Free «Recovering Lost Profits by Improving Reverse Logistics» Essay
Table of Contents
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- Increasing sales
- Decreasing costs
- Spectrum or reverse logistics
- End of a products life
- Seasonal products
- Recovery value
- Impacting of the bottom line
- Customer loyalty
- Profit protection
- Maximize recovery
- Returns to revenue
- Improve disposition
- Protecting profits return to value
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A company can derive profits from effective reverse of logistics programs. Logistics entail activities, such as planning, executing and control of the flow of raw materials, finished products and inventory from manufacturing to the point where possession changes to the customer. Therefore, reverse logistics is the opposite of logistics where the goods are transferred from the customer to the manufacturer. Reverse logistics happens for a number of reasons, such as disposal, recycling, remanufacturing, reuse, especially for container, supply of excess inventory, return of merchandise damaged in transit and salvage (Bonev 2012). The spectrum of reverse logistics varies from one industry to another. Businesses in all industries at present pay attention to reverse logistics and this has given them a competitive advantage over competitors. Reverse logistics is applied in the retail and manufacturing sectors. Retailers had to embrace this to ensure customer satisfaction and increased sales. Retailers handle reverse logistics, such as accepting excess inventory while manufacturers handle recycling and remanufacturing. Reverse logistics have cost, especially to the retailer who handles more cases of returned good since they supply goods to the end user, unlike manufacturers. For effective handling of reverse logistics, businesses must develop efficient feedback system to track reverse logistics.
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Every business person aims at growing their business through increased sales. Businesses can use reverse logistics to increase sales. Reverse logistics are just as powerful as forward logistics (Diener 2004). The business needs to employ executives to oversee asset recovery for realization of profits. The first way to realize an increment in sales through reverse logistics is by ensuring customer satisfaction. Some reverse logistics could be as a result of supply of substandard products to customers. Once the manufacturer or retailer has received such a complaint, swift action should be taken to restore customer confidence in the company. Satisfied customer results in the future sales hence increasing sales. Companies do not destroy returned goods; instead, they supply the goods to the market at subsidized prices. Secondary market operations have generated millions in revenue to companies. Selling of reclaimed products to a third part will ensure that the company maintains its main stream of revenue and gains additional revenue channels (Nikolaidis 2012). Purchases made by a third party customer result in the increased sales.
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Well conceived reverse logistics policies can help a company reduce its cost tremendously resulting in the increased profits. Costs are the expenses a business incurs in the process of manufacturing and transporting products to the end user. Reverse logistics can be viewed as an expense to the business or an opportunity. One way of decreasing reverse logistics cost is to recycle containers reclaimed by customers. Through recycling the company will eliminate the cost of manufacturing new containers to package the products. Companies can also salvage parts of reclaimed products and use them to manufacture new products. Materials that are salvaged are used for service inventory. This approach decreases costs associated with acquisition of raw materials hence increased profitability for the company. Companies have realized that down streaming is another way to reduce cost. They match production or supply with demand to ensure surplus is eliminated. Handling customer request that relates to the reverse logistics helps the companies avoid the cost of brand switching (Bonev 2012). Customers switch to the other brand if they feel that the current brand they consume does not adequately cater for their needs.
Business activities involve high risks, especially due to the dynamic nature of the business. Risks are eventualities that are unplanned for whose occurrence can result in losses. Companies can use reverse logistics to identify risks and eliminate the risk that threatens business growth and profitability. Depending on the nature of products reclaimed from the reverse logistics, a company identifies risks facing the company. For example, if the reclaimed products were as a result of poor quality, the company can conclude that internal systems are faulty. Products’ quality needs to conform to the set standards. Therefore, non-conformance means that production tools are faulty. The company through the risk management technique can go further to inspect for the risk and provide a solution.
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Spectrum or reverse logistics
The spectrum of reverse logistics has major impact on a company’s bottom line. The spectrum of logistics provides companies with short comings and opportunities. The categories of the spectrum are discussed below.
Some of the reasons behind the recalling of products include packaging issues and labels on warnings. Products need to be packaged well and warning signs displayed appropriately. Comprehensive logistics programs have been developed to minimize the risk of recall.
End of a products life
Outdated products need to be eliminated from production system to pave the way for development of new products (Dyckhoff et al. 2004). This program helps manufacturers progressively eliminate obsolete products as the new ones being introduced. This ensures that image of the company is maintained by ensuring innovation and disposition of obsolete products.
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At certain times of the year, companies introduce certain products to push sales. At the end of the season, the unsold products are recalled or sold in the secondary market.
Companies that deal with repairs have a large percent of returns. The returned parts are inspected for defects, repaired and then repackaged for resale.
Companies need to recover the value of money they spend on manufacturing after selling products. Return products should also be explored to identify opportunities that could result in increased revenues. The returned products should be repaired and resold, recycled and reused or sold in the secondary market or discount stores.
Third party logistics (3PL)
Many companies across the world outsource reverse logistics from outside the company. A number of companies lack the necessary resources to undertake in-house reverse logistics hence the need for outsourcing. The 3PL firm provides a wide range of activities in the field of reverse logistics. 3PL firms have a wide knowledge base and experience hence they can handle cases of reverse logistics effectively. These experts are flexible in handling issues, and they handle them within a short span of time. 3PLs enable companies to avert potential liabilities by creating protective barriers. An effective 3PL expert handles issues relating to the company supply chain. 3PL also integrates company operations, such as transporting and warehousing. They customize their operations to suit the needs of customers. 3PLs should be open-minded since they handle a diverse clientele, flexible in that they can handle diverse customer issues, and they should be competent to ensure that both the customer and the company have a mutual benefit.
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Impacting of the bottom line
There are numerous opportunities associated with reverse logistics. Reverse logistics offer companies a chance to improve customer service and enhance relations with suppliers. It also offers an additional avenue for revenue generation. There are a number of areas companies can exploit and impact positively on their revenue. Below are examples of the areas:
Customer loyalty is realized only if customers are satisfied with the services and products supplied. Companies need to ensure that they handle customer request diligently and in time to ensure that customers are happy resulting in loyalty. Dissatisfied customers switch from one brand to the other in pursuit of satisfaction (Kopicki & Council of Logistics Management 1993). Companies that handle reverse logistics appropriately enjoy a large percentage of customer loyalty. This is because they respond promptly to reverse logistics and this gives them a competitive edge over customers.
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Companies need to safeguard their profits by ensuring that they comply with government regulations. Consumer safety is the greatest concern for governments. This means that companies have to deal appropriately with returns to avoid penalties imposed by government agencies. Imposition of penalties negatively impacts on the company’s profitability.
Companies need to maximize returns from reverse logistics to avoid losses. The company can resell the returns or salvage parts.
Returns to revenue
Returns need to be processed and delivered at the appropriate time so that the company saves more. Reselling, refurbishing, recycling and repackaging of the returned product provides an untapped revenue channel.
Disposition is done with the aim of maximizing value of reclaimed products. This means disposing goods in a cost effective manner (Diener 2004). There are three main ways of disposition: first, sell as is, which entails reselling the returned products as new products, selling in the secondary market, e-auctioning and selling through discount stores. The second way is reuse, which entails repairing the product, remanufacturing it, recycling and modifying. Lastly is disposing, which entails donating the returned products, disposing the product in a safe manner and scrap. Companies have created profit centers around returns to increase their profit margins. Returned products need to be disposed using appropriate ways to avoid suffering losses.
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Protecting profits return to value
Reverse logistics can cause companies harm in terms of losses. There are numerous costs associated with reverse logistics that a company must check to avoid losses. These costs include the cost of transportation, remanufacturing, warranties, disposal and repairs. These costs must be minimized to ensure that returns to value are realized (Dekker et al. 2004). Every business aims at realizing returns to the investment they make in the process of manufacturing products. Reverse logistics need to be reduced for returns to value to be realized. However, if the opportunities presented by reverse logistics are exploited, returns will be actualized.
Customer satisfaction can be realized from reverse logistics. Companies must develop effective reverse logistics programs that will facilitate reduced costs, increased customer loyalty and reduced liabilities hence profitability. Reverse logistics is an integral part of a company’s supply chain. Identifying the returns, the company receives from clients and analyzes what happens to those returns. It is also important to highlight the causes of products being returned. The number of units returned annually should also be identified. It is necessary to ensure that the reverse logistics team is led by the trained person and provide him with the necessary resources to perform his duties.
The main reasons why reverse logistics is highly demanded are: one, because of legal implication and two, because it is profitable. Companies need to develop effective policies guiding reverse logistics. Effective policies ensure an increase in sales, decrease in cost of running business, reduced risks and increased profitability. Defects are bound to happen in the production process due to technical errors in the equipment. Some of the defective products cannot be detected before transfer of possession. They are identified when they are possessed by the customer (Nikolaidis 2012). Dissatisfied customers return goods to manufacturers for rectification. Some customers demand refund rather than repairs. Reverse logistics departments must then exercise due diligence in handling customer complains. Customers could return products for disposal, reuse or recycling, and it is the job of reverse departments to keep track of all this events. Quite often companies find themselves outsourcing 3PLs to manage reverse logistics because they do not have skills and resources to handle this.