Reverse logistics is defined as “the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal[i].” This process has been around for a long time, but has only recently begun to coalesce into the important process it is today. Today the most successful retailers will tell you that having a sustainable, ongoing solution in place to deal with returned, overstock, and obsolete inventory goes a long way toward recovering maximum value from what used to be considered unusable or worthless assets.
This blog will briefly summarize the history of reverse logistics and identify what makes today’s reverse logistics programs successful.
The idea that surplus assets – i.e. assets that do not have immediate use – are best dealt with by simply discarding them can be traced back as far as the American Civil War. In 1865, General Sherman’s troops abandoned their excess gear rather than attempt to transport it across a river. The Army, presumably, ate the cost.
Years later, in 1894, former retail giant Montgomery Ward instituted what is generally regarded as the first major reverse logistics operation. Ward began a catalog promotion offering a 100% money back satisfaction guarantee on all products. Consumer confidence in the company soared, sales skyrocketed, and Ward developed an entire department—the first of its kind—dedicated to handling its consumer returns.
The next big leap forward in reverse logistics came in the 1940s. Thanks to critical shortages of metals, rubbers, and other materials needed to support war efforts during World War II, manufacturers learned how to do more with less and how to repurpose surplus and waste materials. Huge advances were made in the fields of recycling and remanufacturing, fueling both the military machine and the economic engine at home. The “waste as commodity” approach to reverse logistics continues today, especially in the automobile repair industry where a large proportion of starters, alternators, and generators are remanufactured or rebuilt.
At the end of WWII, the US Army had approximately $6.3 billion of assets stored in 77 million square feet of storage locations across Europe which were no longer needed. Rather than disposing of these items and writing them off as a loss as had been done in the Civil War, Army logistics professionals figured out ways to donate them or return them to the US for recycling or re-use in other applications.
More recently, reverse logistics experts have used the reverse supply chain to not only benefit their company’s bottom line but help improve company image. Green initiatives and sustainability are extremely important to today’s consumers, and by extension, to today’s businesses. Demonstrating concern for the environment with a solid reverse logistics strategy is just one way to show your customers that you share their values. And as a side benefit, having that system already in place can be of great benefit during unexpected emergencies, as McNeil Labs learned in 1984 when it used its reverse supply chain network to carry out a nationwide recall of its over-the-counter Tylenol medications in the face of a cyanide scare.
As a retailer, you know that compelling customer experiences help develop and deepen your relationship with your customers, which in turn contributes to generating revenue. You also know that managing the reverse supply chain for overstock and returned inventory is a business-critical proficiency, but not necessarily one of your business’ core strengths. That’s where leveraging the services of a reverse supply chain expert can help.
So what should you look for in a partner? Your ideal reverse supply chain partner should be able to:
Relied on by over half of the top 20 U.S. retailers, Liquidity Services offers turnkey reverse logistics services in virtually every retail asset category. Contact us to learn more.
[i] http://www.abrelpe.org.br/imagens_intranet/files/logistica_reversa.pdf
[i] www.supplychainresearch.com/images/chapter_13_reverse_logistics.doc