Saturday, February 2, 2013

Reverse Logistics in Europe

Reverse Logistics in Europe

 
HONG, Seock-Jin, Professor at BEM (Bordeaux Management School)
 

Corporate Governance, Corporate Social Responsibility and Environmental Issues have a rising impact on operations. The expansion of market from globalization is more competitive than ever and there is an ever-growing pressure for cost reduction. The author argues that it is essential to address both operational and tax aspects simultaneously when optimising the cost effectiveness of the supply chain. The design of a reverse chain strategy is challenging. Embedding that strategy into an organisation, processes and technology is the following hurdle to take. Ensuring integration of that strategy with tax policies and processes is the final challenge.
 

Reverse Logistics is an undervalued part of supply chain management. Market research shows that reasons for this are:

Perceived small impact on profit margins minimal interest of top management
Insufficient time commitment
Logistics departments view the area of Reverse Logistics as a Sales department priority
No combined part of the corporate supply chain design targeted to Reverse Logistics; and
Lack of awareness of the high value potential of integrating operations and tax matters.
 

From a value perspective, customer experience and value recovery from returned goods drive revenue growth. By reusing and recycling returned products or package materials, value is recovered and waste costs reduced. In addition, value increase from a sustainability perspective leads to human, environmental and economical benefits. Proactive recalls and proper disposal avoid potential environmental or human harm, preventing the company from possible legal claims and feed into a positive and   transparent corporate image. Almost 60% of the producers consider Reverse Logistics as an important to extremely important aspect of their overall business system. However, only 32% is really satisfied with its Reverse Logistics operations. 20% of the retailer respondents indicated to manage Reverse Logistics as a profit centre (see contrast to Producers perspective, across). In addition, also retailers show a clear gap between importance and satisfaction of Reverse Logistics management: 60% rate the importance as high against 20% rate satisfaction as high.
 

For LSPs, control and efficiency are the two main leading differentiators for the reverse chain. An unexpected 40% of LSP respondents state that they do not have or are not aware of a specific Reverse Logistics strategy. This is a high rate in respect of the 90% of LSPs that rate the importance of Reverse Logistics to the company as high and treat Reverse Logistics as a profit centre.
 

Producers have started to manage products throughout their entire life cycle. In the last two years half of the producer respondents (50%) have undertaken design changes to enhance Reverse Logistics. Challenge for designers is to integrate profitable end-of-life strategies during early design phase. Improving the performance of Reverse Logistics programs requires considering approaches like Design for Disassembly and Design for Recycling. Such initiatives can reduce costs and environmental & social risks during recovery and/or disposal. Designers can rethink the overall supply chain through a cradle-to-cradle approach, promoting the view that production techniques should be essentially waste free. Cradleto-cradle has the ambition of creating an industry that is sustaining, not only sustainable, by using safe materials, renewable and efficient energy, products & systems designed for value recovery and across all design principles.
 

Environmental politics has existed within IBM since 1971. Today, IBM commits itself to having a leading position for environment awareness in all its operational activities. IBM and Geodis have a longstanding partnership. They started to collaborate in the 50s and one of their contracts, started some years ago, is for the Reverse Logistics of IBMs end-of-lease personal computers. For this contract, Geodis arranges customer collection of end-of-lease personal computers throughout Europe and brings them to an Asset Recovery Center run by Geodis. In this center, Geodis performs the following activities: Receipt and identification of computers; Data wiping of hard disks; Verification of assets and testing computers; Refurbishment and repair of computers; Upload of software and configuration of computers; Dismantling and harvesting parts of the computers that cannot be repaired or sold; Disposal of computers; Preparation for shipping of computers once IBM has sold them and fulfilment of orders.


In this process, 85% of the received computers in the center are resold and all the parts utilized for repair come from the dismantling of the machines that cannot be repaired/ re-sold. This process strongly favours sustainable development. This year, the millionth machine is going to be processed under this contract. For this operation Key Success Factors include: Responsibility and control over end to end process; Hybrid strategy: both efficient and responsive; Quality of rework; Flexibility in capacity; Dedicated division for reverse logistics; Clear disposition trees; Process visibility.


BHSG & DHL

Willem van Rijn is the only importer for the brands Bosch, Solitaire and Neff in the Netherlands. Up to January this year, they operated as a separate legal entity but has now been incorporated in the Bosch and Siemens Home Appliance Group (BSH Group). The two main product groups for the Dutch consumer market are electrical and kitchen retail products.

Logistics Service Provider

For many years the majority of the supply chain activities were outsourced to DHL (both in respect of the forward as well as reverse flow of goods). DHL operations and management of Willem van Rijn meet on a daily, weekly and monthly basis to discuss topics of importance for the daily operations. Operational DHL personnel have been loyal during the extensive collaboration. Continuous learning with improved collaboration are both important foundations for success.


Returns

A small percentage of total products are actually returned by customers. Packaging damage and product damage are two main reasons for returns. Product returns that only need repackaging are stored by DHL in a separate part of the DHL warehouse and DHL takes care of the repackaging. Product recalls take place very occasionally, when products need to be resent to the factory (abroad) to resolve a technical shortcoming. Products which are returned by the consumer are seldom received by Willem van Rijn. Retailers are taking care of almost all type of consumer returns: damaged products are resold in B-stores, malfunctioning products are dealt by the service company of BSH Netherlands and unrepairables discarded to the NVMP (Dutch Foundation for the Disposal of Metal and Electrical Products), and end-of-life products are being collected by the retailers and municipalities. Willem van Rijn only takes care of the financial settlement of product returns as well as the payment of verwijderingsbijdrage (a Dutch disposals-related tax) to the NVMP (Dutch Foundation for the Disposal of Metal and Electrical Products).

 
Collaboration with competitor

Driven by cost and Corporate Social Responsibility, a unique collaboration has been set up with Electrolux for milk-run transport. For the supply to customers (mainly retail stores) throughout the Netherlands the same logistics service provider was used and a strategic partnership has been initiated for the delivery of both Electrolux and Willem van Rijn products to common customers. This decision has resulted in economies of scale and less kilometres to be covered in delivery of the same amount of products. Limitations to further synchronisation of the logistics between two parties evolved from different delivery guarantees (Willem van Rijn guarantees a 24 hour delivery; Electrolux guarantees a 36 hour delivery).


Key success factors

Strategic collaboration with competitor concerning milk-run transport;
Introduction of new products in assortment at one point in time;
Re-selling of returned products;
One number planning across the organisation;
Compliance with Labour regulations for product return handling (Dutch Arbo Law);
Continuous improvement evolving from partnership with logistics service provider;
Item level product recognition.

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