Let’s start with a business riddle: what is…
- operates in a silo?
- a cost-center?
- performed as a warehouse manager’s weekend job?
- cannibalizing warranty service parts and yield maximization?
- a place to dump and forget defective items?
The answer is, reverse logistics…but only at companies where it is misunderstood and underutilized. In many companies, reverse logistics suffers from ad-hoc implementation, haphazard measures, and misaligned focus.
A CAPS research team set out to correct this. Their findings? Reverse logistics is actually a “diamond in the rough,” and if approached from a strategic and holistic perspective, it can become a long-term profit center and beacon for sustainability.
So, what does reverse logistics look like at a company where it is fully leveraged? At a high level, it is anything that happens to a product, service, or information after the point of sale. It is more than transportation, warehousing, and the resale of defective items. Reverse logistics covers all nodes where a “sale” happens, including distributors, retailers, and consumers. It is integral to the supply chain strategy and lifecycle of a product.
Reverse logistics breaks the conventional wisdom in value chain strategy that assumes a one-direction flow. It redefines the strategy for a closed-loop system where reverse chain activities create additional competitive advantage (discussed further below), driving customer satisfaction, revenue enhancement, cost reduction, profit maximization, sustainability, and product improvement
How does a company get to this leveraged state? To help facilitate the journey “up the maturity curve,” practitioners can use is the strategic 5R framework (more details can be found in the CAPS whitepaper Reverse Logistics: The 5x5 Formula for Success, available to members in the CAPS Library now):
- Reduce - achieve a product return rate that maximizes revenue and profitability.
- Reuse - maximize reuse and alternate use of products and packaging to further grow the business.
- Repair / Refurbish - perform a true cost-benefit analysis of repair / refurbish decisions across the entire product life cycle.
- Resell - balance yield (sales value) versus throughput (sales velocity).
- Recycle - design products that are recycle friendly at the end of their useful lives.
Using this framework and other findings in the whitepaper, supply management professionals are presented with a golden opportunity to lead the company in designing a strategic, holistic reverse logistics strategy. It’s an opportunity to strengthen their alignment with the business and be the torchbearers for the organization’s new value generation.