Understanding the Need for a Reverse Supply Chain

Understanding the Need for a Reverse Supply Chain

Companies can no longer ignore reverse supply chains in today's competitive business environment where there is both
internal and external pressure. The success of any business largely depends on the efficiency of the supply chain. An
efficient supply chain brings many benefits to a company. As competition has moved beyond firm to firm rivalry to rivalry
between supply chains, many industries realize that the actions taken by one member of the supply chain can impact the
profitability of the others in the supply chain. Supply chain solutions is defined as the "the process of planning,
implementing and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and
related information from the point of origin to the point of consumption for the purpose of conforming to customer
requirements."

A company's supply chain is not only limited to delivering products to the end customer. Products that are returned buy
the customers back to the company also need to be taken into account. This has been a long ignored part of the supply
chain, although the reuse of products and materials is a common phenomenon. This reuse of products is what is known
as the reverse supply chain or backward supply chain. There has always been a misconception that returns compared to
sales generate little or no money. These days, with the growth of direct-to-consumer channels like catalogs and the
Internet, there has been a tremendous increase in the sales returns of merchandize by the consumers. Reverse supply
chain is defined as" the process of planning, implementing and controlling the efficient, cost effective flow of raw
materials, in-process 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." Reverse logistics is also inclusive of returned merchandize
due to damage, seasonal inventory, restock, salvage, recalls, excess inventory and recycling programs, hazardous
material programs, obsolete equipment disposition, and asset recovery, etc.

The Need for a Reverse Supply Chain : As the reverse supply chain reduces operating costs by reusing products or
components, it is one of the fundamental reasons behind companies giving importance to the same. Consequently the
reverse supply chain is fast becoming a significant part of a business. There are instances where companies are forced to
set up reverse supply chains because of environmental regulations, in other cases companies start using reverse supply
chains as an integral part of new businesses. Aftermarket services forms a considerable portion of revenue for many
large manufacturing companies. The key competitive differentiator in many industries is providing timely and efficient
services.


Obstacles to Reverse Supply Chain : As there are a number of obstacles, successful implementation of reverse supply
chain can be a problem in many companies. Some of them are

Reverse supply chain is treated like a part of the backend logistics process.
There is a tremendous lack of commitment on the part of senior management
Some of the other internal barriers include preparedness in terms of processes, systems and infrastructure of the
company to handle returns

With more attention being dedicated to the reverse supply chain, companies are recognizing the critical importance of
managing the entire product life cycle. Reverse supply chains helps in understanding why a product is being returned.
Cost reduction is not the only benefit that can be gained from reverse supply chain, companies can go to the root cause
of returns, resulting in better engineering, manufacturing or distribution. Those that closely coordinate with the forward
logistic supply chains are the companies that have been most successful with their reverse supply chains as well.

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