Reverse Logistics In India

Posted in Operations & IT Articles, Total Reads: 2682 , Published on 19 October 2012
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Reverse logistics is the complete supply chain dedicated to the reverse flow of products and materials for the purpose of materials replacement, waste treatment, re-processing, re-manufacturing, repair and/or recycle. From the perspective of supply chains, complete logistics system should be composed of two parts: forward logistics and reverse logistics. At present India’s enterprise managers constrained by the supply chains tend to attach importance to the forward logistics, ignoring the reverse logistics.



There are two types of reverse logistics ‘asset recovery’ and ‘green reverse logistics’. Asset recovery is related to return of actual product and green reverse logistics represents the responsibility of the supplier to dispose of the packaging material or environmentally sensitive material. Enterprises nowadays have become more sensitive towards reducing the environmental pollution and winning the trust of customers and have began paying attention to product packaging materials, waste recycling and reuse processes. Effectively managing reverse logistics has great significance for both the social interests and enterprises’ interests.

Goods can be returned for many reasons that include

  • Quality demands by final customer
  • Damaged of defective product
  • Inventories that result from over forecast demand
  • Seasonal Inventories
  • Out of date inventories
  • Re-manufacturing of products

Returned goods can be

  • Returned to inventory
  • Refurbished for resale
  • Broken down to reusable components
  • Sorted to recover valuable material

Benefits:

  • Increasing Customer Satisfaction and Enhancing The Competitive Advantages:

Customer value is a key factor to determine the survival and development of enterprises. The successful operation of reverse logistics ensures that disqualified products are timely returned and increases the trust of customers in the enterprise, thereby enhancing its competitive advantages.

  • Protecting the Environment, and Enhancing Corporate Image:

At present, environmental performance has become an important indicator of enterprise performance evaluation. Reverse logistics management possesses strong environmental features which can reduce the environmental pollution of products and resource consumption, and ultimately enhance the public image of enterprises.

  • Lowering Material Costs and Increasing Business Efficiency:

Reverse logistics, through recycling and processing the waste products and packaging materials, can significantly reduce the materials costs of enterprises, improving product competitiveness. At the same time, effective reverse logistics management can reduce the return rate, reduce the loss of resources and ultimately increase the efficiency of enterprises.

Difficulties in Implementation:

  • Lack of awareness:

Most enterprises have not recognized the importance of reverse logistics: First, they have a weak responsibility sense for recycling; Second, they think that reverse logistics can not bring economic benefits but a waste of resources and time.

  • The conflicts between retailers and manufacturers:

The different purposes of retailers and manufacturers to recall products may lead to conflicts in recalled products, product prices, response time and other areas. From the view of retailers, in every product damages happen in the process of logistics or in the production process, so every product demands full compensation. While manufacturers think recalled products may be damaged by retailers, so every recalled product should not be given full compensation. The conflicts between the two certainly cause the confusion in reverse logistics.

Implementation Strategy:

  • Paying More Attention to Reverse Logistics:

To develop reverse logistics, enterprises must pay more attention to reverse logistics and clearly understand the relationship of reverse logistics with recycling economy and sustainable development strategy. At the same time, the government should strengthen the legislation to promote enterprises improve the degree of attention to reverse logistics, so as to encourage manufacturing enterprises to be responsible for the entire life cycle of their products.

  • Constructing Reverse Logistics System in the Supply Chains.:

The core enterprises of supply chains should make full use of modern information technology to construct enterprises reverse logistics system. The reverse logistics system based on Information technology can speed up recovery and decomposition processes and reduce the costs of reverse logistics management.

  • Outsourcing Reverse Logistics:

For small and medium enterprises, self-built reverse logistics system will face a higher investment risk. They can take full advantage of the professional advantages and scale economy of third-party logistics to lower operating risks. If large-scale enterprises haven’t taken reverse logistics management as core competitiveness, they may also consider outsourcing reverse logistics to a third-party logistics enterprise, which can make them focus on their core business and strengthen their core competitiveness. Currently reverse logistics outsourcing has become a new development trend of logistics management.

Reverse Logistics and Indian scenario

Opportunities:

India is a huge country with population of over 1.2 billion people. Indian economy is growing exponentially and with that the disposable income at hand is also increasing. This is resulting in higher spending by Indian customer. With advent of Information Technology Indians are becoming more and more tech savvy and this has resulted in increased online shopping which accounts for the most number of product returns. Reverse logistics can  also receive impetus from government for efforts to reduce e-waste that’s piling up as companies and consumers replace products ranging from mobile phones to computers that are becoming obsolete more rapidly. So India is one of the most dynamic & promising Reverse Logistics markets of the world

Future Group, which runs a number of retail chains across product categories including Big Bazaar, started reverse logistics in-house five years ago. It was also the first retailer in India to start such a unit and is considering offering its expertise to other retailers. The group currently offers product return facilities in its fashion and furniture businesses. According to Anshuman Singh, managing director and chief executive officer of Future Logistic Solutions Ltd. average spending on reverse logistics is about 10-15% for garment firms and about 20% for furniture companies,

Challenges:

  • Meeting customer expectations

Reverse logistics being a service industry, meeting customer demands with effective and efficient use of resources including distribution capacity, labour and inventory is necessary.

  • Managing expenses

Substantial high investment is required to set up reverse logistics centre. The entire operation is labour intensive as well.

  • Infrastructure

Lack of infrastructure facility creates difficulties for new business set up. Major hurdles are road, power, efficient telecommunication and infrastructure in smaller towns. Transportation network connecting tier2 and tier3 cities is poor.

  • Unorganized Retail

There are massive supply and return issues with 70% of the ever growing population living in rural areas, hence the reason that only 5% of sales are through organized retail channel. 95%of sales happens through unorganized retail channel.

  • Complicated rules and regulations

Mandatory knowledge of waste management laws, regulations and processes is necessary. Proper understanding of taxation laws which vary from state to state is also a major challenge and GST is still not in place. Material movement from one state to another has many restrictive regulations.

As many multinationals have found upon starting operations in India, embracing local operations and regulations rather than fighting them is the key to launching successful operations. A simple "cut and paste" from other regional operations will stand little chance of success in India. Reverse logistics is a sunrise sector in India, though as an industry it is still evolving. The business opportunity is large but the execution risk is high.  But with the help of tax benefits and incentives from government and with continuous and fast pace infrastructure development, reverse logistics has the potential to become a key route to cost optimization as the Indian economy grows.

This article has been authored by Parag Mahajan from NITIE.

Image courtesy of  FreeDigitalPhotos.net


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