The Hidden Value in Reverse Logistics
Diane A. Mollenkopf and David J. Closs -- Supply Chain Management Review, 7/1/2005
Reverse logistics has often been viewed as the unwanted step-child of supply chain management. It has been seen as
a necessary cost of business, a regulatory compliance issue, or a "green" initiative. But more companies are now
seeing reverse logistics as a strategic activity—one that can enhance supply chain competitiveness over the long term.
Reverse logistics is part of a broader supply chain management process called returns management.
management includes all activities related to returns flow, reverse logistics, effective gatekeeping, and even returns
Reverse logistics encompasses the traditional logistics activities of transportation and inventory
management, but its focus shifts to getting product back from customers rather than moving product to customers.
Making a strong business case for reverse logistics is not easy. Although reverse logistics obviously has some cost
implications, it can be difficult to illustrate the impact on revenue. Indeed, in our experience, companies more often
focus on the cost side of returns management rather than on its revenue side. To be successful, however, the revenue
side needs to be managed aggressively too.
To understand how reverse logistics can create value, it is necessary to understand both the marketing and logistics
components of this process. From a marketing perspective, an effective returns operation can enhance customers'
perceptions of product quality, help minimize the purchase risks, and boost goodwill by demonstrating good corporate
citizenship. From a logistics perspective, returned products that are handled expeditiously and efficiently can be
reinserted into the forward supply chain in their current form, as refurbished or remanufactured products, or as repair
parts. This can create additional revenue, reduce operating costs, and minimize the opportunity costs of writing off
defective or out-of-date products. (See Exhibit 1.)
This article will outline four ways that reverse logistics can have
a financial impact. It will give glimpses into the reverse logistics
activities of leading companies and describe the opportunities
The Financial Impact of Reverse Logistics
Business leaders are showing much more interest in reverse
logistics for several reasons. Regulators both in the European
Union and at the state level in the United States are tightening
up on product disposal. Also, landfill costs are rising. In the
United States, landfill tipping fees have increased to an average
of $33.70 per ton, and incinerator tipping fees now average
$59.07 per ton.