Increasingly, companies must deal with the flow of goods coming back from the final customer or other companies in the distribution channel. This reverse flow of goods is due to the increased quality demands of customers in the goods they purchase and to financial pressure on distributors to reduce slow-moving or unwanted inventories.
The eleventh edition of the APICS Dictionary defines reverse logistic a complete supply chain dedicated to the reverse flow of products and materials for the purpose of return, repair, remanufacture and/or recycling.
In some distribution channels, reverse logistics can represent major costs, which are growing partly due to the increased use of the Internet.
Sales through the internet tend to be to a wider geographic area and have a higher than normal frequency of returns. The total costs associated with reverse logistics are estimated to exceed $50 billion per year in the United States alone. The amount of goods returned in the publishing industry can be as high as 50% of the original shipments as magazines go out of date, or 90% in the automotive parts industry for the rebuilding of starter motors and alternators.
In addition to this, companies are being forced to take responsibility for the return packaging. There are two main categories of reverse logistics:
Asset recovery,which is the return of actual products.
Green reverse logistics, which represents the responsibility of the supplier to dispose of packaging materials or environmentally sensitive materials such as heavy metals and other restricted materials.
The costs of green reverse logistics are reduced through the use of reusable packagings, such as bins or racks rather than corrugated containers, or an overall reduction in the amount of packaging. Environmentally sensitive materials can be sorted and either reused in manufacturing or disposed of in the most cost-effective method possible, hopefully avoiding landfalls. Refillable beverage container reduces the need for landfill space but imposes a cost on the producer for sorting and handling.
Reducing costs associated with asset recovery involves coordinating the handling of the materials perhaps with the outbound flow of new goods. Information on the returned materials is necessary to ensure proper reuse or disposal of the materials. If the return will generate a credit to the sender, then this will also require information.
An example of this working quite well occurs with the replacement of a starter motor, which should be the same size and model as the replacement, is placed in the original carton and sent back to the supplier for a credit. The carton will have all the information describing the motor and can be sued for identification as it travels back to the builder. To reduce costs, distributors will coordinate the outbound shipments of new motors with the return of old motors for rebuilding.