Ups Reverse Logistics

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Reverse Logistics –
the least used differentiator

UPS Supply Chain SolutionsSM

Copyright © 2005 United Parcel Service of America, Inc. All Rights Reserved. No part of this publication may be reproduced without the prior written permission of UPS Supply Chain Solutions.

Our Insight. A UPS Supply Chain Solutions White Paper

Can the return/repair cycle of products remain as an extension of the process and infrastructure devoted to product creation, or should manufacturers follow those who have moved beyond a “fix/respond” mode to a “value added” servicing model? An opportunity to generate additional revenue, differentiate market position, and support original product demand is sitting right in front of many companies. It is estimated that reverse logistics costs account for almost one percent of the total United States GDP. Therefore, reverse logistics is rapidly becoming an integral component of retailers’ and manufacturers’ profitability and competitive position.1 Product returns are the most common aspect of reverse logistics. Yet, most companies do not handle returns well not because they are part of their core competencies.2 As a result, many companies are working closely with third-party logistics (3PL) providers, while others are still considering the best way to handle reverse logistics. A primary reason for this is the massive shift in revenue opportunity that now follows each product sale. Customers will spend 5 to 20 times the initial sales price on subsequent services and consumables.3 This leaves some companies seriously considering a “closed loop” approach to the supply chain that includes product returns, service contract returns, product recalls, used equipment and replacement parts for refurbishment, as well as reuse or sale as raw material.

Increasingly, reverse logistics must be considered part of a successful growth strategy.

http://www.rlec.org/ http://www.ebizq.net/topics/int_arch/features/2589.html McCluskey, Marc; Bijesse, Judy; Sodano, Lindsey, Service Lifecycle Management (Part 1) The Approaches and Technologies to build Sustainable Competitive Advantages for Services,” AMR Research Report, August 27, 2002. 4 http://www.ebizq.net/topics/int_arch/features/2589.html

Increasingly, reverse logistics must be considered part of a successful growth strategy. Today, having a solid disposition logic is an essential aspect of an asset-recovery strategy. Returns, repairs, and used items can also have branding implications. For some companies, brand protection is paramount, and they want to ensure their goods are not sold in secondary markets and do not end up being sold in discount stores.4

Historically, companies have focused on the efficiencies of internal operations and then evolved toward improving outbound logistics. “The best estimate for typical return rates associated with e-business

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UPS Supply Chain Solutions

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is offered by the Center for Logistics Management at the University of Nevada. Its conservative estimate is that 6 percent of all goods may be returned, but it concedes that the true number may be closer to 8 percent. … Dell Computer Corp. says about 5 percent of its online computer purchases are returned, versus CompUSA’s 10 percent return rate.”5 Companies often mistakenly believe that outbound operations can also handle returns by running everything in reverse. However, reverse operations must manage a number of unique functions that are not included in outbound operations, e.g., collection of outdated, unwanted or damaged products as well as packaging. It is also the case that the more complex the product, the higher the percentage of returns due to several factors including more variables that can go wrong, greater numbers of unqualified operators, and often regulated end-of-life disposition. …reverse logistics can serve as the foundation for establishing customer loyalties.

While many companies have begun to recognize the need to address...
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