Reverse Supply Chain Practices

Posted in Operations & IT Articles, Total Reads: 2350 , Published on 16 November 2014
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Reverse supply chain is the movement of goods and commodities from consumer to manufacture or vendors. It is the process of planning, executing, implementing, and controlling the cost effective and efficient flow of used goods, raw materials, factory reject inventory, expired finished goods from the point of consumption and sell to the point of origin in order to recapture the value or ensure proper disposal.

Image Courtesy: freedigitaphotos.net, Stuart Miles



Figure 1 Reverse supply chain

Source: thecognizant.com


The reverse supply chain traditionally been present in following scenarios

1. Product return and exchange

2. Refurbishing and manufacturing

3. Returning expired and hazardous products in case of pharmaceuticals

4. Managing leasing business

A product received through reverse supply chain goes through following activities:


Collection:

The process which brings products from customer to support or service centre where the product is tested under quality checks and sorted as per status to send for refurbishing, reuse or manufacturing as raw material.


Reprocessing:

This process deals with number of sub processes which are generally referred as 4R’s of reverse logistics as mentioned below:

Repair: Deals with the items covered under warranty requiring repairs

Re-use: Separate re-usable parts from components which cannot be repaired or used elsewhere

Refurbishing: Service the damaged product or components to bring it to working condition

Recycling: Process the waste and used materials into new product


Redistribution:

The product such as TV, refrigerator can be sold or returned for original use whereas parts or commodities such as ICs, newspaper are channelized for alternate use.

Reverse supply chain design strategy

Reverse supply chain can be implemented with two opposing strategies depending on the marginal value of time for the good being processed.


1. Centralised Efficient reverse supply chain

This model scarifies speed for cost efficiencies and achieves efficiency and economies of scale by postponing sorting process. It is preferred for products with low marginal value of time (MVT). Product evaluation and testing is done at the centralised location then sorted for 4Rs as mentioned previously.


2. Decentralised responsive reverse supply chain

This model achieves speed at higher cost by preponing the sorting process. It is preferred for products like PCs having high marginal value of time, to minimize the cost due to delay. Product is evaluated and tested at multiple locations at the time of collection from customer. It has certain limitations in terms of technical and economic feasibility of evaluation at the point of return.



Efficient Chain

Responsive Chain

Low MVT product

Yes

No

High MVT product

No

Yes

Figure 2 Time based reversed supply chain design strategy


Characteristics and Challenges

Reverse supply chain can be detailed with following characteristics and challenges

- Forecasting supply and demand is difficult and unpredictable in some cases such as consumer electronics

- Distribution is many to one where collection point is distributed and destination is unclear

- Product is quality is not uniform

- The refurbishing cost and rejection ratio is on higher

- Pricing is not standardised and is the function of rejection rate and disposal charges

- High speed of pickup and delivery is not desired

- There is high reluctance among the retailers, distributors pertaining to low margin

- The legal regulations doesn’t exist for reverse logistics taxes and resale market

- Drop in goods value at every stage of reverse supply chain process


Applications

Printing industry since long has been repurchasing old edition, newspapers and un-sold books to save cost and in a way going greener. Companies like Maruti institutionalized second hand sale of cars through True Value and earned second profit on same product. Computer industry having an integrated with fast moving technology has wide scope for refurbish and resale. Fast technology changes also compelling electronics industry to save cost on hardware for mobiles, TVs and such by repurchasing electronic gadgets evident in the case of Nokia.


Car batteries are made up of large quantity of lead which is expensive material and difficult to dispose. The battery manufactures started collecting this lead through used batteries which resulted in 90% of lead recycling and cost savings. Similarly tyre manufacturers started to look for tyre recycling techniques to reduce costs to the customer.


There are few players in India like Kolkata based Aforeserve, Delhi based RLC and RT outsourcing who are efficiently acting as 3 PL providers for reverse logistics. RLC has even gone further to utilise return items to sell on its ecommerce platform GreenDust.


GreenDust

Greendust is an e-commerce platform operated by Delhi based Reverse Logistic Company Ltd (RLC). It deals with refurbished and factory second goods. The company is founded by Hitendra Chaturvedi in 2009. It turned to profitable operations since November 2013 generating Rs.100 crore per month.

Business model

Greendust works with OEMs to collect and refurbish factory rejected products and sells those through online portal and franchise model having 250 plus stores. It majorly caters to Shoes, apparels, consumer electronics and medical equipments and has partnered with more than 40 brands like Lenovo, LG and Whirlpool.

It manages the entire process from customer pick-up, call centre management of returns, warranty management, repair, refurbish, repack of returned items, and then resale as refurbished items to end customer


Figure 3 GreenDust 8Step refurbish


Conclusion

Reverse logistic process happens under collection, reprocessing and redistribution activities. There are two opposite strategies for designing reverse supply chain namely efficient centralised and responsive decentralised reverse supply chain. Also reverse supply chain adoption offers opportunity to companies to recover the investments incurred during manufacturing. Proactive approach for reverse logistics can prove beneficial in the long-term.


This article has been authored by Ajinkya Pachghare from IIM Kozhikode

 

References:

1. Reverse Logistics Executive Council http://www.rlec.org/

2. A macro-environmental analysis of reverse logistics practices in India www.pomsmeetings.org/ConfProceedings/043/FullPapers/FullPaper_files/043-0514.pdf

3. Design Strategy for the Reverse Supply Chain Based on Time Value of

Product http://revistas.pucsp.br/index.php/risus/article/viewFile/7264/5251

4. Recycling the Supply Chain http://www.themanagementor.com/kuniverse/kmailers_universe/mktg_kmailers/LogisticsMgmt.htm

5. Reverse logistics gaining ground in Indian market

http://www.livemint.com/Companies/NPDNqptaLGSvQF46Jg7yFO/Reverse-logistics-gaining-ground-in-Indian-market.html

6. Reverse logistic magazine http://www.reverselogisticsprofessional.com/

7. GreenDust http://techcircle.vccircle.com/2014/07/03/greendust-com-eyeing-250m-in-revenues-in-fy15-to-add-apparels-medical-equipment-categories/

8. GreenDust http://www.greendust.com/

9. ANALYSIS OF REVERSE LOGISTICS http://umt.edu.pk/icobm2012/pdf/2c-35p.pdf



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