How to scoop the pool on reverse logistics

By Poul Breil-Hansen

Many companies experience a returned goods rate of around 10% but, according to a UK survey conducted by Shockshifters.com, the average returns percentage for e-commerce companies is 22%. "E-commerce involves a far greater number of returned goods than traditional commerce. For example, it isn't unusual for 60% of fashion items purchased over the internet to be sent back. In the warehouse, it is of paramount importance to receive, check, clean, pack, bar-code and return the item to stock as quickly as possible, and this is particularly true of items with a short lifespan with regard to popularity, such as fashion and electronics," Professor René de Koster from Erasmus University in Holland tells us. That figure is high, and it isn’t made any less so if you start to look at what reverse logistics cost in terms of handling costs.

Profit and environment

"Reverse logistics play an important role in both the company’s environmental and CSR efforts and as a strategic lever for improving competitiveness and the bottom line," explains Chiabba Gobbi PhD, lecturer at Copenhagen Business School. She points out that consumer electronics manufacturers are pioneers in this field precisely because they have been forced to take responsibility for their products being returned and re-used by the EU directive with the difficult name, "WEEE". The industry has outsourced reverse logistics to a common 3rd party player who handle the reverse supply chain in the form of collection, consolidation, transport and processing on behalf of the manufacturers.

WEEE without success

However, she also points out that in many ways, WEEE has only been modestly successful. By and large, goods are not recycled since the system is not able to sort the returned goods effectively. There is no coordination of collection transportation to take account of environmental aspects. There is no collective optimisation of interests and logistics processes when it comes to reverse logistics. The Directive encourages manufacturers of consumer electronics to design products in such a way that reverse logistics and recycling are incorporated into the design but it doesn’t offer any incentive for them to live up to it. The upshot of this is that nothing has changed and the design process for new consumer electronics does not take account of re-use.

schenkerReverse logistics is uncharted territory

According to both Chiabba Gobbi and Henning de Haas, reverse logistics is, in general, an undeveloped discipline that has not been integrated with the customer-oriented chain. Henning de Haas is a PostDoc and was, until recently, a lecturer at the University of Southern Denmark. Today, he is head of kk Academy & Corporate Improvement at kk-electronics a/s.

"Those companies that succeed in developing a sustainable business model for the reverse supply chain will acquire a unique competitive advantage in their market. This will both strengthen the bottom line and improve their reputation with end-users", Henning de Haas tells us.

Design for reuse

He believes that the key to profitable reverse logistics is to incorporate the two-way supply chain during the product development phase: "If a PC manufacturer or shoe manufacturer succeeds in designing products in such a way that they can be easily separated, sorted and recycled by the consumer at the end of the product’s life on a more or less one-to-one basis in new products then there is no doubt that the manufacturer has struck a goldmine."

Product development sets the scene for the business model

According to Henning de Haas, companies that think in terms of logistics, supply chains and the flow of returned goods when they develop new products are few and far between. Product developers think about products, properties, colours, shapes, design etc.

"Products developers are neither trained nor motivated to think in broad business system terms. That’s a shame because a great deal of costs and business opportunities are dictated by the choices made by the product developer during the development phase," explains Henning de Haas.

The product developer’s choice of materials, the manufacturing process, the number of product variants, fulfilment of the customer’s value creation etc. all entail consequences and, sometimes, considerable hidden costs both for the forward and reverse supply chain. Companies that encourage their R&D departments to take account of these parameters and think the product into the delivery system, reverse logistics and, not least, an overall business model.

New role: Supply Chain Architect

He believes that companies need to think in broader terms during the development phase. He compares the product development process with an architect designing a house. The architect thinks along the lines of form, content and functionality. Similarly, Henning de Haas believes that it is of great value to incorporate the forward and reverse supply chains into your thinking when you are designing a new product. Therefore, he suggests a new role which could most appropriately be called Supply Chain Architect.

"The most important quality for a Supply Chain Architect is the ability to think in terms of context and to think holistically. What will the consequences of choosing this type of material be for production, production, reverse logistics etc."

He suggests that the Supply Chain Architect is based in the sales department so that he or she is as close to the customer and the sales process as possible and has the opportunity to be part of the development process in the very early stages. The sales team and product developers must be under the constant influence of the logistics side so that a culture is created whereby logistics and production are automatically part of the decision-making process.

2011-04-15
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