respective industries. The rapid growth of reverse logistics in recent years can be attributed to several factors, with the most notable being the growing public recognition of the societal consequences of excessive waste. Consequently, implementing large-scale recycling initiatives helps foster goodwill among both consumers and industrial clients.
Companies, in addition, desire to be seen as environmentally conscious and committed to protecting the environment, as the support for recycling continues to increase. Moreover, controlling costs is another significant motivation. Often, manufacturers overlook the recovery of products and packaging. Nonetheless, a well-run reverse-logistics program has the potential to yield substantial savings in inventory-carrying, transportation, and waste-disposal expenses.
Nowadays, an increasing number of companies are implementing reverse-logistics programs due to various factors. However, there is a common misconception that reverse logistics involves solely reversing the outbound distribution process. In reality, recycling and returns management present their own set of distinct and intricate challenges that impact logistics operations. To properly initiate a reverse-logistics program, it is crucial to consider these five main aspects.
Regarding a reverse-logistics program, a significant consideration is the resources a company is willing to allocate. The amount invested in the program is typically influenced by the potential benefits it could bring. However, many companies neglect to dedicate adequate time, money, and personnel to the project, often making reverse logistics a secondary task for employees. Cindie Vaughan, supervisor of reverse logistics for Consolidated Freightways, emphasizes that it should instead be prioritized and given focused attention.
If the process is not actively managed, it will inevitably lead to higher costs and missed opportunities for savings and profits. Many companies with limited resources for reverse logistics have found a solution by outsourcing this function to third parties or transportation companies. However, it is the shipper’s responsibility to assess the cost and service benefits and determine how much of the process should be outsourced. According to Brett Chyatte, senior marketing specialist for reverse logistics at Federal Express, the decision to outsource is about being able to focus on core competencies and freeing up personnel to work on products rather than using assets on reverse logistics.
Components
The reverse-logistics operation consists of three main components: retrieval, transportation, and disposition. The retrieval stage determines the location and recipient for waste or returned products. The specific tasks vary depending on the nature of the item being returned. For instance, in the case of clothing, a carrier can handle pickup and documentation tasks directly at the consumer’s doorstep.
If the items are oversized, heavy, hazardous, or very delicate, special training may be required for both customers and carriers. For instance, Burnham disassembles photocopiers for some customers who sell or lease the refurbished machines. Drivers undergo training to remove internal components that could cause damage during transit, safeguard glass, secure all movable parts, and pack the machines for transportation.
Handling hazardous materials can be a challenging task, especially for field locations and distributors who may lack the required expertise. To address this issue, Michael LeMirande, business development manager at Redwood Systems, often provides guidance and support to auto dealers on the proper handling of hazardous items like engines and transmissions. As automobiles contain batteries and fluids that are classified as hazardous, there are specific protocols that need to be followed when preparing them for transportation.
A company that fails to manage return transportation is asking for problems, warns consultant Ken Miller of Gardner, Mass. Usually, the manufacturer covers the shipping costs for returned items. However, it is usually the customer who estimates the weight, guesses the bill-of-lading description, and chooses a carrier without a pricing agreement with the manufacturer. Consequently, incorrect weights and product classifications can result in bills of $500 instead of the expected $50.
To avoid excessive freight charges, Miller advises shippers to inform customers of the carrier routing, accurate weight, description, and class when requesting return authorization. Alternatively, customer-service representatives could fill out the bill of lading on behalf of customers, including all three of these details.
The main concerns when it comes to product disposition are deciding whether to manage returns in centralized or regional facilities and determining the best approach for handling incoming shipments. The specific choice depends on the nature of the product and its post-return fate. An increasing number of shippers are choosing centralized returns processing due to the benefits it offers, including enhanced control over the product’s life cycle and improved data gathering. This is particularly relevant for manufacturers of high-value items that have a limited shelf life, like computers and telecommunications equipment, which require prompt repair and resale, as emphasized by FedEx’s Chyatte.
The creation of opportunities for shipment consolidations is another benefit of the centralized returns-processing system. This system can help to reduce transportation costs and lead to better utilization of reusable containers and other equipment. Additionally, it aids shippers in documenting returned products that are exported to secondary markets overseas, which is important for supporting claims for duty refunds under U.S. Customs’ duty-drawback program. Buzzy Wyland, executive vice president of GENCO Distribution System, highlights this advantage.
According to Wyland, gathering meaningful information is crucial for the success of a reverse-logistics program. This information is necessary for effectively managing the returns process and tracking costs. Wyland highlights the significance of having software that can facilitate the smooth flow of products from customer-service desk to final disposition, ensuring efficiency. However, many companies mistakenly add the information component at the end, resulting in bottlenecks and inefficiencies. Wyland underscores the importance of planning ahead and integrating the software into the system rather than waiting until there is a backlog of returned items.
The Internet is playing an increasingly important role in the reverse-logistics field by facilitating the collection and sharing of information. One example of this is Federal Express’s NetReturn system, which utilizes the Internet to gather customer data, organize pick-up appointments, arrange transportation, and monitor the progress of returned merchandise. Customers only need to contact the merchant to request a return authorization, and from that point onward, the information system takes control. It even sends reminders to the merchant if items are not picked up according to the scheduled time.
The tax, finance, and credit implications of the program may not be directly seen by logistics managers but are a key motivation for upper management’s support of a reverse-logistics program. Returning goods triggers various financial activities such as issuing refunds and credits, accounting for inventory costs, and monitoring tax responsibilities.
Logistics can simplify and improve tasks by gathering and supplying essential information. One area where this is particularly beneficial is the resolution of credits and refunds for returned items. According to Wyland, retailers and manufacturers have historically disagreed on this matter. Retailers would return products and deduct the corresponding amount from their payments. For manufacturers, this process was a daunting yearly challenge as they attempted to reconcile physical goods with paperwork.
Wyland states that manufacturers can enhance returns management by promptly collecting and disseminating pertinent information, which offers notable financial benefits. Previously, manufacturers had to wait until the year’s end to ascertain their profitability. Nevertheless, they can now evade handling unsettled claims and eliminate the necessity of reserving funds for such claims. This leads to a decrease in overall operational costs, as stated by Wyland.
The advantages of implementing a reverse-logistics program are numerous. However, in order to achieve maximum benefits, shippers must allocate adequate time and resources to the initiative. According to LeMirande from Redwood Systems, reverse logistics should be an integral component of the comprehensive business strategy for manufacturers and retailers. Currently, many companies overlook the importance of reverse logistics in their sales and operations strategies. This is a mistake that can hinder the efficiency of the supply chain. It is crucial to include reverse logistics in your supply chain strategy to ensure its effectiveness.
International Reverse Logistics
Reverse logistics presents its own unique considerations for the return of goods and materials, whether it be for repair, refurbishing, recycling, or resale. The process becomes more complex when managing returns across international borders, which often discourages companies from pursuing international returns due to the cost of freight outweighing the benefits. Kevin Sheehan, president of Processors Unlimited in Dallas, Texas, expressed this sentiment and shared that his company, now under the ownership of USF Logistics, oversees reverse logistics at 45 processing centers throughout the United States.
On certain occasions, there may be strong reasons to participate in reverse logistics internationally. Professor Dale Rogers from the University of Nevada-Reno explains that in some cases, a returned item can be resold to recover expenses. If the refurbished product’s value surpasses transportation costs, it would make sense to export it.
According to the source, if a company imports goods into the United States and these goods are unused and returned by the end customer, it is potentially feasible to resell them in a different country and request a reimbursement on the initial import tariffs using duty-drawback regulations. The decision by companies to handle international returns is influenced by various factors such as maintaining customer goodwill, preventing name-brand products from entering secondary sales channels, and addressing environmental concerns. This article examines the reasons behind the decision of three shippers to handle international returns and how they effectively manage them.
Witco Corp., located in Greenwich, Conn., is a global specialty chemicals manufacturer facing various difficulties in handling returns of reusable stainless-steel totes from Canadian customers. They need to monitor each container, which is shipped with chemicals, emptied by the customer, and then returned for cleaning and reusing. Additionally, they must comply with transportation laws from both the United States and Canada since the totes often contain hazardous chemicals and residues.
Finally, proper documentation must be prepared by Witco to ensure that the totes can clear customs on both legs of the round-trip journey. The potential for confusion and error seems to be high, considering the large number of containers moving between the two countries. However, Witco maintains tight control over its equipment through the assistance of its third-party service provider, CF Reverse Logistics, which is a division of Consolidated Freightways. According to Sheldon Ellis, Witco’s international logistics manager, CF was hired about three years ago to track, monitor, and arrange the return of the reusable equipment.
Customers can call a toll-free number to notify the company about the readiness of empty totes for pickup. Simply providing CF with the tote number is enough, according to Ellis. CF keeps track of the totes using their identification numbers, starting from their departure from the manufacturing plant. This allows the carrier to know the location of each container’s home base. CF collects the empty tote and follows Witco’s routing guidelines to send it back to its original point of origin. Instead of requiring customers to handle export documentation for the containers they use, Ellis arranges for CF to handle most of the necessary paperwork. Witco chooses a customs broker to clear the totes at the U.S. border, where no duty is applicable since the containers themselves are not being bought or sold.
Managing returns of merchandise can be a pricey and troublesome task for retailers. This is due to the fickleness of consumers, who return products for various reasons such as mismatching colors with their bathroom towels or buying clocks that tick too loudly. In addition, retailers often have to deal with returning stock that is out-of-season or obsolete, as well as goods that were damaged during transportation, and items that haven’t been sold within a specific timeframe.
Some retailers opt to internally handle the complete process, while others discover that outsourcing is a convenient and cost-effective method for managing returned merchandise. Service Merchandise, situated in Brentwood, Tenn., serves as an illustration of a company that supports outsourcing. With 385 stores across 35 states, Service Merchandise specializes in various consumer goods including jewelry, furniture, kitchen items, and home electronics. Moreover, the company also operates a mail-order business.
All product returns are managed at a returns-processing center in Bowling Green, Ky. The center is operated by Service Merchandise, according to Paul Minor, director of transportation. On average, the returns center handles a volume of 30 to 40 million pounds each year. This substantial amount results in significant inventory expenses and revenue loss.
About two years ago, Service Merchandise managers realized the potential for substantial cost savings by implementing a more structured returns management system. However, the company’s logistics department lacked the capacity to dedicate full-time resources to this project. Consequently, Service Merchandise enlisted the services of a third-party logistics service provider to handle returns management. This third party operates a customer-service center on behalf of Service Merchandise, complete with a toll-free number. Whenever a store needs to initiate a return, an employee contacts the center to obtain authorization. Furthermore, Redwood (the third party) furnishes detailed guidelines to the stores regarding packaging, shipping, and required documentation.
The third party company follows Service Merchandise’s cost and volume guidelines for transportation to the Bowling Green facility. They use pre-approved carriers and consider the number of skids and available storage space in the stores for determining the volume. The goal is to have large shipments to achieve better weight breaks. Redwood examines store and regional demand, costs, and routing efficiencies to determine the most efficient method of bringing the merchandise to the returns center.
Conclusion
Today’s available technologies can be integrated into re-engineered business processes, reducing or eliminating time-consuming manual tasks and further reducing costs. Ongoing technological advancements will enable the integration of item-level tracking and wireless communication, allowing business systems to be updated in real time. This will enable organizations to have continuous visibility of their customers’ products through the supply chain, regardless of time or geographic constraints.
Enhancing item-level information will improve the business process, keeping customers better informed and minimizing product returns. By properly approaching reverse logistics, the problem aspect can be removed from the process and these costs can be converted into investments for profitable, long-term customer relationships.
