Managing defected product returns in reverse logistics

Reverse logistics is often known as aftermarket logistics or aftermarket supply chain. It is described as the activities that are carried out to recapture the value after the product has been sold (Dekker, et al., 2013). The logistics process of delivering a product from the point of manufacturing to the point of consumption is reversed in reverse logistics.

Understanding reverse logistics

The importance of reverse logistics in an organisation are:

  • It helps businesses to extract maximum value from the product when it has reached the end of its product cycle (Lopes, et al., 2014).
  • It acts as a function of asset recovery where the organisation can mitigate the expenses/ losses of the returned goods.
  • Mitigation of losses is one of the reasons for executing reverse logistics.

For example, a defective electronic has a zero value but when returned back by the consumer, it can be recycled or some of its parts can be scavenged.

Figure 1: Scope and importance of reverse logistics

Activities of reverse logistics

Reverse logistics emphasises on returning the product to the retailer or the manufacturer. The manufacturer then concentrates on bringing the product back to the manufacturing location for testing, overhauling, repairing and refurbishing, recalling, remanufacturing and recycling.

The first activity is the testing of the returned product to find out the defects. The product is taken to the warehouse where it is tested for its defects. Overhauling or dismantling is the next activity which is carried out when defects are found or have reached the end of the product cycle. It can then be repaired or refurbished to put back into the supply chain (Akdoğan & Coşkun, 2012). When it is assimilated that the defect is a flaw in the product design the whole batch can be recalled for repairs.

Remanufacturing is the end-of-life strategy where parts of the product are reused to mitigate costs and environmental impacts (Akdoğan & Coşkun, 2012). Waste management is one of the key aspects of reverse logistics. Recycling the defected or returned units helps businesses to turn defected goods into saleable new units (Veiga, 2013).

For example, Wewood, Recover Brands and Looptworks put emphasis on the use of recycling of waste. In another instance, the Rodon Group with their collaboration with Sustainable Waste Solutions focuses on a broader array of disposal programs for electronics recycling, single-stream recycling and more.

Managing the reverse logistics process

The first stage of the return process involves receiving the unit in the warehouse and they are further categorized for the other stages (Lopes, et al., 2014). The waiting time period is normally 48 hours or less before the returned unit can be further processed. A First In-First Out (FIFO) scheme is generally prioritised for recycling products.

For instance, if the products returned are in cartons, they take longer for sorting.

The next stage is sorting and analysing the returns. This takes place in the initial processing station. Returns are normally categorized into groups on the basis of their SKU (Stock Keeping Units) numbers (Rogers, et al., 2012). There are five ways to process a return, which are by:

  1. FIFO,
  2. customer location or type,
  3. type of product,
  4. the dimension of the product and,
  5. combination of all or few.

The next stage after analysing the returns is product disposition. The returns can be further dismantled and analysed to scavenge parts or refurbished for resale.

The last stage in the reverse logistics is supported operations, which involves the re-distribution of the units to vendors, outlets or consumers.

Steps of product return in reverse logistics
Figure 2: Steps of product return in reverse logistics

Case of Nestle India

Nestle, one of the leading food and beverage organisations across the globe, has faced reverse logistics issues when its product Maggi was banned in India in 2015. During the preliminary stages, Nestle had faced conflicts with the retailers due to the magnitude of returns across India. This led to half a billion dollars in losses for the company, along with large scale operational issues. The major challenge was the allocation of manpower to manage reverse logistics as compared to the forward supply chain (Rameezdeen, et al., 2016).  Almost 38000 tonnes of returned units gathered at their warehouse for disposal (Mitra, 2017). Nestle managed to destroy only 700 tonnes of Maggi in a day, because of which they had to lease 12 additional storage units (Mitra, 2015). 

References

  • Akdoğan, M. & Coşkun, A., 2012. Drivers of reverse logistics activities: An empirical investigation. Procedia-Social and Behavioral Sciences, 58(1), pp. 1640-1649.
  • Dekker, R., Fleischmann, M., Inderfurth, K. & van Wassenhove, L. e., 2013. Reverse logistics: quantitative models for closed-loop supply chains. 1st ed. NY: Springer Science & Business Media.
  • Lopes, D., D’Agosto, M., Ferreira, A. & Oliveira, C., 2014. Improving post-sale reverse logistics in department stores: a Brazilian case study. Journal of Transport Literature, 8(2), pp. 325-348.
  • Mitra, S. (2015, June 16). 10,000 trucks, 6 cement plants to destroy 27,000 tonnes of Maggi noodles. Live Mint.
  • Mitra, S. (2017, February 16). The Maggi ban: How India’s favourite two-minute noodles lost 80% market share. LiveMint. Retrieved from https://www.livemint.com/Companies/1JKHsutTXLWtTcVwdIDg0H/The-Maggi-ban-How-Indias-favourite-twominute-noodles-lost.html
  • Rameezdeen, R., Chileshe, N., Hosseini, M. & Lehmann, S., 2016. A qualitative examination of major barriers in the implementation of reverse logistics within the South Australian construction sector. International Journal of Construction Management, 16(3), pp. 185-196.
  • Rogers, D., Melamed, B. & Lembke, R., 2012. Modelling and analysis of reverse logistics. Journal of Business Logistics, 33(2), pp. 107-117.
  • Veiga, M., 2013. Analysis of the efficiency of waste reverse logistics for recycling. Waste Management & Research, 31(10), pp. 26-34.

Jaideep Bhattacharjee

Research consultant at Project Guru
Jaideep is an engineer in marine engineering and was a part of the Mediterranean Shipping Company for a year.With expertise in the technical field, he is good with numbers and statistics and mostly uses SPSS.His expertise are in the field of marketing, human resources management, change management, strategic management and Finance. His strengths also lie in framing strong literature review and interpretation. Being an avid follower of Manchester United, he also takes interest in sports especially football, cricket and chess.

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