When manufacturers picture the natural flow of their supply chain, they probably envisage the product creation journey. This usually starts with the purchasing of materials from suppliers, then moves on to the production stage, and finishes with the delivery to paying customers.
However, perhaps not enough manufacturers pay much attention to the possibility of this process flowing in the opposite direction. This is known as reverse logistics and is an outcome that can both be planned for and utilised beneficially.
So, what exactly is reverse logistics, and what are the advantages gained from completing it effectively? In this article, we look at the difference between reverse logistics and traditional logistics, whilst also explaining how to successfully implement the former…
What is reverse logistics in supply chain management?
Reverse logistics is needed when a complete product must travel back through the supply chain from the direction it came (usually from the customer back to the manufacturer). The customer would normally be the final destination in the logistical chain, however, any action that takes place after this point will require reverse logistics.
This may be needed for a multitude of reasons, which is why manufacturers should be ready for such outcomes. Without the appropriate measures in place, your operation could face substantial downtime, with employees having to spend time dealing with bottlenecks and disgruntled customers.
What are the main reasons for reverse logistics?
For any selling company, it can be wise to have some form of returns policy. Therefore, when customers make use of such a scheme, products will inevitably have to travel back to the seller. They may have bought the wrong item by mistake, or possibly selected the wrong specifications. By embracing returns, you give the customer a greater chance of getting what they want, which makes them more likely to buy from you again.
Some companies will allow customers to rent products for a set period. The length of time will be agreed upon beforehand, as well as expectations of what state the item should be returned in. It should also be very clear which method will be used for giving the item back once the rental has expired.
If a product is broken within a certain timeframe after being purchased (and it wasn’t misused), then manufacturers may agree to complete a repair. Any stipulations around repair policies would be outlined beforehand. Some businesses even provide maintenance services, taking the purchases back every so often to keep them in good condition.
Refurbishing / Rebuilding
If a client wishes to move on to the latest version of your products, they may trade in any older models they have. In this scenario, the traded-in parts could be refurbished to be sold again. Or they could be broken down into their fundamental materials and repurposed to create an entirely different sellable good.
There may be instances where there is an issue with the transportation of goods. The buyer may fail to be in the right place at the agreed time. Or unforeseen circumstances could prevent the driver from reaching the desired destination. The only real option in this scenario would be to return to the warehouse.
Another reason reverse logistics might be needed is for products that have reached the end of their lives. If an item has perished (or is no longer usable) then a customer will likely look to discard it. Some manufacturers will offer to take these materials back in order to recycle them.
What are the advantages of reverse logistics?
Create more value
Reverse logistics provides an opportunity to retain value for your business that would have otherwise been lost. By repurposing goods that may have become waste, you’re able to generate unexpected streams of income, which only adds to your overall revenue. Your catalogue of products are more valuable if they can be retrieved and used many times over.
Provide better customer service
If a customer is having an issue with the stock you’ve sold them, they will only become further dissatisfied if there’s no way to remedy the situation. Equally, if you’re willing to fix the problem, but haven’t implemented the appropriate processes, it will take a long time to deliver a resolution. Having a reverse logistics procedure means that you can act right away, providing a swift and sufficient service.
Recycling and reusing old materials isn’t just beneficial from a financial perspective, it’s better for the environment too. If you offer customers the chance to give materials back (that are no longer fit for use), you can use your industry expertise to ensure they’re disposed of sustainably. This has reputational benefits, as some consumers will only be willing to buy from businesses that are actively green. It will help you to avoid fines too, as more environmental legislation continues to come into play.
There is valuable data associated with reverse logistics. This can be tapped into and used to your advantage. By looking at aspects such as the number of products being returned, which specific items are regularly sent back, and which customers return most often, you can make strategic decisions that have a positive impact. You could look to make certain products more durable if they always break (or perhaps change their design). Policies could also be tightened if they’re being exploited by customers.
It’s also possible to eliminate some expenses by simply being prepared for reverse logistics. When leaving it until the last minute, there’s likely to be extortionate costs associated with the transport and storage needed to send something back through the supply chain. With the rise of e-commerce, returns have become more frequent too, so these costs would really start to add up after a while.
What is the difference between reverse logistics and traditional logistics?
As we briefly touched on earlier, traditional logistics is the flow of events most manufacturing businesses are accustomed to. The buying, producing, and selling of materials would normally journey from suppliers to manufacturers, and then potentially to distributors, retailers, and customers.
The idea behind traditional logistics is essentially to create something that will be consumed, which brings a benefit to both the buyer and seller. Whereas reverse logistics is designed more to recuperate value, or to scrap items ethically.
Traditional logistics doesn’t gain its name from being old-fashioned, but more for the fact it’s the most well-known logistical method. It’s also known by some as forward logistics.
How to implement reverse logistics
Listen to customers
The first step of reverse logistics is to be aware something needs to be returned in the first place. It should be easy for customers to contact you in such a scenario, and you should ensure their contact information is always up to date (so that you can keep them in the loop about production and delivery matters).
Put the relevant guidelines in place
You should ensure any policies put in place for returns and repairs are stringent. This way it’s less likely there will be disputes or disagreements with customers. Policies should be fair, so that they don’t repel prospective partners, but should also be tight enough so that existing customers don’t take advantage of them. You should also clearly define the different types of return, so that it’s easier to keep track of events, and so there are no grey areas when categorising them.
Enhance logistical processes
It’s important to analyse the logistical methods used for deliveries, as they will probably be the same tactics used for reverse logistics. By looking at the vehicles being used for transportation, you can determine if any changes could be made that would improve energy efficiency (and the protection of goods when they’re in transit). When deciding on timings, you could look to schedule deliveries and returns at the same time (so that fewer journeys can be made). Vehicles could perhaps always be kitted out with returns boxes just in case a reverse logistics situation arises unexpectedly.
Traceability works two ways
Traceability is used by many manufacturers for their forward logistical process, as it provides visibility and clarity over the status of materials. But this strategy should be harnessed for reverse logistics too, as it’s just as important to know where these materials are in their journey. If you usually scan items into the warehouse when they have completed production, the same should be done when they arrive from customers too, otherwise you’ll have a skewed perception of stock levels.
Use a separate area for returned items
You should have a designated area in your warehouse for returned items. This helps with keeping your storage facility ordered. It also highlights the fact that action needs to be taken with these goods (so they don’t sit idly). The area could be further separated into unique zones for the different type of action that needs to happen. Without arranging storage in this manner, it’s possible that damaged goods could get mixed up with brand new ones.
Use a dedicated inventory management system
By embracing the use of technology, it becomes much easier to implement the above steps, and further amplifies the benefits brought about by having a reverse logistics plan. Rather than relying solely on people and old-fashioned techniques, digital systems make it much easier to record aspects such as stock quantities, whilst reducing errors and increasing efficiency too. Cloud-based systems can be accessed from anywhere at any time, making it much simpler to keep track of logistical processes.
How can Advanced help?
Our Manufacturing Software not only serves as a transformational inventory management solution, it also unites every aspect of your business in a single, accessible system. This of course increases overall efficiency, but also assists with proactively reducing returns and waste. With its batch traceability and quality assurance features, it’s far less likely that defective or low-quality batches will slip through the net.
The solution also assists with production scheduling too, so that there’s less chance of corners being cut during the production process (which will ultimately lead to a better quality of output).
The system’s MRP function takes care of materials management. With a useful bill of materials feature, complex product configurations can be built, and ingredients can be chosen with the product’s afterlife in mind. So, manufacturers could purposefully select materials that are more recyclable for example.
The solution also has a contact management module, which allows you to keep the details of clients and prospects up to date. Doing this makes it far less likely that a shipment will be delivered to the wrong place, and relationships can be kept healthy too.
Manufacturing Software provides access to powerful reports which draw data from all your departments, ensuring insights can be gained that allow you to significantly enhance production, storage, and logistical activity.
If you’re looking to improve inventory control processes, whilst also enhancing the efficiency of your entire operation, then take a closer look at our cloud-based Manufacturing Software (which is tailored for small to medium-sized manufacturers).