Reverse Logistics is not a new field, but is under-utilized by smaller and mid-size businesses. Businesses are not prepared to invest in the expertise and planning to establish a policy to reduce, return, and recycle unless the action is mandated by a government agency. Businesses are missing opportunities to efficiency, productivity, while avoiding costs or reducing expenses. While reverse logistics costs typically represent 5% of the total logistics expenses, companies are not seeing the benefits or the profitability of the entire organization. “After companies have downsized, reengineered, TQMed, ratcheted up customer service, and wrung out every conceivable cost efficiency it [reverse logistics] may well be the last frontiers business can conquer” (Meyers, 1999, p.27).
While third party logistics firms can be utilized throughout the supply chain to outsource some of the functions, many opportunities are lost to maximize recaptured value. Companies can increase the benefits of handling returns by developing a plan early and monitoring progress, while working with vendors to set expectations, performance goals, and open the lines of communication to maximize and expedite efficiencies.
The most significant issue faced across all industries is a lack of communication and information sharing between key stakeholders. In a manufacturing environment, gathering information from various sources about returns, warrantee repairs, and managing the dissemination of that information could dramatically reduce the number of future service calls and returns. “To collect service information and relay that to product design and engineering to make better sourcing and design decisions to further reduce costs, basically establishing a reverse logistics network that supports life cycle design” (Supply Chain Management Review, 2011)
Product Recycling and Reuse
The development of a product recycling and reuse plan is becoming more critical as the costs of landfill and disposition of product skyrockets. Third party transport companies have been making efforts to capitalize in reverse logistics through added value services. Sales executive Grace Maher, of Nolan Transportation shared that freight forwarding account managers have just started setting themselves apart by offering forward and reverse transportation contracts over the past year. They are able to haul returns for a fraction of the cost by picking up returns at the point of delivery. This helps Nolan defray costs on moving empty trucks or cargo containers and provides an added benefit to their customer. Lerol (2012) recognized that third party logistics providers have recognized the value they can add and business they can develop but they are not taking full advantage of their position because they are providing transport for returns, but not maximizing their ability to maximize end of life activities which include reuse, recycling, and data destruction.
In the financial services industry, they are struggling to reduce procurement costs and increase profitability. One key executive interviewed from a global financial services company is facing challenges in the disposition of obsolete electronic equipment. In the financial sector, Blackberry’s and laptop computers are replaced every two years. A proposed bill called “Electronics Responsible Recycling Act” has been sent committee review in an effort to improve e-waste legislation. Although many vendors offer to remove obsolete equipment, they are not recapturing any value and a risk is opened because of regulations pertaining to the safeguarding of electronic data. The company is paying significant fees to various third parties who specialize in the sanitization and destruction of hard drives. Manufacturers and retailers are missing out on this opportunity to bring added value by offering limited destruction services, if any. Lerhol also discusses this bill and reflects that “e-cycling is being discussed in boardrooms across the United States” (2012).
There will come a time that handling waste responsibly is no longer an option. Many regulations have been implemented to start changing the way we do business. This trend will continue. “Germany currently holds the producer responsible for end of life destruction of products and the United States and Europe have proposed similar legislation” (Rogers, Tibben-Lembke, 1998, p.1002). It is critical to be prepared for these changes in the way we handle end of life products by developing strategies to manage returns. Many companies are voluntarily entering into a Zero Waste policy which eliminates landfill waste. The Department of Environmental Protection publishes “the zero waste philosophy aims to minimize waste and resource consumption in order to conserve energy, mitigate climate change, reduce water usage, prevent toxins creation, and minimize ecosystem destruction.” General Motors demonstrates voluntary action by making changes in both materials and production in their paint shop. These changes allowed for the reuse of recycled wastewater treatment sludge that had been previously sent to landfills. Other initiatives GM took on was reutilizing cardboard from packaging as padding for acoustics in a vehicle, selling of scrap metal, and increasing the use of landfill gas to power their plants. Innovative thinking and commitment to seeking new ways to reduce waste throughout an organization is quickly becoming the standard across all industries.
The Impact of European Directives
The European Directive focuses on sustainability throughout the European Union with waste management. One of the challenges the United States faces exporting goods specifically deals with packaging laws. The European Packaging and Packaging Waste Directive require a manufacturer that sells products in Europe to recover any secondary packaging.
Secondary packaging is rather complex and includes any packing materials other than the actual container holding the primary product. Secondary packaging includes any foam or cardboard packaging materials used to protect the goods, plastic bags containing small parts or directions, any wrapping used to package products on shipping pallets. A manufacturer looking to do business in Europe can either create and internal returns program themselves or they can pay a licensing fee to enter the Green Dot program to accept the return of these items. One of the most significant problems businesses face in exporting goods as reported by the United States International Trade Commission, is the cost and lack of financing available to comply with foreign laws and regulations. One of the most cost effective solutions is to develop a relationship with a partner to conduct and coordinate export activities and managing the mandated returns program.
Another export challenge is managing the return of reusable shipping containers. Smaller businesses are crippled limiting their exports because of transportation costs that could be avoided if a well-constructed reverse logistics plan could be implemented for the proper return of shipping containers. “Subject matter experts noted that containers are often bottlenecked on the East Coast, and must be repositioned to West Coast ports for use in exports” (US International Trade Commission, 2010, P. 17). An exporter can either invest in purchasing shipping containers which would beneficial for consistent point to point shipments, or they can lease cargo containers for one-way use.
What causes the trade imbalance in the return of containers? Le Dam Hahn (2003) concluded that shippers are often placed in a position to accept returned containers by contractual obligation whether they are filled or not. “It is evident that carriers’ interests have given more strategic consideration to the logistics of forward-flow (loaded containers) than to the reverse movement of empty containers” (Le Dam Hahn, 2003, p.12). The imbalance in transport containers at shipping ports is based on the costs associated with the return of empty shipping containers. The best solution presented in this study is for the manufacturer to create ongoing relationships with local shippers in the country they are exporting to. By planning the movement of goods and services, freight forwarders could coordinate more cost effective solutions for managing the containers. It may be in the freight forwarders best interest to absorb some of the cost the manufacturer may bear to transport the goods from their facility to the shipper if there are empty containers in another nearby port. Carriers are willing to interchange or lease equipment to other parties, often at no cost, if the delivery destination is a place with a shortage. Shippers are hesitant to enter into agreements of use of shipping containers for fear of opening up liability risks on the goods transported as well as a fear that the shipping containers will not available for their customers causing them to lose the business. The savings achieved by avoiding the movement of empty containers are minimal compared to the lost revenue. The factors not considered by Le Dam Hahn’s research are the intangible savings and opportunities to create new business development.
Financial and Marketing Advantages
Forward logistics keeps the economy moving with the production and distribution of goods and services. Very few companies have begun to tap the true potentials in creating a substantial return on their investment by maximizing opportunities and benefits through transparency.
With the downturn of the economy, many families are increasing use of secondary markets. By negotiating sales price and identifying preferred methods of disposition, a manufacturer is afforded the opportunity to select the most profitable options. Third party liquidators can often broker deals for fee typically recovering between 20-25% of the estimated values. If a retailer owns and operates their own secondary market through a discount store, that value increases typically up to 50%.
New charitable giving programs are becoming popular because the tax write offs are significant, and the additional benefits associated with developing good will campaigns are significant through cross marketing initiatives. By donating surplus merchandise to a non-profit, 100% disposition, shipping, and manufacture costs in addition to 50% of the estimated retail value is a deductible. There are some limitations to the tax rule as there are caps on the limits that can be claimed based on the manufacturers total revenue. This is just one tool to maximize recaptured value.
Communications and transparency across an organization by coordinating marketing efforts is critical to the success of developing customer loyal, new business opportunity, and brand recognition through cross-venture advertising.
In countless personal discussions, public appearances, and lectures, Kerry Brietbart, co-founder of North American Power, states he firmly believes the success of his company is the transparency of the organization, a consistent branding message, and by actively engaging customers in the charitable giving program. The company sells renewable energy and natural gas in the retail markets. When dealing with an intangible product such as a utility service, it was initially difficult to gain ground in the marketplace because consumers did not see the value in saving a few pennies off their utility bill. There were countless stories from the sales field who were talking with residential utility consumers and they did not care about saving a few dollars on their bill, reducing dependencies on oil, creating jobs, nor doing the right thing for the environment. They seemed to be exhausted from “green marketing” and had already tuned out from the message. The company took a philanthropic turn launching Missions to Millions in April 2011 partnering with well-known global charitable organizations and actively engaging customers in making a difference through the customer referral program.
When a customer decides to switch utility service to clean energy, they are actively engaged in making a difference in the world around them sending a very clear message of social responsibility. The customer is walked through a process and asked to select a charity where $1 of that bill will be donated. A customer can also add their own favorite charity such as a church, local animal shelter or food bank to the giving program. Each customer is encouraged to share the giving with their friends and family to help raise money for the charity of their choice and company provides free websites and tools to help them spread the word. Additionally, the program gives a thank you check each and every month as long as the person remains a customer for their referrals. Mr. Breitbart believes that the consistent message of giving is attracting positive recognition globally.
To create a successful green marketing plan and maximize the value to develop new business opportunities and customer loyalty, indirect marketing strategies are necessary. Telling a story of how the company has made a difference and finding unique ways to actively engage and solicit customer loyalty through the program is more powerful. “This is empowerment and it lies at the heart of green marketing” (Ottoman, 2011, P. 110). If the communication and actions of the company does not make the consumer feel as if they are making a difference by purchasing a green product, they wouldn’t but it in the first place.
Consumers are tired of seeing “green marketing” because it has been misused. Good will and charitable contributions in advertising solely designed to create a sense of social responsibility with bare minimal impact will no longer work. Too many lawsuits have arisen and consumers are wise about package labeling that make specific claims. The most impactful marketing campaigns are indirect and through cooperative effort showing the outcomes, rather than the intents. “Consumers want to see green themes in marketing messages in addition to traditional promises associated with a better life” (Ottoman, 2011, P. 108).
The practice and implementation of reverse logistics goes far beyond a manufacturer’s responsibility. This is a new way to create a more efficient, less costly, and socially responsible organization. Manufacturers can not be expected to comply with every law governing every industry, such as data protection within the financial sector, but they can work with industry leaders to develop a plan to meet the customer’s needs. This is why we must strive to constantly improve communications throughout the supply chain both forward and reverse as a holistic approach to business.
There are countless areas where a business can implement strategies to reduce waste, while increasing efficiencies and it should be an ever-evolving process improvement to be continually measured and analyzed. As we improve and implement strategies to reduce waste, reuse or recycle goods, we can develop critical relationships to unearth new opportunities for cost saving measures, improved efficiencies, and potentially developing new business opportunities or sharing risk.
Breitbart, Kerry. “North American Power Conference” 5 Feb. 2012.
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“Green Dot & Packaging Waste Directive Compliance in Europe.” Global Medical Device Regulatory and QA Consulting. Web. 22 Feb. 2012. .
Le Dam Hahn, P.I. “The Logistics of Empty Cargo Containers in the Southern California Region.” Metarans. Mar. 2003. Web. 23 Feb. 2012. .
Lerohl, John. “Ethical Electronics Recycling – a Key Piece of the Reverse Logistics Industry.” Reverse Logistics Magazine Jan. 2012: 12-14. Web. 18 Feb. 2012. .
Maher, Grace. “Grace Maher.” Personal interview. 27 Jan. 2012.
Meyer, Harvey. “Many Happy Returns.” Journal of Business Strategy 20.4 (1999): 27-31. Web. 15 Feb. 2012. .
Ottoman, J. Amazon Books. San Francisco: Berret-Koehler, 2011. The New Rules of Green Marketing Book: Strategies, Tools, and Inspiration for Sustainable Branding. Web. 23 Feb. 2012. .
United States. International Trade Commission. By Deanne T. Okun, Charlotte R. Lane, Daniel R. Pearson, Shara L. Aranoff, Irving A. Williamson, and Dean A. Pinkert. July 2010. Web. 22 Feb. 2012. .
RLMJennifer Bilodeau, a Reverse Logistics specialist, formerly supported the Department of the Defense in day to day management of both inbound (return) and outbound distribution of goods throughout the command. She was recognized for exemplary performance throughout the base relocation effort working with internal/external stakeholders managing multiple projects assessing tangible goods for movement to new facilities, acquiring replacement items, as well as recapturing value from left behind products. In this role she oversaw reverse logistics operations including repair and warrantees, secondary markets, deconstruction and re-utilization of parts, as well as final disposition instructions.