Reverse Logistics As An Integral Part Of Supply Chain Management


. cking tax liabilities. Logistics can help make those activities easier and more accurate by collecting and providing the necessary information. For example, retailers and manufacturers traditionally have clashed over the issue of credits and refunds for returned products, says Wyland. Retailers sent back a product and deducted for what they sent back from their payments.For manufacturers, it was an annual nightmare trying to reconcile the physical product with the paperwork, he says. Now, with the proper information gathering and dissemination, manufacturers can immediately reconcile their customers’ claims. There are enormous financial benefits to managing returns this way, Wyland says.

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Before, manufacturers didn’t know their profitability until they reconciled at the end of the year. Now, they don’t have to carry unreconciled claims and they don’t have to build cash reserves to cover those claims.The net effect is a reduction in the cost of doing business, he says. The benefits of a reverse-logistics program are legion. To get the greatest payback possible, though, shippers must devote the necessary time and resources to the project. Reverse logistics, in fact, should be part of the overall business strategy for any manufacturer and retailer, says LeMirande of Redwood Systems. Companies today often don’t consider reverse logistics when they plan their sales and operations strategies, he says, but they should: If you’re not including reverse logistics in your supply-chain strategy, you’re cutting your supply chain off short.International Reverse Logistics Whether goods and materials are being returned for repair, refurbishing, recycling, or resale, reverse logistics has its own unique considerations.

And when companies need to manage returns across international borders, reverse logistics becomes an even more complex process. That complexity–not to mention the cost of freight, which often outweighs the benefits of taking the item back–discourages many companies from bothering with international returns, says Kevin Sheehan, president of Dallas, Texas-based Processors Unlimited. His company, which recently was acquired by USF Logistics, manages reverse logistics at 45 processing centers nationwide. Yet sometimes there are compelling reasons to become involved in reverse logistics internationally. In some instances, a returned product can be sold to recover some of the costs incurred, says Dale Rogers, professor of supply chain management at the University of Nevada-Reno.

If you can recover some asset value out of the refurbished product above the cost of transportation, it may make sense to ship it outside the country, he says. And if a company imports items into the United States and they are returned by the end customer unused, he adds, it may be possible to resell them in a third country and claim a refund on the original import duties under duty-drawback regulations. There are many other factors that affect a company’s decision to handle returns internationally, including customer goodwill, the desire to keep name-brand products out of secondary sales channels, and environmental concerns. Here’s a look at why three shippers made that decision and how they manage international returns. Witco Corp., a global manufacturer of specialty chemicals based in Greenwich, Conn., for example, faces several challenges when managing returns of reusable stainless-steel totes from customers in Canada.

The company must keep track of the individual containers, which are shipped with chemicals inside, emptied by the customer, and then returned for cleaning and reuse.It also must ensure compliance with both U.S. and Canadian transportation law because the totes often contain hazardous chemicals and residues. Finally, Witco must prepare proper documentation to allow the totes to clear customs on both legs of the round-trip journey.

With a large number of containers moving back and forth between the two countries, the potential for confusion and error would appear to be great. But the $1.9 billion company maintains tight control over its equipment with the help of its third-party service provider, CF Reverse Logistics, a division of Consolidated Freightways.About three years ago, Witco hired CF to track, monitor, and arrange the return of the reusable equipment, reports Sheldon Ellis, Witco’s international logistics manager. Customers call a toll-free number to notify the company when the empty totes will be ready for pickup.

All they need to do is tell [CF] the tote number, Ellis says. Because CF tracks the totes by identification number from the time they leave the manufacturing plant, the carrier knows where home base is for each container, he explains. CF picks up the empty tote, then follows Witco’s routing guidelines to ship it back to its point of origin. Rather than ask customers to create export documentation for the containers they use, Ellis has CF prepare most of the necessary paperwork.

A customs broker selected by Witco clears the totes at the U.S. border. No duty applies, because the containers themselves are not being bought or sold. Outsourcing helps Service Merchandise manage returns For retailers, managing returned goods can be a costly headache. That’s because consumers are a fickle lot, returning items because the color didn’t match their bathroom towels or the clock they bought ticked too loudly.In addition, retailers also frequently must return out-of-season or obsolete stock, goods damaged in transit, and items that have not been sold within a certain timeframe. Many retailers opt to keep the entire process in house.

Others, though, find that outsourcing is an efficient, cost-effective means of keeping the returned-goods monster under control. One such company is Service Merchandise, based in Brentwood, Tenn. Service Merchandise sells a wide variety of consumer goods, including jewelry, furniture, kitchen items, and home electronics from 385 stores in 35 states.The company also has a mail-order business. All product returns are handled at a returns-processing center operated by Service Merchandise in Bowling Green, Ky., reports Paul Minor, director of transportation. Volume at the returns center averages between 30 and 40 million pounds annually, which represents a lot of inventory costs and lost revenues.

About two years ago, company managers recognized that a more organized approach to managing returns offered the potential for significant cost savings. The logistics department, though, was unable to dedicate full-time resources to the project.The solution? Service Merchandise turned to a third-party logistics service provider to manage this aspect of its business.

The third party operates a customer-service center for Service Merchandise with a toll-free number. When a store needs to return something, an employee calls to get authorization. Redwood also provides the stores with specific instructions for packaging, shipping, and documentation. Based on cost and volume guidelines established by Service Merchandise, the third party arranges transportation to the Bowling Green facility using pre-approved carriers.Our volume guidelines are based on the number of skids and on the storage space available in the stores, Minor explains. We want the largest shipments possible so we can reach better weight breaks Redwood analyzes individual store and regional demand, costs, and routing efficiencies to determine the best way to bring the merchandise to the returns center.

Conclusion Technologies available today can be incorporated into re-engineered business processes. Time-consuming manual processes can be reduced or even eliminated, driving out even more costs. Technologies currently under development will integrate item-level tracking with wireless communication to update business systems in real time. Organizations will be able to stay in touch with their customers’ products in the supply chain, regardless of time or geography.

Improved item-level information will enhance the business process to keep customers better informed and minimize product returns. Properly approached, reverse logistics can take the problem aspect out of your process and convert these costs into investments for profitable, long-term customer relationships. Business.