Reverse Logistics: 5 Steps for Better Backward Operations
What is reverse logistics? Why it’s important in the modern business and how to create an improvement in this area? This article will explain to you the current state of its theories, practices and offer some recommendations.
Reverse logistics is often seen as a clerical function. According to the paper “An Overview of Some Reverse Logistics Practices in the United States” by Olorunniwo and Xiaoming 2011,
– Reverse logistics cost is less than 5% of total logistics cost. This is the reason why people call it “Necessary Evil”, you don’t need it but can’t get rid of it.
– Major causes of product returns are wrong products delivered due to a poor process, customer changing minds then make a refund and products returned to vendor.
– Most companies see reverse logistics as the way to satisfy customer but there is no specific performance measurement for it.
Let’s take a look at academic side of the story. Rubio and Chamorro 2008 explains about the current state of reverse logistics research in their paper “Characteristics of the research on reverse logistics (1995–2005)” that major research stream is,
– Development of math algorithm in a production planning and design of optimal reverse logistics network
– Literature review and questionnaire based survey about general issues
Brito and Dekker 2003 indicates in the article “A Framework for Reverse Logistics” that reverse logistics gain more interest due to lots of pressures from regulatory agencies, customers and corporate social responsibility movement. Anyway, there is a big gap between supply chain theories and practices. As a results, infographic is created to demonstrate 5 practical steps that you can improve the performance of reverse logistics every day.
Reason code appears to be a very important factor to the success or failure of a reverse logistics program. Many surveys indicate that, even though a company has the reason codes within a manufacturing environment such as type of work-in-process or defects, they don’t keep track of the reasons for the returns properly. Establishing more comprehensive reason codes and using control chart to monitor the trend of each code will help company to figure out the problems with normal supply chain operations such as sourcing, manufacturing and delivery.
Return policy is also mentioned on many related articles that it’s the important element of reverse logistics. Anyway, paper related to the return policy can be found only on journals related to operations management and marketing. Recommendations provided in the infographic is then the results from the numerical examples and sensitivity analysis so you are encouraged to examine if it can be applied to your situation.
Another issue is how to forecast the demand of returns. Practitioners notice that the volume of returns is related to the volume of sales but there are only 2 articles discussing about the forecasting issue. The information provided in the infographic uses a multiple regression analysis to find the relationship between some variables that may influence the number of returns. Please feel free to explore other variables that apply to your business.