Let’s face it: the forward supply chain reigns. After all, its mission is to build revenues by moving product out the distribution center door to retailers’ shelves and consumers. But what happens when products need to be returned for a variety of reasons?
While the reverse supply chain has been operating ever since people have been trading, it has not received the same focused attention as the forward supply chain relative to characteristic high efficiencies. Although the food and beverage industry far surpasses other industries in efficiently managing reverse logistics, missed opportunities ripe for the picking still exist for the industry. And these ripe opportunities help feed that ever-hungry bottom line.
Reverse logistics is a vastly ignored area with a potential wealth of actionable data, says Chris Ferrell, associate director of Supply Chain Consortium in Raleigh, NC. Only recently were the mechanics involved in returning goods, applying the appropriate credits and product disposition given the moniker reverse logistics. When products in the food industry are damaged, discontinued, out of code or recalled, they need to be removed from the supply chain and returned somewhere for disposition.
“The signature of the food industry is that too many companies go to the extreme side of caution by land-filling almost everything,” says Ferrell.
A study published in 2009 [Reverse Logistics: Returns, Refunds and Recalls] by the Supply Chain Consortium concluded that many companies are not measuring the effectiveness or efficiencies of their returns operations with the same level of attention they employ for their forward logistics. Consequently, they miss opportunities not only to reduce costs, but to discover root causes for returns. Understanding root causes can help direct improvements throughout the supply chain, including engineering, manufacturing, distribution and processes at the retail level.
About 2 percent of products sold are returned through the reverse logistics system, reports Pat Walsh, vice president of industry development for Arlington, VA-based Food Marketing Institute. “The role of reverse logistics professionals is to reduce the quantity of returns and the cost related to handling products that need to be removed from the supply chain for whatever reason.”
Reverse logistics is a complicated process, says Chris O’Brien, vice president of Minneapolis-based C.H. Robinson Worldwide.
“We can offer our clients control over the process through our centralized management of functions starting with the actual return authorization process and ending with value-added financial services like managing accruals, credits and deductions so they can begin the chain of process improvement,” says O’Brien.
Having a process in place is critical for capturing hidden opportunities. “A typical shipper might be delivering to many retailers across multiple DCs,” explains O’Brien. “If there is no process in place for returns or refusals, the shipper could lose control of what will happen with those products and miss opportunities for possible savings. Best-in-class processes ask the right questions about every event. For instance, if transportation is necessary, we can help minimize the return cost and document the details for our clients.”
Shippers have various tolerances for reverse logistics expenses, and some consider the expenses involved as part of the cost of doing business. “Companies who work aggressively with us in customized reverse logistics programs learn root cause analysis, which helps them make the required decisions leading to process improvements,” says O’Brien.
Emerging As A Practice
Reverse logistics represents anywhere from 3 percent to 35 percent of a company’s bottom line, reports Gailen Vick, president and CEO of Reverse Logistics Association (RLA) in Lehi, UT. “But the food industry is in the lower range because it is better at it—it is really in their DNA.”