Let ‘s Start with a Formal Definition
A Complete supply chain process dedicated to the reverse flow of Products and material for the purpose if return ,repair, remanufacture and recycling . The Planning and Controlling of Process of moving Goods From Point of consumption back to the Point of Origin..
Do you Know ??
An Average Manufacturer Spends 9 to14% of its total revenue on returns in a year.. This is not big news. I have one bigger one.. Still there is 45% Companies have not implemented a proper reverse logistics strategy for effectively managing the reverse flow of goods..
Reason for Returns — Basic reasons like if Products are damaged or defective. But there are some other reasons like Overstocks , Obsolete products, Packaging issue. I want to share one tips that manufacturer sometimes use to lower the cost of returns. that is only valid in case of Obsolete products.
” Manufacturer might try to resell these products to another country where they would not be considered as obsolete”.
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How to Handle Reverse Logistics – Below are following identified steps..
1- Find a single Location for all Returned products..
2- Determine the reason and categorize each returned products. this is an important decision because after identifying the reason you can take below action
– Return to Stock ( Unsold Items still in original Packages)
– Return to Manufacturer or Producer (It is generally used in case of Liquor bottles)
– Liquidate ( Sell in Secondary market if product is Obsolete in developed market)
-Donate (To a charitable organization as tax write off)
– Destroy (Burry In Landfill)
Waste hierarchy in Reverse Logistics Process
” A tool that ranks waste management options according to what is most environmentally sound. it gives top priority to preventing waste in first place and can be applied to various application”
Reverse Logistics Cost – It is really not simple for any company to determine the total cost associated with return flow process . But there are below calculation methods.
– Activity based costing – All Overhead cost + Cost for all process Involved (Labor, Transportation, Storage cost, Inventory carrying cost )
– Forward Flow analyses and cost Plus Handling charges – This Method use detailed cost for Transportation and the averages of historical cost and add them to handling expenses
Below is Formula version
Returned product Liquidation revenue
+ Increase in sale from Warranties
+ Capture of Tax savings or Incentive Program benefits
– Returned product cost
-Processing and handling Cost
-Repair and spare cost
– Warranty expenses
= Total cost of reverse Logistics
Challenges of reverse Logistics
– Forecasting Volume – One of major Challenge is How to Forecast the return Volume. For Some Product it is seasonal also.
-Storage – A Large volume of returns leads to large amounts of product return Items needing to be stored in the central location.
-Cost – Defining Reverse logistics cost is Challenging task.
– Traceability – It is difficult of Track the chain of custody in terms who owned them, the cause of return and through what retailer they were returned.
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