Reverse Supply Chain in Context

Companies spend more time and money in fine-tuning their forward supply chains while sometimes ignoring their backward supply chains. However, in today's competitive business environment when there is both external and internal pressure, companies can no longer ignore reverse supply chains.

The Context

Efficient reverse supply chains bring many benefits to the companies. However, reverse supply chains are different from forward supply chains and most of the existing forward supply chains are not designed to handle reverse supply chains.

IIn today's highly competitive business environment, the success of any business depends to a large extent on the efficiency of the total supply chain, not just the forward supply chain.

TThe Council of Logistics Management defined reverse supply chain 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."

Necessity of Reverse Supply Chain

The foremost reason behind companies giving importance to reverse supply chain is that it reduces operating costs by reusing products or components. For example, previously, Estee Lauder Companies Inc., used to dump nearly $60m worth of its products into landfills every year. However, after setting up reverse supply chain it has been able to halve the volume of destroyed products.

Regulatory Pressure

In some cases companies are forced to set up reverse supply chains because of environmental regulations. Many countries and states have instituted regulatory requirements regarding recycling and product disposition that requires increased record keeping and tracking. For example, in 2003, the European Union introduced legislation that will require tyre manufacturers operating in Europe to arrange for the recycling of one used tyre for every new one that they sell. Consequently, companies are increasingly using reverse supply chains as an integral part of their business.

The Starting Point

Though companies have been successful in fine-tuning their traditional supply chains, they need to change their existing supply chain management systems to implement reverse supply chain management. Most enterprises do not have supply management systems which handle the reverse supply chain or, if they do, the existing applications are disconnected. Companies need to make a major paradigm change. Companies can no longer accumulate returns in the back of the warehouse or stores and ignore the issue of returns.

The first step in any successful reverse supply chain management system is to define the rules of reverse supply chain system. The first and most important activity is to actually understand where the reverse supply chain will contribute profits. The initial focus should be on the desired business outcome of the reverse supply chain process and then the policies and procedures that need to be put in place to support that outcome.

Many companies accept all types of returns while others do not, depending on the type of product. The return policy of the companies should clearly mention the type of return. Customers return products for repair or replacement. Channel partners return goods because of excess inventory or products exceeding their shelf-life. Original equipment manufacturers also initiate recalls. Ford recalled its Explorer model because of faulty tyres. Companies also need to educate the customers and establish new points of contact with them.

Reverse Supply Chain Activities

The different activities in the reverse supply chain process are:

Gate-keeping

Gate-keeping decides which products are to be allowed in to the reverse supply chain, otherwise companies might be flooded with products which cannot be recycled, remanufactured or disposed. Good gate-keeping is the first critical factor in making the entire reverse flow manageable and profitable.

Collection

Next, is the process of collection of the chosen items. A major issue in collection is the high uncertainty regarding locations from where used produced products need to be collected, their quantity and timing. Once collected, the items need to be transported to locations for inspection and sorting.

Inspection and sorting

The inspection and sorting is necessary to decide what to do with each item.

Reconditioning

Companies might capture value from returned products by reconditioning damaged packaging for reuse or by completely remanufacturing the products for resale.

Disposition

Disposition is the activity which decides where the items will finally go. Disposition of items is based on quality or product configuration.

Redistribution

In redistribution, the company plans to sell the recycled product. While doing so the company first needs to determine whether there is demand for the recycled product or whether a new market must be created.

Disposal

Finally, having reduced the remaining quantities down considerably, disposal is the last available option.

Reverse supply Chain Design Issues

IIn designing a successful reverse supply chain, it is important to know what type of product will be returned at which point in time at which place and in which condition. Hence, data is critical.

Tightly integrated automatic data capture, system directed disposition support, unique receipt handling, credit processing, capturing specific data on reprocessing possibilities, presenting cost implications, comprehensive and flexible reporting are some of the important functional capabilities in reverse supply chain.

In addition, we need to set defaults, or leave variability to be managed by product experts and enable people to make good decisions.

However, the legacy systems or the standard enterprise resource planning systems used by companies are not normally effective to support these functional capabilities.

Barriers to Reverse Supply Chain

Successfully implementing reverse supply chain is still a problem for companies, as they face a number of obstacles. Often the reverse supply chain is still treated more like a necessary evil of the back end process of a logistics process.

Another barrier is the lack of commitment from senior management. who should show commitment in the form of dedicating a team of individuals, software and conveyor systems for reverse supply chain.

There are two types of barriers, internal and external barriers. Internal barriers include preparedness in terms of processes, systems and infrastructure of the company to handle returns, while external barriers include amenability of the customer.

This is a list of internal barriers that need to be considered when implementing a reverse supply chain solution:

Importance of reverse logistics relative to other issues

• Company policies
• Lack of systems
• Competitive issues
• Management’s inattention
• Financial resources
• Personnel resources
• Legal issues

Conclusion

The Reverse Supply Chain is an increasing business imperative for the reasons cited above. For a good process to be implemented, several barriers must be overcome. We are sure that we can address the technical solution and process barriers with Alchemy.

Alchemy has been designed to support the complex and specific needs of the Process Manufacturing Enterprise. Specifically it is designed for an environment where a product is not defined as simply a collection of components, but one where it is a complex mix of substances with potentially many intermediate stages. These are products that can be deemed of bad quality at various intermediate stages of the production cycles as well as at the end of the process as a finished product.

Alchemy works across your Reverse Supply Chain process, from Customer Services, to Quality Management, Product Stewardship, Production Planning and the Manufacturing departments within your organisation.

Alchemy will work across these work-streams and enable people to make better decisions in order to drive more value out of your activities, increasing revenues and reducing inventories, and to provide more data for ongoing process improvement.