Reverse Logistics - Logistics Quarterly

Fourth,return products are often an overlooked source of
additional revenue. Recovered product may be re-sold
through existing or new channels,depending on the characteristics
of the target markets. For example, remanufactured
computer products are often resold to consumers that represent
a different target market than the OEM’s primary customers.Original
customers might include large corporations
purchasing computer equipment in large volume. Secondtime-around
customers may be small businesses or consumers
who wish to purchase a certain computing power,
but are unwilling or unable to pay premium prices for new
equipment. In the case of multi-use packaging such as 55gallon
drums or intermediate bulk containers (IBCs), the
cost of goods sold is essentially the collection freight and
the reconditioning cost.Those reconditioned products often
sell at a price point approaching new containers, and actually
have a higher gross margin. Not exploring these potential
new markets can really shortchange a firm’s revenue
opportunities.
Fifth, another source of additional revenue comes
through better inventory management. Better inventory
management and channel cleaning initiatives can help prevent
markdowns, and thus help retain higher margins on
sold products.
Sixth,the market positioning power of effective returns management
programs should be considered. As customers and
consumers become increasingly conscious of the environmental
impact of the corporations they deal with, being able
to honestly promote reverse logistics activities can help a firm
gain repeat business and increase customer loyalty. Many
firms are finding that significant brand equity can accrue by
being an environmentally responsible corporate citizen.
In the returnable packaging arena, opportunities to create
value can come about by switching from expendable to
returnable containers.This not only avoids the disposal cost
for expendable packaging,but returnable containers may be
able to provide additional protection to products,thus reducing
product damage, along with the related lost sales and
expenses to correct the damaged product. Of course, returnable
packaging may not always be cost-justifiable, so a total
cost approach to analyzing the expendable versus returnable
container option should always be taken. This may also
involve reviewing and re-engineering packaging materials to
ensure recyclable material is being used.There can be significant
value added in the form of market perception, particularly
in examples like the chemical industry’s “Responsible
Care” program where members have significant measurable
commitments to “Reduce, Reuse, Recycle”.
On a somewhat larger scale than switching a corrugate
box for a plastic tote, is the whole issue of mobile assets.
24 LQ winter 2003/2004
These are usually more expensive types of containers, such
as beer kegs that must be returned from a restaurant or pub
back to the brewery. Such containers represent a significant
investment for a firm, and the movement of these assets
should be carefully managed, so as to minimize shrinkage
and damage to the containers, as well as to minimize cycle
time as the containers rotate through the closed loop system.
Managing cycle time is especially important so as to maximize
asset utilization,and minimize the total number of containers
needed to keep the system running smoothly.A brewery
cannot afford to run out of kegs.But it’s equally important
that it should not underestimate the financial consequences
of having too many kegs in the system.The chemical railcar
industry provides another example of mobile asset management.
Somewhat unique in the rail industry, chemical companies
tend to own or lease their own railcars due to the specialized
nature of the cars.Thus, railcars are essentially bulk
chemical product containers that rotate through a system
from factory to customer and back again. Poor management
of these assets has led chemical companies to invest in more
railcars than necessary,while the utilization rate on each railcar
remains very low, because they sit idle on rail sidings or
at customer plants for far too long. At approximately
(US)$70,000 per car, the investment level is high, while the
returns on these investments remain unnecessarily low.Thus
effective asset utilization becomes an important means of
improving a firm’s ROA, and ultimately its value to shareholders.
In summary, effective reverse logistics management can
add significantly to a firm’s profitability and ultimately, to
shareholder value.As environmental legislation continues to
become increasingly strict, firms can either take the minimalist
approach by doing only what is legally necessary, or
they can seek out opportunities presented by the environmental
legislation. Contrary to conventional wisdom, environmentally
responsible logistics practices can be highly
profitable for firms.The key is to take a systems approach to
better understand the total costs and benefits of your reverse
logistics system. The ROA approach provides a systematic
means to understanding the cost/benefit tradeoffs.
Remember, however, that to capture potential benefits, your
firm must shift its focus from viewing returns as an unwanted
but necessary evil and instead look for opportunities to
transform returns into additional revenue,profit and market
“perception capital”.
References
Rogers, Dale S. and Ronald S.Tibben-Lembke (1999), Going
Backwards: Reverse Logistics Trends and Practices. Reno:
Reverse Logistics Executive Council.
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