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Reverse Logistics 101: The Solution

In my last blog post, I covered the basics on reverse logistics: what it is and why it is necessary.  Now I'll go into a bit of detail on the nature of our work.

More specifically, the core of our business is remarketing: we acquire and test computer parts and systems.  We refurbish what we can, responsibly dispose of what we can't, and work to maximize the value of the material we recover.

Here's what it takes to be able to do this profitably:

  • Acquisition
    • How much material: knowing the timing, availability, and pricing in the market real-time, remarketing companies choose what items to buy, and when, to obtain the best deal, or to buffer the client from market fluctuations
    • Business arrangement: acquisition can be by outright purchase, revenue-sharing, consignment, commission or other financial accommodation, depending on the type of material and the client's needs
    • How to plan: forecasting and Sales & Operations Planning (S&OP) is particularly challenging and unique in the reverse supply chain, where high uncertainty exists on both the supply and demand side
    • Inbound movement: minimizing freight costs: creating a lean transport process to eliminate extra moves and touch points
    • Receiving: flexible procedures and blind receipts to take in goods that may be unlabeled, mislabeled, in bad boxes, mixed pallets, and various states of disrepair
    • Identification: product knowledge to accurately identify exactly what each part number and description is, and track from that point forward at the serial number level
    • Assessment: sophisticated inspection capability to evaluate age and cosmetic condition, validate warranty, and other factors that determine salability and value
    • Testing: test equipment and trained technical staff to verify functionality, diagnose and address failures, perform data destruction on storage media, upgrade firmware, and numerous other technical tasks
    • Disposition: processes for routing items for resale, recycling, destruction, or other next steps
    • Valuation: assigning appropriate marketable value to the item, by itself or in conjunction with other items
    • Stocking: inventory control, including picking at the serial number level, and maintaining a record of source and business arrangement for each item
    • Selling: a sales force specializing in the unique, fast-moving secondary market, with a broad network of customers
    • Order fulfillment: ability to ship parts same day as order receipt, with all delivery modes including expedited methods like next flight out
    • Settlement: reporting and accounting procedures, down to the serial number level, to settle accurately for each client's business arrangement

What are some of the key decisions that make the industry work well? Here is a partial list:

  • Is this item worth more as a whole system or a collection of parts?
  • How long, and how much labor will it take to make the item sellable?  When is it not worth it to put any effort into at all?
  • What are the best channels for resale?
  • Is it better to sell in small quantities or large lots?
  • What if recovery is only partially successful; is there value in the remainder?  What's the best way to recover that value (further repair, as-is sale, recycle)?
  • Can the item be combined or bundled with other items to yield a net total higher value?

Finally, there are economic considerations. Like their forward third-party logistics cousins, reverse logistics companies often have superior cost structures and value propositions, due to:

  • economies of scale from high volume, leveraging fixed plant and equipment costs
  • multi-client operations, spreading cost over a broader base
  • efficiencies from specialized automation, handling equipment or knowledge and experience
  • sophisticated IT systems, custom-designed for reverse logistics processes, including extensive visibility and reporting
  • competitive pressure to continuously improve quality, cost and speed

In addition, those engaged in resale have extensive customer networks and experienced sales teams the client can leverage.

When reverse logistics is looked at this way, one can see it is neither simple, nor something that typical forward supply chain companies are really equipped to do well. Beyond the physical, technical and human resource expertise of the reverse logistics companies, there is also tremendous intellectual capital involved. Though it is not rocket science, there are a number of key decisions to be made in the reverse process to optimize and maximize recovery value that takes years of experience to master.

Companies which generate significant quantities of reverse supply should seriously consider turning to the experts to assist them with dealing with the material.  The results for most existing customers have been higher dollar recoveries, less waste, cost-effective processing, and lower environmental impact.

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