Are you ready for Reverse Logistics 3.0?
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The Reverse Logistics Industry has evolved so much in this last decade. Back in the early 2000s, Reverse Logistics (RL) was considered to be a “new frontier” of opportunity. Although there was a general recognition that Reverse Logistics was an important part of the supply chain, much of the focus of attention was on defining what activities and functions comprised the Reverse Logistics Supply Chain (RLSC). Basically, the emphasis was on understanding the basics of the RLSC: 1) how it worked, 3) key touch points and stake-holders, and 4) critical challenges and pitfalls. Many RL professionals refer to this level of knowledge as “RL 1.0”.
By the mid part of this decade, the knowledge of RLSCs expanded. The focus of RL 2.0 was on making RLSCs work better and more efficiently. This meant understanding the true costs of the RL value chain and finding ways to improve it by either streamlining or re-engineering processes, implementing new systems to automate functions and track key data about the supply chain, or outsource/out-tasks critical functions to more efficient vendors. Prior to 2.0, the conventional wisdom was that the RLSC was characterized with uncertainty. As RLSCs evolved, we learned that there was indeed some predictability and certainty to events. In RL 2.0 we learned not only how to track and control the receipt of these incoming products but we also learned that there were also multiple options for the back end processing of these items ranging from replenishment of the returned good into the forward supply chain, to repair first then replenish, to liquidate as is, to destroy and recycle, to any other flavor in between.
I believe the industry has now entered the realm of RL 3.0. Here the focus is on managing disparate RL functions on an integrated basis and adopting a more customer centric view of the RLSC. The fact that there are so many different inbound and outbound RL processes means that even more focus is needed to ensure maximum productivity and quality while minimizing cost and time associated with these activities. The fact that products in the RLSC may be purchased for consumption by other types of buyers down the line also means that we have to focus on meeting customer requirement and achieving high levels of customer satisfaction while earning a profit. 3.0 is about managing multiple and often conflicting business objectives of the RLSC. In other words, RL 3.0 is about optimization. In contrast, 2.0 was focused on cost control and cost reduction.
Optimization in the true sense involves real-time, dynamic planning. Today, most attempts at optimization are manual based and simply involve business rules which prioritize the flow of goods in to various back-end channels (e.g., liquidation, replenish, etc.). Unfortunately, most companies lack the proper tools and technology to attain real optimization. This first requires an investment in the proper systemic infrastructure to capture the information necessary for real-time data management. Unfortunately, many companies have not been able to build a business case for even this type of investment.
All too often, RL professionals talk about improvements from a cost saving perspective making comments like “these improvements won’t increase profits but they will reduce costs and offset losses”. This seems to meet the definition of a “profit increase”. All too often, executives and managers responsible for RL often ask question “why doesn’t my company get it?” It is difficult to expect the C-Suite to get excited about RL when improvements are described as isolated events affecting the operating budget of a single department. C-level executives will look at each incremental cost saving as nothing more than round off errors on the company’s income statement. Instead, RL professionals need to speak about these improvements as an integrated set of activities that impact the company’s bottom line in and multiple stake holders in a significant way. This will get the C-suite to take notice. These conversations will all part of the RL 3.0 programming language and just like the older versions of RL, the development, roll-out, and adoption of 3.0 will depend on the efforts of RL professionals like you. Are you ready for RL 3.0?