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Maximizing ROI with Reverse Logistics

Maximizing ROI with Reverse Logistics

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Recycle bin and spiral lightbult with large bills of money to show efficient recycling - path included

By Emmet Fritch
Faculty member, Reverse Logistics Management at American Public University

I am often asked what the term reverse logistics means and how it works. Finding the most efficient way to minimize loss or maximize return on investment is the objective of reverse logistics.

Numerous definitions exist for supply chain management, logistics, and reverse logistics. The Council of Supply Chain Management Professionals (CSCMP) provides a useful set of definitions covering these as well as many supply chain and logistics related terms and concepts.

The CSCMP website contains a glossary of terms that has become a recognized set of definitions commonly used by supply chain professionals engaged in both forward and reverse logistics.

[Related: Thousands of Jobs Open in Reverse Logistics]

Stock (1998, p. 20) elaborates on reverse logistics and defines reverse logistics in the following way “logistics in support of product returns, source reduction, recycling, material substitution, reuse of materials, refurbishing, repair, and re-manufacturing…a systematic model that applies methods across the enterprise in order to profitably close the loop on the supply chain.”

Each of the categories in Stock’s definition offers an opportunity to measure impact of company valuation when processing returns. Understanding the categories allows one to establish various options for processing returns.

Typically, reverse logistics practices start with retrieval of product from locations where consumed and include the following processes:

  • Reuse of material by placing it back on the shelf (returns from consumers in unopened boxes, for example)
  • Upgrade products such as electronics that just need revised software
  • Material recovery, such as extracting precious metals
  • Recycling, such as regrinding plastic and metal for mixing with new raw material in production
  • Discard – the most costly method, no value recovered

The option returning the most value to a company is reuse. Product is unused by customers and returned in the original packaging. This is often the case in retail. Product is placed back on shelves.

The next most beneficial option is product upgrade. Often this is a case where only minor variation is required. Examples include cell phone operating systems and electronic tablet and computer software upgrades.

The next option in terms of benefit is material recovery/recycling. This is the extraction of precious metals for purpose of selling the recovered material.

The least preferred option is waste disposal. This is chosen when there are no other options and the product has no value for reuse or other options.

Several companies demonstrate many examples of the six reverse logistics processes. An illustration of reverse logistics efficiency is Walmart, which has six facilities dedicated to processing returns and one facility that specializes in electronics repair for redistribution.

A career in logistics can be rewarding and, when one has academic credentials including supply chain management and logistics, many employment opportunities can be found.

References

Stock, J. (1998). Development and implementation of reverse logistics programs. Oak Brook, Ill.: Council of Logistics Management

About the Author: Emmet (John) Fritch is an Associate Professor of Business at American Public University. Dr. Fritch earned his PhD at Northcentral University. He earned a Master of Science degree in Technology Management from Pepperdine University. Dr. Fritch has over 20 years of experience in global supply chain management.

 

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