Chapter 11: Strategic Leadership Chapter 19 Product returns and reverse logistics management

Chapter 11: Strategic Leadership Outline Logistics systems are traditionally designed to handle product flows in one direction only. Product returns and waste management requirements have led to products flowing back from customers to suppliers and manufacturers. Unpredictability and lower volumes complicate the process. The environment has to be taken into account through environmental management systems, ISO and carbon footprint reduction. Closed-loop supply chains aim to achieve zero waste by integrating forward and reverse supply chain activities.

Chapter 11: Strategic Leadership Learning outcomes The returns management process The role of reverse logistics in returns management The way in which reverse logistics is managed The reasons for returning products The stages through which returned products move The difference between product recovery and waste management Environmentally sound supply chain management ISO The concept of closed-loop supply chains

Chapter 11: Strategic Leadership Role of reverse logistics in returns management Returns management is about: avoidance; gatekeeping; and disposition. Reverse logistics: Part of returns management From point of consumption or intermediate point back towards origin or away from the supply chain Recapture value or properly dispose of goods

Chapter 11: Strategic Leadership Product returns management Return products to source or for waste disposal Waste = by-product of manufacturing and consumption – process, reuse, recycle and dispose of responsibly Returns management comprises wide array of activities (see pp. 422–3) Types of returns: Manufacturing Distribution Customer Reasons for returns: see p. 423

Chapter 11: Strategic Leadership Path of returned products and materials Minimise number of items that need to enter return flow through avoidance and gatekeeping. Paths for returns (from most to least attractive): Return to vendor for refund Sell as new (repackaging may be required) Sell via auction or outlet Remanufacture or refurbish Sell to broker Donate to charity Recycle Dispose of in landfill

Chapter 11: Strategic Leadership Product recovery and waste management Consider waste disposal options in terms of environment.

Chapter 11: Strategic Leadership Differences between forward and reverse logistics – management Forward logistics: Sales and marketing forecast plan Single or limited origin of products Distribution planning possible High visibility Cost known or can be estimated before shipping Reverse logistics: Difficult/impossible to forecast Many-to-one distribution network Reactive planning for distribution Low visibility into product flows Difficult to predetermine costs

Chapter 11: Strategic Leadership Differences between forward and reverse logistics – costs Cost categoryForward logisticsReverse logistics TransportLower bulk ratesHigher cost per unit Inventory-holdingGenerally higherLow holding cost ShrinkageHigherLower due to various factors ObsolescenceResult of bad inventory management Higher cost, as products less likely to still be sold CollectionDistribution from DCHigh cost of special arrangements SortingStandardisedInspection cost HandlingLower cost (unitised)High cost (single units) Refurbishment and repackaging Non-existentVariable, but often applicable Book valueLittle change, except with obsolescence Always below market value of new product

Chapter 11: Strategic Leadership Information management challenges of reverse logistics Special information requirements of reverse logistics cannot be handled by traditional ERP, WMS and TMS. End-to-end information system should be able to support: Warranty and return management Recall management Depot repair management Regulatory compliance management Business analytics and reporting etc.

Chapter 11: Strategic Leadership Life-cycle assessment (LCA) Quantify the resource and energy use and environmental burdens of a product or process over its entire life cycle. Cradle-to-grave perspective Comparative nature Can also be used to compare distribution strategies Sustainability efforts can be included during: – Design – Source – Manufacture – Distribution – Post-sales service – Returns/recycling

Chapter 11: Strategic Leadership Stages in the reverse logistics process Typical stages of product returns to a warehouse: Receipt – separately from normal inbound products Sort and stage – preparation for returns processing Returns processing – further sorting and capturing of information Returns analysis – make decision on path that each item should take Support operations – distribute items according to where they should go

Chapter 11: Strategic Leadership Logistics and the environment (1) Environmentally sound supply chain management: Pressure from consumers, clients and government Compliance with composite framework of requirements identified on behalf of an organisation’s stakeholders Legislative pressures traditionally main reason for change Sound environmental practices can have financial benefits Easily addressed in reverse logistics, packaging, transport and facility location/network design Internal and external collaboration around issues needed

Chapter 11: Strategic Leadership Logistics and the environment (2) ISO – focus on environmental management: – Minimising harmful effects of activities – Continual improvement in environmental performance Requirements and guidelines for an EMS: – ID and control – Continuously improve – Systematic approach Benefits of implementation: see pp. 432–3 Beware of fragmented procedures, conflicting interests and lack of customer focus

Chapter 11: Strategic Leadership Logistics and the environment (3) Carbon footprint: Measure greenhouse gases produced in units of CO 2 Fossil fuel combustion is the main source Various strategies for reduction: see p. 433 Closed-loop supply chains: Forward and reverse logistics activities combined into a single system Zero-waste supply chain Maximise reuse, recycling and composting of materials Return products to manufacturer at end of useful life