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Emerald Group Publishing Limited
Copyright © 2003, MCB UP Limited
Reverse logistics is the process of returning faulty goods from customers – aptly named since it is "logistics in reverse". Obviously it is something no organisation wants to spend money on. And yet, they do! Returns cost manufacturers many billions of pounds each year. Yet, we have supposedly been through the great "quality revolution" which was supposed to prevent such problems. Organisations should clearly assess the cost of their own returned goods handling processes – and reduce those costs at source, by improving manufacturing and shipping processes (since many goods are damaged in transit).
Probably because "no-one wants to know", returned goods handling is something of a "Cinderella" operation at both the sending and receiving end. Normally in both organisations there is some basement or other discreet area in which one single person or a small team work surrounded by damaged goods and packaging. Shipping managers ensure this is out of sight of the main executive team. This probably means, of course, that no-one ever tries to repair the damage – not to the goods but to the reputation of the supplying organisation and the relationship with the buying one. Making a mistake – supplying faulty goods – is forgivable; failing to act when informed of this misdemeanour is not! In the case of damaged, rather than faulty, goods, there may even be a dispute as to where the damage occurs and who is responsible for making good the damage – the original supplier, a third party shipper or the receiving organisation. Such disputes are much more likely if the damaged goods have been lying in the receiving organisation's "goods-in damaged goods ghetto" for some time whilst the goods-in department gets round to dealing with them. So, returns are bad news!
Then, of course the cost of reverse logistics is quite different from – and much higher than – normal logistics. In reverse logistics, organisations are generally (and hopefully) shipping single or small numbers of items. Trips are not part of a planed schedule. The total of goods to be collected and shipped may constitute a very mixed inventory requiring different packaging and shipping requirements. The original packaging is almost certainly non-existent or damaged.
The organisation returning the goods wants prompt service (and a prompt refund of any money paid), whereas there is probably little incentive to the original supplier to act quickly (except in managing a dissatisfied customer). In fact, less reputable organisations may not want the faulty goods back at all since they may well represent a liability rather than an asset. This means that reverse logistics is paid little attention. It is a nuisance, high cost activity.
Of course, one person's problem represents another's opportunity. Some firms have spotted a market opportunity by setting up intentionally to act as reverse logistics agents – to do other people's "dirty work".
The service involves the return of goods for re-manufacturing, redistribution, cleaning and/or disposal and can include everything from transportation management (pickup, shipping and invoicing) to product inspection and re-warehousing, including the associated information services.
Now, not only are there organisations in the reverse logistics market, there are also organisations in the information services field specifically to support reverse logistics. One such is eBoomerang, a private software development and professional services company based in San Jose, California. To find out more, go to: www.eboomerang.net/
So, logistics managers must pay attention to their reverse, as well as their forward logistics. The processes, and the costs, need to be managed. The consequences of not doing so – in terms of lost customer satisfaction and a lost customer – represent a considerable risk.