Logistics matter. The efficiency with which you can fulfill the demands of your client base is directly related to your revenue as well as your losses. Reverse logistics is vital factor of minimizing loss and maintaining customer satisfaction.
As defined by Reverse Logistics Magazine, reverse logistics is “the process of implementing and controlling planned cost efficient, effective flow of in-process inventory, raw materials, finished goods and all related information from the point of consumption back to the point of origin for the intended purpose of recapturing value or ensuring proper disposal.”
This process includes materials that are returned due to damage, unsold seasonal inventory, salvage, restock, recalls, or simply excess inventory.
The process of properly implementing reverse logistics for optimized efficiency has additional challenges that not all companies are equipped to handle.
Challenges in Reverse Logistics
- Tracking Product Value: How do you track the value of a product that is being returned as defective? A brand new piece of equipment may be valued at $4,000. A defective product, however, does not have full value and therefore is not worth the full $4,000. It is not worthless either, as it may only need a small component replaced to return it to working order.
- Tracking Product Routing Status and Warranty: If your repairs are managed by an original equipment manufacturer, or the items being returned are done so under warranty, the process of mitigating loss becomes even more complicated.
- Working With Dealers and Contractors: When working with third party organizations like subcontractors, contractors, and distributors who operate in aftermarket support there is a new unique set of challenges that appear. When a distributor buys a subassembly product, they may sell it as is to the customer, or integrate that product into their own. Should there be a defective product or a recall instated, the reclamation of value is still more complicated, in addition to adding complication to the business relationship between your company and the distributor. If replacement parts are sent to the distributor, you must have documentation for whether or not the defective parts were returned. This calls for the creation of business standards for how to interact with distributors in these situations.
- An Efficient Repair Process: This is one of the more straightforward challenges in reverse logistics, and the primary difficulty is implementation. Depending on the structure of your company, do you pull staff away from creating new products to repair the defective items, or do you hire a repair staff that may be left to idle at times? The latter may be safer, and steps may be implemented to mitigate loss such as tracking repair orders through the appropriate software to streamline the work, but the loss still exists during downtimes.
The Cost Only Grows
For all of the costs highlighted earlier in this article, a worst case scenario is a major product recall, which is, unfortunately, just the tip of the iceberg. A poorly handled recall can cost you for years to come. Say, for example, you sell poultry, and a dangerous bacteria is found in one of your products. The initial recall costs you millions to notify the public, manage the increased liability and risks, and recall or retrieve your products — contaminated or not — for proper disposal. The longer this recall process takes, or the longer the contaminated or defective product is left out in the marketplace, the worse this reflects upon your company and the greater the damage to your public image, and future sales.
Addressing recalls and returns quickly and efficiently, and having a system to maximize return and minimize loss, is the best action to be taken.
Outsourcing provides a significant benefit by reducing these costs and addressing these challenges with expert-level experience and tried-and-true processes to ensure efficiency and cost-effective reverse logistics operations.
For all of the savings to be made in perfecting internal reverse logistics, there is more to be saved by bringing in a third party that is already experienced and established. Streamline your reverse logistics while eliminating the expansion and experimentation so that you can focus on your business.