The five Rs and the supply chain optimization

Do you think that supply chain optimization means an increase in speed and performance along all your channels and members? Is it a question about speed or only communication between members? The idea of optimizing the supply chain is to make a profit from every little part or process in the way. At the moment, most companies just focus on working to optimize the forward supply chain and they forget about the returns management process which remains a black hole and it is better to avoid but impossible not to have. For many companies, this process of not knowing what to do with their product returns is a  cost center  that offers little to no information into what products are in the pipeline and whether they should be repaired, repackaged, restocked, recycled, disposed of or be in the reverse channel at all.  This little “issue” can cost sectors and companies billions of dollars every year.

But not everything is doomed. Companies are starting to apply the last forgotten frontier of the supply chain, “reverse logistics”. By applying this methodology, which deals with recapturing the value of returned products, parts, and materials from the end consumer by getting them back into the marketplace as swiftly as possible or by properly disposing of them, companies are using the five R’s of reverse logistics – returns, recalls, repairs, repackaging and recycling/disposition. Actually, there are many Rs, (think receiving, recovery, reconditioning, re-boxing, resale) but the ones that we are discussing in this text are a way of grouping many definitions of Rs within the supply chain. Let’s take a look at each one and why it pays to improve returns management in  these five Rs.

Returns

Returns are almost always the first stage or part of the reverse logistics flow. In every industry or sector, products can be defective, damaged, seasonal, or fail to meet expectations or simply represent excess inventory and customers just return them to their suppliers. The reasons are not important on why the product was returned, what is important is to handle the issue of returns efficiently by having processes in place for receiving, inspecting and testing products. To complement the previous, the company should have return material authorization (RMA) verification and tracking systems to make the information flow smoothly.

Recalls

It is just the same as the typical returns but with the difference that they typically involve a product defect or potential hazard and may be subject to government regulations, liability concerns or reporting requirements, which makes them more delicate to handle.

The process to deal with these issues is the same as the returns but with the difference that a company tries to salvage revenues and turn a potentially negative customer experience into a positive one that builds brand trust.

Repair, refurbishment, re-use and remanufacturing

When a product is returned, it not always goes directly to the landfills. Manufacturers have the task of identifying the problem and repairing it if possible. If the faults are not too severe, they can also refurbish or remanufacture the product to like-new condition and return it to stock. If the product does not qualify to be repaired or refurnished, manufacturers may harvest various functional components for re-use.

In the era of recycling and the trend or reusing products and materials, these practices are very common and manufacturers recognize the value of re-using materials from returned goods. A correct inventory management, along with very well applied reverse logistics and good Visibility and tracking, makes the repair, refurbishment and/or remanufacturing process and easy one. If the company lacks these processes, these Rs will make the company invest too much time and money on repair parts or labor. The reasons are very convincing as you can now see shelves with both new and re-used or remanufactured products.

Repackaging for restock or resale in secondary channels

95% of the products that are returned are based on customer satisfaction and not exactly on faults or because there is something that does not work properly. When testing reveals “no trouble found,” these products are typically repackaged and returned to inventory as quickly as possible. In addition, parts or products with minor flaws may be repaired, reconditioned and repackaged for resale. With correct co-locating logistics, the same facilities used to produce the product can be used to repackage returns for resale using secondary channels.

restocked_david kiger_suplly chain optimization_five Rs
Image courtesy of jenny at Flickr.com

Recycling, disposal and disposition

When products reach the end of their useful lives and must be scrapped, companies are finding environmentally friendly ways to dispose of them. That might mean hiring recycling companies to collect waste and dispose of assets for them. A good example of this is in high-tech devices like mobile phones or circuit boards, where companies recover rare earth metals like gold, silver, titanium, palladium or copper.

The supply chain is not just about going forward. Reverse logistics is making a big comeback in the corporate world and it is better to understand how the supply chain can benefit from this trend.

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