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
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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?
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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?
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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
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$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
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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?
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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
3/14/2016
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
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”
3/14/2016
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Examples
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Major Distributor, Dec 2006
Locks on trucks
SAFE Port Initiative
Scanning of Containers
C-TPAT
Threats in the international marketplace 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
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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
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Cost to X-Ray containers
Manpower
Delays
Radiation
C-TPAT
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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?
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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