Today e-commerce is become part of our life. The arrival of e-commerce and m-commerce (mobile) has transformed the entire retail sector.  Retailers are tapping multiple channels for selling their merchandise; from traditional stores, using catalogue, through the internet and more and more via smart phones and tablets, no stone is left unturned. Technological advancement means that the store is omnipresent! It’s now everywhere, in consumers’ pockets, at their homes and at the mall too. For surviving the competition in the e-commerce world distribution has become key component of the business. Supply chain and logistics experts have become key players and the other important element being real estate – strategic locations for Distribution Centres (DC).

While retailers are developing their multichannel strategy multichannel marketing which refers to the practice by which companies interact with customers via multiple channels, both direct and indirect, distribution strategies also need to be worked at a faster pace especially when the bar has been raised with delivery models like same-day and next-day delivery at the customer’s doorstep.

Retail supply chain executives go for locating fulfilment facilities closer to their customer base in order to meet service commitment goals such as aggressive delivery schedules.

Retail chains are therefore finding online logistics more cost-effective. They rather opt for this than open more traditional stores that require an entirely different kind of distribution model. Therefore, retailers are evolving their regional distribution networks with the addition of e-commerce distribution centres. Traditional warehouses which act as stores require lesser investment and machinery and fewer staff.  The new e-commerce distribution centres, which involve direct order fulfilment, can cost three times as much and involve three times as many employees.

Retailers need to consider points such as proximity to key customers, tax incentives, sales tax and the availability of local labour which are vital for business when searching for the right location for their e-commerce distribution centres. Also, the global spread of technology into multichannel retailing has also opened up new markets in both developed and developing countries. While online sales are growing in the United States and UK, China and Hong Kong are following the trend. China’s consumers are fast embracing e- and m-commerce and are spending most of their money online. And as technology and commerce is expanding faster, retailers are finding it difficult to keep pace with logistics and infrastructure because these two fields are still emerging with newer software and newer gadgets.

In most cases domestic logistics service providers are unable to provide services to fulfil high volumes of customer parcel shipping at low costs and within a realistic delivery time frame, this noticeably impacts the direct-to-customer channel. Retailers have to thus establish their own distribution networks or rely on outsourced express shippers.  This leads to an opportunistic gap in the market for third-party (3PL) and forth-party (4PL) logistics companies and investment in industrial real estate infrastructure.

In the US for the past two decades, U.S. companies have been shifting production to markets with lower labour costs. However, as energy costs rise and labor becomes more expensive in Asian markets, companies are increasing near-shoring and on-shoring. Firms which opt for all-water options but cannot tolerate the lengthy shipping times from Asia are shifting some operations to near-shoring destinations such as Mexico or Central and South America and even back to the United States.  With production and demand closer to home, retailers can respond more quickly to trends and changes in buying patterns.

Nearly 80 percent of retailers say that online sales have increased in the past five years with some reporting increase of 25 percent or more. This has forced retailers to change the traditional distribution network for their e-commerce model. 3PL and 4 PL providers have gained a huge role to play in the e-commerce business model.

Generally, 3PL provider’s main business is to provide logistical services as its core activities. The logistics services offered are based on the range of its logistics’ function. They include freight forwarders, courier companies and other companies integrating & offering subcontracted logistics and transportation services. 4 PL differs from third party logistics in some of these ways: 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 4PL organization acts as a single interface between the client and multiple logistics service providers; ideally all aspects of the client’s supply chain are managed by the 4PL organization; and it is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.

4PL was originally defined by Accenture as a trademark in 1996 and defined as “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” but the concept has almost changed at present.

4PLs have also been referred to as “Lead Logistics Providers”. In the present scenario, new crop of companies have emerged who are actual transportation companies too. While a 4PL is sometimes described as non-asset-owning service provider, their role is to provide broader scope managing of the entire supply chain. The 4PL model offers a platform to get companies thinking about long-term strategy; developing an idea of what they want their future supply chain scene to look like.

If you look closer, the 4PL model actually drives 3PL outsourcing. The difference between the two activities ultimately comes down to scope. In a traditional transactional role, the 3PL will hold on to scope—managing a warehouse, for example. With a 4PL model, the scope recedes and flows. The service provider scales resources depending on different skill set requirements that turn upwards.

If e-commerce brings the logistics industry closer to the point of consumption, it has boosted the demand in the logistics industry. Would it be wrong if we call Amazon and Wal-Mart logistics companies? At heart, these companies are retailers; but, actually on the basis of the economics of these two companies, Amazon and Wal-Mart are far, far better at handling the logistics of their trade than their competitors and hence they are the leaders. Distribution is their core competence.

If you read the case of Amazon.com one understands how important firm’s logistics is in e-commerce. Amazon.com has come a long way since its founder and chief executive officer, Jeff Bezos, stopped imagining the company as a virtual bookstore. It has evolved into an online retail giant that generated US $74.45 billion in revenues in 2013. It is worth mentioning that much of that came from its support of more than two million companies that used Amazon to sell their products online and distribute them to customers. Under the company’s various programs, Amazon not only provides its customers with a means of advertising and selling their products, but also offers to store those products in its fulfilment centres; pick, pack, and ship them; and provide customer service which includes handling returns.

In the process of developing its network to support those services, Amazon has built out an infrastructure which by recent account includes 145 warehouses around the world! 84 in the United States, four in Canada, 29 in Europe, 15 in China, 10 in Japan, and seven in India. This collectively accounts for more than 40 million square feet of space. Amazon has also made substantial investments in material handling systems, including the acquisition of Kiva Systems for $775 million in 2012.  Kiva is now a wholly owned subsidiary of Amazon, which designs robots, software, workstations, and other hardware that has been used in the distribution facilities of companies such as Staples, Office Depot, and The Gap. The systems produced by Kiva are expected to be an integral part of the distribution network now being developed by Amazon. Amazon has also made major investments in cloud computing. At the same time, the company has been developing transportation capabilities to support its Amazon Fresh same-day grocery business. That’s called might of an e-commerce company!

In today’s business scenario, efficient supply chain is the key element of the company’s success.  Corporate have realized that when they spend more time and money in fine-tuning their forward supply chains they can no longer ignore their backward (reverse) supply chains. Efficient reverse supply chains bring many benefits to the organization. However, reverse supply chains are different from forward supply chains and the fact remains that quite a few of the existing forward supply chains are not designed to handle reverse supply chains.

Reverse supply chain stands for all operations related to the reuse of products and materials. It is the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials – in-process, in 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. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and restoring or renovating activities also may be included in the definition of reverse logistics. The reverse logistics process includes the management and the sale of surplus as well as returned goods. In the case of reverse logistics, the resource goes at least one step back in the supply chain management; often a move from the customer to the distributor or to the manufacturer.

When a manufacturer’s product normally moves through the supply chain network, it is to reach the distributor or customer. Any process or management after the sale of the product involves reverse logistics. If the product is defective, faulty, dangerous, or when goods are not described properly, or in price disputes, or when goods are lost in transit and found later in any such circumstances the goods are returned. The manufacturing firm would then have to organize shipping of the defective product, testing the product, dismantling, repairing, recycling or disposing off the products. It is understood here, that the product would travel in reverse cycle through the supply chain network in order to retain any use from the flawed product. The logistics for such theme calls for entire reversing process.  Reverse logistics is more than reusing containers and recycling packaging materials, or redesigning packaging to use less material, or reducing the energy and pollution from transportation.

It is important because it also includes processing of returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery etc.

The elements of Reverse Logistics are as follows:

Physical Movement of Goods: Differentbusinesseshavedifferent methods of handling reverse supply chain management. Usually customers return the goods from the place of purchase. It is the retail outlet most of the times where they go and return the goods. In the era of ecommerce a customer could be mailing the goods, or drop them off at designated locations. Some merchants will organize for a pickup of the goods from the customer’s location.

Warehousing: The physical goods that are collected need to be tagged, tracked, and stored. This is the purpose of the warehousing process. A warehouse is typically a large storage space usually set up on the outskirts of towns or cities. In addition to storage space, these days the warehouses are well equipped with many devices and automated processes to tag and track the stored goods. An emerging technology, radio-frequency identification (RFID) holds substantial promise in the area of warehouse layout, receiving, order selection, and shipping. Because of the large number of different products processed and handled in a typical distribution center, RFID technology has great potential to improve operational efficiency.

Triage: Triage means sorting of goods based on their condition or quality. Some of the goods need to be repaired and sent back. Others have to be sold off as used defective goods. Some need to be sold as scrap. For making these vital decisions as to what can be done with returned goods, triage is the important step in reverse logistics.

Repair: Repairs are an important process as well in the reverse logistics supply chain. By repairing the goods, they can either be returned to the customer or they can be of use for reselling. Cost effective repairs can enable the reverse logistics centre to actually become a profit center. In fact, the business model of several third party reverse logistics providers depends upon selling refurbished products at high markups. Some even go ahead to actually provide warranties on the revamped goods.

After Sales Support: suppose customer ‘A’ returned goods; and these goods are repaired, repacked and sold to customer a new customer ‘B’, here the reverse logistics provider has become the new seller. In case the refurbished products are sold by the original manufacturer, all aspects of after sales support, such as: servicing the product and supporting it with an annual maintenance contract (AMC) are required even in the case of goods sold second-hand.

Using a Third Party Reverse Logistics Provider: Just like the logistics of an ecommerce merchant can be outsourced to a third party logistics provider, there are specialist third party providers of reverse logistics too. These are organizations that specialize in receiving goods from customers, refurbishing them, and selling them at steep discounts.

The key reverse logistics activities are as follows:

Gate keeping: It is the process of screening unwarranted and defective commodities at the entry point. In the current economic climate, while it is not easy to manage the forward flow of products to customers, reverse flow becomes all the more difficult to handle. But not thinking about the reverse flow of products could mean missing imperative opportunities for guiding a company through tough times. Effective returns management can provide additional means of positively impacting a firm’s financial performance as well as building stronger relationships with key customers. When the returned product is re-entered into the inventory ledger, it starts incurring inventory carrying costs, and takes up warehouse space. Each of this logistical activity is expensive and must be considered part of the total cost of returns, beyond the negative adjustment to sales. Therefore efficient gate keeping is a must.

Compacting the recycling time is essential: When returned products come back to the distribution centers, the disposition methods should be kept as simple as possible so as to save time and cost both. The returned items must be tracked and stored at a central repository, by the use of an information system in place. Centralized return centers system are better to put in order all the products of reverse logistics from sorting, processing, storing, and resending to the next destination level under strict scrutiny in documented time.

Making best use of reverse supply chain: Many firms use reverse supply chain in effective way to get the benefit out of it. It reduces their operating costs by reusing products or components. Instead of destroying the products entirely organizations are setting up reverse supply chain modules to reduce the volume of destroyed products by half. Companies have started realizing the importance of reusing products or components; as a result, reverse supply chains are becoming essential part of business models. By cleaning up or clearing the distribution channel more often, bringing back outmoded and outdated or clearance items becomes easy. For example, Xerox replaces or upgrades hundreds of office printing machines every month. In India, Wipro is also using reverse supply chain to best use.

At IBM reverse supply chain process is explored systematically. The company conducts a lot of research for upgrading and refurbishing at this stage. In addition, when products are at the end of their useful life, it makes business sense to recover them for disassembly and component reuse. It also makes sense from an environmental perspective because electronics products, in many cases, include toxic materials that must be disposed of properly. Planning for these events upfront can help eliminate or reduce unacceptably high energy costs and environmental impact. How products are designed, assembled, labeled and packaged can have a profound effect on the efficiency of any reverse supply chain. Reverse logistics is an area where IBM’s history and legacy stands out. For most of this vital work, IBM leased out mainframe computers to companies instead of selling them; this because eventually, all equipment came back to IBM. As a result of its leading-edge experience in this area, IBM has a deep understanding of how to effectively design products for reuse and recycling.

In some part of world like EU, companies are setting up reverse supply chains because of environmental regulations. For example, from 2003, European Union has brought in a legislation that will require tire manufacturers operating in Europe to arrange for the recycling of one used tire for every new tire they sell. Some companies are using reverse supply chains as an integral part of new businesses.

For many large manufacturing and technology companies, after sales services forms a significant portion of their reverse logistics revenue. Also, providing timely and efficient service has become a key competitive differentiator in many industries. Many automobile (2 wheelers and 4 wheelers) dealers have designed attractive revenue models in after sales servicing. Better management of the reverse supply chain transforms into higher customer service and consequently, higher customer satisfaction; and industries and the enterprises within them are realizing that management of the reverse supply chain is a revenue opportunity. For example, GE Aircraft engines makes more in servicing its aircraft engines than it did in initially selling them.

Some firms have also set up reverse supply chain capabilities for philanthropic reasons. Nike encourages consumers to bring their used shoes back to the store from where they were purchased. These shoes are shipped back to Nike, where they are shredded, which are then donated to make basketball courts and running tracks. The company also donates funds to help build and maintain those courts. By doing this, Nike has augmented the value of their brand and also promoted people to purchase their products.

An efficient reverse supply chain focuses on processing product returns generally at lower cost:

The computer and electronics industry is known for short product lifecycles. A big market has emerged for used PCs both in developing and developed countries. According to a research approximately 70 million secondhand PCs are refurbished and exported to emerging markets. Nearly 30 million second hand PCs are discarded worldwide.  The need and opportunities for reuse of obsolete products does not need to be over emphasized.

The automobile industry is one of the biggest industries in the world and deals with the most expensive product. Therefore, it is not surprising that reverse logistics is an important subject for this industry. The three primary areas in which reverse logistics plays a significant role are: 1. Salvage of parts and materials from end-of-life vehicles, 2. Remanufacturing of used parts, and 3. Stock-balancing returns of new parts from dealers. The big three automakers in the U.S. have joined together to form the Vehicle Recycling Dive.

 The estimated cost of reverse logistics in the Indian auto and auto components industry is around 0.5% to 1% of total sales. The reverse logistics segment has been growing at the same rate for both the auto and auto components industries during the same period.

In the pharmaceutical business its pressing problem of what do you do with the expired medication. About 3% of over-the-counter medications are not used before it expires people always have some or the other expired medication in their household. It ends up in drain and eventually the water supply; or it can make its way to landfills if thrown in the trash, essentially posing a health risk to people and wildlife. Reverse logistics in this industry is considered a pellet in company’s profits and an expensive process most times. Yet, it is an imperative process in modern times due to various reasons such as government regulations, growing environmental concerns, growing consumerism, and competitive advantage. An important consideration for companies is to perform the operations in reverse logistics effectively so that it reduces the cost involved.

The expired or unused pharma products need to be disposed off; they need to be reclaimed so that it can be incinerated or otherwise disposed of safely. Collection is also being established at pharmacies, where people can bring in their old medication so that it can then be sent to a disposal center. Pharmaceutical companies and retailers who sell the medications can do some useful work in this area.

Some important considerations for the reverse logistics of returned medications include security of the medications, keeping costs down through technology and automation, and tracing the returns from the initial interception down to their final disposition. Supply chain visibility is also essential for any pharmaceutical supply chain including reverse logistics, as counterfeiting and lost or stolen products continue to be a major concern for this industry.

Reverse logistics in pharma business should involve the use of barcode tracking and identification, as well as easy product identification. The reverse logistics of medicines need to be addressed on war footing to avoid any environmental issues and concerns of medication disposal.

 Conclusion: Reverse supply chain is the last step in the supply chain, which needs to be addressed with accurate strategies; when companies give more attention to reverse supply chain, the product life cycle gets more and better. Cost reduction is not the only benefit that can be gained from reverse supply chain. It helps in understanding why products are returned. Was it returned due to quality problem? Were the stores improperly stocked? Was there a labeling problem? Was the service of distributer or retailer not up to the mark? Are the price points ignored? Is the competitor playing foul game? Is the packaging aesthetics not working? Was there a problem in batch processing? These and many more dilemmas can be sorted out by going to the root cause. It helps the organization in return by resulting in better engineering, packaging, pricing, manufacturing or distribution. It assists to get slow-moving products off the shelf. Companies have realized that they need to modify their forward supply chain by successfully coordinating it with reverse supply chain. How efficient is your reverse supply chain? Give it a thought right away.

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