Industry expert outlines new trends in Reverse Logistics

Editor’s note: In the course of composing a feature-length article for our sister publication, Logistics Management, we interviewed Diane A. Mollenkopf, Ph.D., McCormick Associate Professor of Logistics Department of Marketing and Logistics University of Tennessee College of Business Administration. This is the first of a two-part Q&A session for an SCMR web exclusive on Reverse Logistics.

Supply Chain Management Review: Is the trend of “near-shoring” having an impact on reverse logistics?

Dr. Mollenkopf: Yes, it most likely is having an impact on reverse logistics. The economics of managing the reverse flow of goods through the supply chain are such that return goods are much more expensive to transport and handle than forward-flow goods. When manufacturers and suppliers are off-shore at a long distance, it is not cost-effective to return goods to them. This limits the recovery potential that could be gained from returned goods. As goods are sourced from near-shore suppliers, it makes the prospect of returning goods for refurbishment or parts recovery much more feasible from both a cost and a time perspective. Thus, reverse logistics networks may be developing in new ways to take advantage of new opportunities to recapture value in return goods.

SCMR: What have shippers learned about risk mitigation since the disaster in Japan?

DM: The tsunami disaster in Japan has highlighted the risk of being too lean in terms of inventory protection levels, or the risk of too few suppliers, especially when geographically concentrated. Thus, shippers will surely be reconsidering how much inventory is really needed in the supply chain, and where that inventory should be located. From a reverse logistics perspective, some shippers may find that they can increase their inventory protection by more effective and timely recapture of return goods (that may provide available parts, for example). So an effective reverse flow may help mitigate some of supply risk. Shippers just need to realize the inventory potential they may have within their existing market areas, that has been untapped because they haven’t been effectively recapturing end-of-use or return goods as effectively as possible.

SCMR: Are shippers changing their modal strategies to accommodate a shift in reverse logistics?

DM: Modal strategies may be changing to incorporate more integrated forward/reverse flows. Transporters may be more interested in servicing customers to which they can provide both front-haul and back-haul movements within given lanes. Another aspect of modal management may be reflected when considering the marginal value of return goods. For some goods, speed of recapture and return to vendor is very important for recapturing the value in the goods so that they can be processed and reinserted into the forward flow to customers (think seasonal products whose value may diminish greatly at the end of the season). Return networks should be designed to quickly get goods back to vendors, so road freight may be the preferred transport mode. Contrast this to other products are not so time sensitive, and thus a slower mode of transport such as rail may make more sense, allowing time to accumulate larger lot sizes of goods that can be moved more economically back towards their source.

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