Reverse Logistics: Important or Irritant?

The Reverse Logistics Association was founded in 2002 when research studies were completed which revealed that over $750 billion annually was being spent on reverse logistics processes in North America alone.

“In an ideal world, reverse logistics would not exist.”

Jim Whalen, “In Through the Out Door,”Warehousing Management, March 2001

“Now, more than ever, reverse logistics is seen

as being important.”

Dale Rogers, Going Backwards, 1999

Reverse vs. Forward

• Forecasting

• Distribution Centers

• Quality

• Disposition

• Marketing

Reverse Logistics - What is it?The Commercial Perspective

• Reverse Logistics is the process of moving products from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products.

Typical Reverse Logistics Activities

• Processing returned merchandise - damaged, seasonal, restock, salvage, recall, or excess inventory

• Recycling packaging materials/containers

• Reconditioning, refurbishing, remanufacturing

• Disposition of obsolete stuff• Hazmat recovery

Why Reverse Logistics?

• Competitive advantage

• Customer service

- Very Important: 57%

- Important: 18%

- Somewhat/unimportant:23%

• Bottom line profits

Reverse Logistics - New Problem?

• Sherman• Montgomery Ward’s - 1894• Recycling/remanufacturing in 1940s• World War II - 77,000,000 square feet of

storage across Europe with over $6.3 billion in excess stuff

• Salvage and reuse of clothing and shoes in the Pacific Theater World War II

Key Dates in Reverse Logistics

• World War II – the advent of refurbished automobile parts due to shortages

• 1982 - Tylenol Scare - Johnson and Johnson• 1991 - German ordinance that put teeth in

environmental reverse pipeline• Summer 1996 – UK Packaging and Packaging

Waste Legislation• 2001 – EU goal of 50-65% recovering or

recycling of packaging waste

Reverse Logistics

A US Army Perspective

Operation Iraqi Freedom

The US Army moved the equivalent of 150 Wal-Mart Supercenters to Kuwait in a matter of a few months

Jane’s Defence Weekly

“Recent report (Aug 2003): There is a 40 hectare (~100 acres) area in Kuwait with items waiting to be retrograded back to the US.”

Reverse Logistics

The Commercial Perspective

• Recalls.gov •Mattel's expanded product recall of 19 million toys is pushing a lot of product back through the supply chain.• Recall of 3912 items from Peanut Corporation of America Salmonella problems causing “constipation” of forward supply chains

• Dell recall of faulty laptop batteries - 2007• 2010 – toys, pallets, Tylenol• 2011 – 4 million Toyotas

Reverse Logistics

• Rate of returns?

• Cost to process a return?

• Time to get the item back on the shelf if resaleable?

Costs - above the cost of the item

– Merchandise credits to the customers.

– The transportation costs of moving the items from the retail stores to the central returns distribution center.

– The repackaging of the serviceable items for resale.

– The cost of warehousing the items awaiting disposition.

– The cost of disposing of items that are unserviceable, damaged, or obsolete.

Costs

• Cost of lost sales• Wal-Mart: Christmas 2003 -

returns = 4 Days of Supply for all of Wal-Mart = 2000 Containers

• Hoover - $40 Million per year

• Cost of processing $85 per item

Is it a problem?

• Estimate of holiday returns in 2004: $13.2 billion• % of estimated holiday returns: 25% (2009-2012)• If true, value of 2012 returns ~ $150 billion• Wal-Mart: $6 Billion in annual returns = 17,000

truck loads (>46 trucks a day)• Personal Computers: approximately $95 per PC

sold• 79% of returned PCs have no defects• Home Depot ~ $10 million in returns in the stores

More consequences

• Increased Customer Wait Times

• Loss of Confidence in the Supply System

• Multiple orders for the same items

• Excess supplies in the forward pipeline

• Increase in “stuff” in the reverse pipeline

• Constipated supply chain

Impact?

• Every resaleable item that is in the reverse supply chain results in a potential stock out or “zero balance” at the next level of supply.

• Creates a “stockout” do-loop

Results?

• This potential for a stock out results in additional parts on the shelves at each location to prevent a stock out from occurring.

• More stocks = “larger logistics footprint” = the need for larger distribution centers and returns centers.

Reverse Logistics

• According to the Reverse Logistics Executive Council, “the percent increase in costs for processing a return, as compared to a forward sale, is an astounding 200-300%.”

• Typically, as many as 8-12 more steps per item in the reverse pipeline than items in the forward pipeline

Electronics Reverse Logistics• $677 billion • $132 billion• 60 million – 12 million • 100 million • 20-50 million metric tons• 2-5%• 70 %• 4 billion pounds• 4 million pounds• 75 pounds/40,000 pounds

“The truth is, for one reason or another, materials do come back and it is up to those involved in the warehouse to effectively recover as much of the cost for these items as possible.”

- Whalen, “In Through the Out Door”

Impacts of Reverse Logistics

• Forecasting• Carrying costs• Processing costs• Warehousing• Distribution• Transportation• Personnel• Marketing• Customer Service• Bottom line profits

http://www.remarinc.com/?page_id=89

Supply Chain Security

“the single biggest threat facing American traders is

supply chain security”Website for C-T PAT

Supply Chain Security

“We have proved to our management that good security is good business.”— Ann Lister of Texas Instruments

Supply Chain Security

What’s the cost of 9/11 to the Supply Chain?

Fortune Magazine - $50-80 billion a year

• inefficient supply chains• higher transportation costs• increased inventory

Problem?• Terrorism/Piracy• Obsolescence• Pilferage• Information Breach• Proprietary Data – Camera Phones; Thumb Drives• Cyberspace Security• RFID Data Security• 66% of Sealift Containers arrive at 20 Major Ports• >58 % of all inbound containers come through

New York/New Jersey, Los Angeles, Long Beach• ~44% through Los Angeles/Long Beach • Lengthening of Supply Chains – coupled with

Globalization

04/18/2304/18/23

Supply Chain Security/Disruption Headlines

• IMB identifies rash of false shipments into North Africa

• Pirates intensify attacks in new areas • New High for Piracy• Russia Sends Warship to Somali Coast

to Fight Piracy – Bloomberg.com• UN adopts new Somalia piracy

resolution

04/18/23 32

Supply Chain Headlines

• “New Budget includes $10.2 Billion for Border Security.”

• “Major Data Theft Leads to Major Legal Problems” Baseline Magazine

• “Polo Ralph Lauren – Lost Point of Sale Data”

Examples

• Major Distributor, Dec 2006

• Locks on trucks

• SAFE Port Initiative

• Scanning of Containers

• C-TPAT

Threats in the international market-place know no borders.

Risk

Supply Chains are inherently complex, dynamic, and fluid, characterized by uncertainty, ambiguity, and friction. These characteristics cloud the operating environment: they create risks

Risk Assessment

• Terrorism• Theft• Port Security – over 14 million containers

annually to the US; ~500 million world wide• Port Security – 300 US Ports• Longshoremen Strike – 2002• LA/Long Beach Strike 2012/2013• Potential Airport Attack – LAX; MPS; LGA• Potential loss of attack to major port - $20

billion estimate

Problems?

• >58 % of all inbound containers come through New York/New Jersey, Los Angeles, Long Beach

• ~44% through Los Angeles/Long Beach

• Lengthening of Supply Chains – coupled with Globalization

• Top 5 “Hottest Global Markets”: China, Mexico, Eastern Europe, Southeast Asia, India

New Problem?

• “There were no ‘secure’ rear areas.” General Joseph Heiser on

Vietnam Logistics• Sun Tzu – Chapter 1, The Art of

War• Native Americans• American Civil War – Great Train

Chase• Pirates of the Caribbean

Supply Chain Security

A Global Perspective

Other Key Ports

• Singapore – 25.87 million TEUs• Shanghai – 25 million• Hong Kong – 20.9 million • Shenzhen – 18.25 million• Pusan – 11.98 million

SAFE Port Act

• The SAFE Port Act codified into law a number of programs to improve security of U.S. ports, such as:

• Additional requirements for maritime facilities

• Creation of the Transportation Worker Identification Credentials

• Establishment of interagency operational centers for port security

Safe Port Act

• Container Security Initiative• Foreign port assessments • Customs Trade Partnership

Against Terrorism

Container Security Initiative

• CSI consists of four core elements:• Using intelligence and automated

information to identify and target containers that pose a risk for terrorism.

• Pre-screening those containers that pose a risk at the port of departure before they arrive at U.S. ports.

• Using detection technology (X-Rays) to quickly pre-screen containers that pose a risk. Using smarter, tamper-evident containers.

Containers - Concerns

• Cost to X-Ray containers • Manpower• Delays• Radiation

C-TPAT• Voluntary• November 2001• > 10,000 members• ~50% of all imports • Mutual Recognition Agreements

– New Zealand, Korea, Japan• Canada has a program very

similar to C-TPAT named FAST – Free and Secure Trade.

Orlando International Airport• No staffing of doors for employee entrance

to baggage claim areas• Guns smuggled into planes by employees• “no requirement for us to staff those

doors” OIA Spokesperson; TSA – “not my job!”

• Identified as security issues in 2004• 2006 – ½ of TSA Screeners failed test that

measured how well employees could identify explosives, guns and other weapons on the scanner – but can identify bottles of mouthwash and toothpaste

Source: Mike Thomas, Orlando Sentinel, Mar 15, 2007, p. B-1

Food Security

BioTerrorism?• Cucumber - salmonella• Dole Foods recall April 2012• Peter Pan Peanut Butter – e coli – 2007• E-coli from fresh Spinach – 2006• Chi Chi’s e-coli – from green onions – 2003• Taco Bell – e coli 2005• None were terrorist attacks but impacted

supply chains• US Salmonella/e-coli scare 2008• Salmonella epidemic 2009 - >3921

separate items recalled

Summary

• Direct link between supply chain security and homeland security

• Logistics costs are large part of manufacturing costs

• Savings in supply chain costs to bottom line