What Is Reverse Logistics Business Essay Example

packaging and transportation materials. When receiving returned merchandise, there are multiple options for disposal. The first option is choosing a full refund from the supplier if eligible. Alternatively, if the merchandise is unused it can be resold to another customer or through a retail store. If the merchandise does not meet required standards it may be sold to a salvage company for exportation to a foreign market. In cases where the merchandise cannot be sold in its current condition or its selling price can significantly increase through reconditioning or remanufacturing processes these activities may be performed before selling it againThe company can choose to perform these activities internally or outsource them to a specialized third-party company that specializes in reconditioning, remanufacturing, or refurbishing. The concept of reverse logistics dates back to the American Civil War and has been around for a long time. While there may have been other instances of contrary logistics activities before this war, they were not consistently documented or widely recognized. To gain a better understanding of contrary logistics, it is important to explore significant events in its history. For example, at the end of the American Civil War, General William T. Sherman acknowledged the importance of supplying his army during their march despite being in hostile territory, leading to complex logistical challenges he had to overcome.

The roots of today's retail returns issues can be traced back to Montgomery Ward's customer service policy established in 1872 by an American furniture store which allowed customers to return products for a full refund if they were unsatisfied. The exact amount of reverse logistics activity is difficult to determine due to companies' lack of

awareness; however, it is estimated that reverse logistics makes up about 10.7 percent of the economy and accounts for a significant portion of U.S. logistics costs. Among the companies included in this research, 4% of their total logistics costs were attributed to reverse logistics expenses.Based on the average percentage of Gross Domestic Product (GDP), it is estimated that reverse logistics costs make up about 0.5% of the total U.S. GDP. In 1997, Delaney's estimation suggests that overall logistics costs were $862 billion, while this research based on a sample of respondents estimates that reverse logistics costs in the same year were around $35 billion. The impact and magnitude of reverse logistics vary depending on the industry and channel position of companies, as well as their channel choice. Nevertheless, there is a significant and growing amount of reverse logistics activities in the economy. In industries like car parts, these activities are particularly crucial for companies when dealing with high-value products or substantial return rates. Considerable effort has been dedicated to improving return procedures. According to the Auto Parts Remanufacturers Association (ARPA), remanufactured car parts have an estimated market size of $36 billion. This can be seen in the fact that 90 to 95 percent of all replacement starter motors and alternators are remanufactured. Currently, there are roughly 12,000 car dismantlers and remanufacturers operating in the United States. The processes of rebuilding and remanufacturing play a vital role in conserving valuable resources.
Approximately 50% of the original starter is recovered during the rebuilding process, resulting in significant savings of petroleum oil, steel, and other metals. This could potentially amount to millions of gallons saved (Rogers and Tibben-Lembke). In

addition, global remanufacturing efforts save enough raw materials each year to fill approximately 155,000 railway cars. This would create a train that is over 1,100 miles long.

While reverse logistics has recently gained attention from businesses, it was already studied by the Council of Logistics Management in the early 90s. J.R. Stock's study focused on establishing and implementing reverse logistics programs to explore their potential benefits. In contrast, Rogers and Tibben-Lembke provided comprehensive data on various reverse logistics statistics categorized by industry.

For example, they discovered that the magazine publication industry reports returns at a rate as high as 50%. Magazines have a short shelf life and must be returned or disposed of if not sold before the publication/cover date (Rogers and Tibben-Lembke, 1999). Similarly high average returns are observed in other industries such as book publishers (20-30%), catalog retailers (18-35%), and greeting card companies (20-30%).There are numerous articles discussing the optimization and management of reverse logistics for remanufacturing systems. The Council of Logistics Management states that the definition of reverse logistics can vary depending on the company or industry. Dowlatshahi provides a comprehensive view on reverse logistics, which includes 11 factors divided into strategic factors (strategic costs, overall quality, customer service, environmental concerns, legislative concerns) and operational factors (cost-benefit analysis, transportation, warehousing, supply management, remanufacturing and recycling, packaging) [Dowlatshahi, 2000]. Industries such as telecommunications, high tech, consumer goods and medical device manufacturing face challenges like decreasing customer retention rates and rising inventory carrying costs while experiencing declining asset recovery rates. Achieving an asset recovery rate of 80% to 85% is typical in these industries. Manufacturers who cannot retrieve valuable merchandise and parts from the field must

write off their value. This loss affects the overall value that manufacturers can recover from damaged products and parts because unrecovered assets cannot be refurbished and placed back into inventory. Surveys have indicated that approximately one-third of companies consider asset recovery a significant challenge for their businesses.Around 30% of telecom and utility companies currently outsource the aspect of reverse logistics. The global economic downturn is causing significant changes in the mobile phone market, impacting sales in both developing and mature markets. This pressure to cut costs quickly may affect customer service, which is an important factor in the market. The rise of smartphones has also caused major shifts among manufacturers who now need to understand and manage sales for success.

Retail merchants have realized that after-sales operations come with cost risks and potential benefits for customer satisfaction. Medical device manufacturers prioritize minimizing machine downtime by efficiently managing inventory levels for readily available service parts and quick returns handling. Repaired parts are promptly reintegrated into the supply chain.

According to a literature review by Carter and Ellram (1998, p.85), Reverse Logistics is a process that improves companies' environmental efficiency through material reduction, reuse, and recycling. It involves distributing materials backward among channel members. However, Rogers and Tibben-Lembke's (1998) discussion focuses on Green Logistics with aims to enhance environmental efficiency by reducing materials used in processes.The concept of returns in logistics differs from reverse logistics, as some argue that companies outside of the business chain should also benefit from returns flows. However, Carter and Ellram hold the belief that returns should remain within the same channel as the forward flow that generated them.