Reverse logistics: Unnecessary Fad or Essential Component?
Reverse logistics would pretty much be the best words to throw around at a hot-shot business party if you were a mid-age entrepreneur. Mid-age, because almost all the current e-commerce millionaires/billionaires, who have streaks of grey in their hair would claim this term to have had a significant contribution to their rise to financial glory.
Yes, this term is quite a mouthful.
And extremely omnipresent.
Chances are you may have very well triggered a reverse logistical cycle at least once in your lifetime.
Picture those ‘hassle free-returns, no questions asked’ advertisements which Flipkart and Snapdeal keep on tossing around. That should be way easier to wrap your head around instead of the term ‘reverse logistics’.
What this fancy concept stands for is trivially simple. Let’s get to it.
Imagine that you ordered a smartphone from an ecommerce giant like Amazon and you found out that the screen is cracked upon delivery.
Then, unsurprisingly, you placed a complaint and within a couple of days a delivery executive rang up your door and collected the damaged smartphone, without drilling you with a million questions.
In essence your smartphone travelled back along its logistical path to the seller.
There you go. This should make things more digestible.
With the exponential rise of ecommerce giants like Amazon and Snapdeal, innovators stumbled across the scenario of a customer returning a product due to different factors like damages, low-quality, general dissatisfaction, or anything for that matter.
It isn’t difficult to deduce what happens next if this issue is not taken care of.
The customer then rambles around spreading ill-will regarding the company and its services, hurting business and profits. If not handled innovatively, it could lead to a permanent disfigurement of the company’s reputation.
That is one territory you certainly don’t want your company to be treading in.
So now let’s officially define the concept of Reverse Logistics.
‘Reverse logistics deal with the handling of the product after it has been sold, in the form of handling returns, then tinkering with the idea of how the product can be reused in order to extract the highest amount of value from it. It also answers the question of handling and disposing hazardous wastes which are a constituent of many products.’
With that out of the way, let’s get to the meat of the topic.
Now why would a company add this DLC of sorts to an already cumbersome logistical chain? Can it really boost profits?
The answer turns out to be a resounding yes.
Besides the very obvious issue of a company’s reputation being harmed, this concept may very well prove to be incredibly beneficial economically, competitively, socially, environmentally, (insert adjective)lly. You get the point.
How is it economically favourable for a company to invest in such a network?
But what do they do with the returned products?
Well, the amount of value which can be extracted from returned goods is enormous. In many of the cases, after thorough diagnosis, it turns out that the returned product is minimally damaged and can be sent back to the shelf for re-sale after some minor repairs.
Or if the product is damaged beyond repair, it can be salvaged and its working constituents can be used as spare parts or recycled from the ground up. This is what those unofficial ‘electronics’ stores actually do, strip the damaged product to its bone and sell its constituents for recycling.
According to UPS, headquartered in the USA, it is estimated that the secondary market for electronics is estimated to be worth $15 billion in the USA alone. You don’t have to be a statistician to crunch the same numbers for the Indian context where such markets thrive.
A company is nothing but incoherently stupid for willingly ignoring such an economically juicy aspect of the business cycle.
Companies surely cannot miss out on gaining social acclamation as it positively affects everything, from reputation to profits.
The modern day ‘woke’ culture revolves around the fact that both the involved parties, the buyer and the seller have to be highly conscious of their environmental impact.
Unsurprisingly, reverse logistics also involves efficient use of resources along with ensuring the fact that hazardous waste is successfully disposed-off, thereby reducing the subsequent environmental damage while also increasing profits for the company. It’s a win-win situation for literally everyone.
It is also important from a recruiter’s perspective, as the next generation of employees actively seek out companies which are accountable to the environment by reducing waste, optimal usage of resources along with a general sense of belonging.
This probably should be enough of an info-dump for you to believe the fact that reverse logistics are the dark horse of any product-based business. Largely overlooked, at least in the past, but insanely important for every socio-economic facet there is.
How should a reverse logistical chain be implemented?
Now broadly speaking, there are 2 ways in which a company can implement a reverse logistical chain, a centralized or a decentralized methodology.
They mean exactly what you think. If all the aspects of dealing with a product in a reverse logistical chain are handled by a central facility it is called a centralized approach.
And a decentralized approach is the one wherein the concerned product is handled at and transferred among multiple certified locations for extracting the maximum amount of value from the product.
It also isn’t too tough to figure out which methodology would be preferable for a particular industry.
The electronics sector, especially the businesses dealing with consumer appliances like PCs and mobile phones should consider adopting the decentralized approach purely due to the high asset value loss of the goods produced by businesses in such an industry.
The term asset value loss clearly means that items like computers and mobiles lose their value pretty quickly from both the technological and utility standpoint. Then its unquestionable that such goods should be either redirected for repairs or salvaged for parts rather quickly in order to retain and extract as much value from them as humanly possible.
You also don’t need to wonder much about the industries which should adopt the centralized approach for maximal value retention. Automobiles, heavy machineries and electronics, industrial level equipment is better handled at centralized locations, right under the direct observation of the concerned industry to efficiently figure out the future of the product at hand.
It also is common sense that such complex and economically crucial devices be handled with utmost dexterity and professionalism directly by the very people who manufactured them, for very obvious reasons.
If you were to take a holistic view, it will be pretty evident that modern organizations are proactively considering the integration of reverse logistics into other dimensions of their business to achieve maximum interoperability among aspects like deciding the most optimized path to put a product on according to its current asset value and also the most economically rewarding way the value of this product can be transferred to the market.
The importance of having a well-oiled reverse logistics network is highlighted by an American study claiming that nearly 20% of everything that ever hits the shelves of a market is returned back to the manufacturers.
This value is certainly variable but is definitely a really large chunk of the market, having its worth running in millions.
All in all, one thing can be claimed with absolute certainty.
Numbers don’t lie, no matter the industry, no matter the scenario.
You’ve got more than enough empirical evidence in support of the fact that the backward cycle of a logistical chain cannot be ignored by any business, period.
The only way to improve the logistical aspect of a business which in its entirety lies in our hands is optimization.
The means don’t matter, irrespective of being automated or not.
One of the only aspects with tangible importance in a business are results.
And they are exactly what reverse logistics achieve, and it does that rather well.