Monday, February 27, 2012

Reverse Supply Chains

While reading the Zappos it was interesting to see how the company was managing product return from its customers.  To be able to provide their customers the option of returning products they didn’t want to keep, Zappos had to incorporate this functionality into its Supply Chain. They had to set up a reverse supply chain, one that takes the product from the customers and brings it back to their warehouse. The concept of Reverse Supply Chains is also discussed in the Herman Miller case where the Cradle- Cradle (C2C) design protocol requires the product to be retrieved from the customers once it has reached the end of its useful life and then recycled and turned into another useful product.

Many companies are starting to set up reverse supply chains either to conform to environmental regulations, or as an opportunity to reduce operating costs by reusing their products. Increase in online shopping and direct-to-home shipments across the globe has also lead to an increase in delivery mistakes, and product returns.

An example of companies being forced to implement reverse supply chain is the European Union’s legislation which requires all tire manufactures operating in Europe to recycle one used tire for every new tire they sell. On the other hand Kodak is recycling its disposable cameras to reduce its operating costs.

Companies that have product return policies realized that treating returns on individual basis and separate from their main operations was not very efficient. By setting up dedicated reverse supply chains companies could not only make the return process, quick, efficient, and cost effective but also improve the customer satisfaction.

Reverse Supply chain process can be divided into 3 main activities:

Product Acquisition: involves collecting the product from the customers. The timing, quality and quantity of the returns need to be managed effectively to make the process profitable. Companies may work with retailers and other distributors to coordinate the collection. Even the customers can be used to return the products by using a leasing model where customers lease the product and return it once they were finished using it.

Inspection and Sorting:  Once the product has been collected from the customer it has to be inspected, sorted. Effective inspection and sorting will help in the disposition of the returned goods, and help reduce storage costs of returned goods. The quicker the returned goods can be moved along to the disposition process the quicker they can be remanufactured, or disassembled and reused.

Reconditioning: Based on the condition of the returned goods the company makes a choice of disposition, the item may be repaired, refurbished, remanufactured, disassembled for parts, or recycled. Companies may choose to send the returned goods to third parties for recycling.  Repairs and refurbishments may be made in house and products added back into the inventory.

As global competition between companies for customer attention and loyalty heats up there is increased focus on customer retention. Companies are trying to retain their existing customers by offering them upgrades to products they currently own. Customers are offered new products in exchange for their old ones for a small fee. With this upgrade model for customer retention, managing the reverse supply chain effectively is critical to decreasing operating costs of handling the old returned products. Companies that are able to efficiently reuse, or recycle the returned products will have a competitive advantage.


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