(2005) Mollenkopf & Closs - The Hidden Value in Reverse Logistics

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The Hidden Value in

LOGISTICS t'\X'rsc logistics has often been \ic\\fcl as ihc unwanted step-child ot supply chain management. It has been seen as n necessary cost of business, a regukuory eornplianee issue, or a "green" initiative, IJut more e()ni[)anies are now seeing reverse logistics as a strategic activity-—one that can enhance supply ehain competitiveness over the long term. Diane A. Mollenkopf and DavidJ. Closs

r>iane A. MnWenknpj i.s an asshianX projessor in the Department nsbip m a n a g e m e n t . T h e s e performance measurements have further substantiated the importance of effectively managing reverse logisties.

Second: Each company nov\' uses its reverse logistics capability to enbance its eompetiti\c ad\antagc. Further opportunity lies in bov\ tbe returns process is Wbile re\erse logisties may never be tbe focal point of a comvievved—and acted iqntn. Unless all de|iartments understand jianv's overall strategy, managers are increasinlgy recognizing tbe role {>f tbe returns proeess and its ultimate goals, eonflict- tbat reverse logistics can fit into a company's strategy to be a ing goals and priorities will be set across departments. It is cost leader or to better serve customers, f^everse logisties systems still represent uncbarted territory for many companies, also crucial to prepare tbe vvorklorce lor t b e volume of i'liose managers who recogni/e the importance of the process ineoming receipts. By afigning employees abead of time, companies can expeet impro\ed tbrougbput processing, to enhance pn)iitability or de\elop stronger eiislomer relationensure that customers receive credit more t|uickK. and make sbips stanti to strengtben tbeir companies' com|ietitive pos'\sure tbat products are returneil to saleable stock as (.|tiiekly as tions. possible. Third: l o r reverse logistics systems to he successful, top

EXHIBIT 2

The Financial Impact of Reverse Logistics Strategies 1 Revenue

Expenses

Returns Flow

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Environmentally responsible activities enhance brand equity.

Increase sates of remaiuifactured product, which is produced at lower cost of goods sold (COGS).

1) Reduce COGS by reclaiming usable parts.

Reduce COGS by refurbishing or remaniifacttiring products and parts salable.

2) Reduce inventorycarrying costs through improved channelclearing activities. Assets

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Remanufacturing

Reduce obsolete inventories by improving channelclearing activities.

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Remarketing DSell recovered and remanufactured products/parts,channels. 2)Env]ronmentally responsible activities enhance brand equity.

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Recycling

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Landfill

DRecycle parts/ materials that can no longer be used in products. t ) Lnvirofimentally responsive activities enhance brand equity.

Environmentally responsible activities enhance brand equity

Reduce operating expenses through disposal compliance.

Reduce operating expenses through disposal compliance.

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Keep inventories of old stock from accumulating by actively remarketing to secondary markets.

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w \\ \\ . s u m r, t; < un

Fourth: It is cruciiil to integrate all the functional areas [hat allcct. or can be alfectcd by, returned prodtacts. At several ot the organizations surveyed, integration chiefly means creating tighter linkages between the marketing and logistics functions to ensure a smooth return [irocess with prompt and correct credits for customers. Regardless of the scope of the necessary integration, each company recognized that reverse logistics spans several kiiictional areas and cannot he managed in isolation. Firth: Ihe most sticcesslul companies systeniaticallv developed decision rtiles that consider the cost of return transportation, the cost ol reprocessing or remanufacturing, ami the resale price, Stich giiiLlclines allow companies to tocus their return and processing elforts on items that ean achieve a return on investment while minimizing the eosts incurred hv other prodticts thai v\ ill not generate any rettirn.

Potential Waiting to Be Captured [Reverse logistics is a valid stipply chain management discipline, hut one whose full potential has yet to he realized hy man\- managers, B\' sharing the rcsirlts of the Michigan State survey, we hope to have prov iilcd some valuahle glimpses of the gains that comfianies can make from well-planned reltirns management eapahilitles and systems. Some of the organizations stirveyed have heen [iractieing returns management lor a long time, while others are relative-

Iv' new to it. In manv ol the cases, tlie rettirns management process had been ad hoc, meaning that the strategies, operations, and gtiidelines were not well-defined or thought out. I iowever, all the organizations survevcd have i,|Liickly seen compelling henefits, to the point where thev, have all opted to build reverse logistics eapahilities into their overall logistics and sup|ilv chain strategies and processes. Each ol the com[lanies profiled above can attest to the value of doing so. Authors' Note: The researchers ivisli lo tluiiik IHM htlegnitcd Stippiv Chain for its support oj '''''• rc^^earch iuid llw conipuiiies and agencies that agreed to be inten'ieived. (3SD Footnotes ^M.C. Cooper, D.M. Lambert, and J.D, Pagh, "Supply Chain Management: More Than a New Name for Logistics," The International Journal of Logistics Management, vol. 8, no. 1 (1997): pp. 1-14, S. Rogers, Douglas M, Lambert, Keely L. Croxton, and Sebastian J. Garcia-Dastugue, "The Returns Management Process," The International Journal of Logistics Management, vol. 13, no. 2 (2002): pp, 1-18. ^D. S. Rogers and R.S. Tibben-Lembke, Going Backwards: Reverse Logistics Trends and Practices, Reno: Reverse Logistics Executive Council, 1999. Also, Edward W. Repa "SWMA's 2002 Tipping Fee Survey/' NSWMA Research Builetin, September 2002. ''Rogers, 2002. ^Rogers, 1999.

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