High Reverse Logistics Cost

Research Topic Paper: High Reverse Logistics Cost

Introduction

There are ongoing changes and transitions in the preferences and changing volumes of goods returned from the customers; thus, the supply chain management must deal with elevated levels of uncertainties. There can be an increase in product returns due to an increase in service returns, product recalls, end-of-life returns, and warranty returns. The increase in product returns can result in unplanned costs and product losses. Reverse logistics is considered as a solution for supply chain management problems (Satish & Jayaparakash, 2017). There can be different costs or even excessive costs of reverse logistics. When various products and materials move backwards in the supply chain, they incur expenditures, which has an impact on total revenue numbers, according to the study (Heydari et al., 2018). Significantly, unlike other manufacturing and selling costs, inbound logistics costs are often scattered across the entire firm rather than being designated to a cost centre (Tien et al., 2019). This paper will discuss the concept of reverse logistics and how it can regain value or deal with waste raw materials. Because this waste is produced in the packaging, rejects, production process, and faulty or return products. This waste is used to solve environmental issues. This paper will discuss the high reverse logistics costs.

The logistics are entirely focused on activities such as moving products from the production to the end customer. And reverse logistics can be seen when a product moves at least one step back in the supply chain process. To understand the example of reverse logistics, it can be discussed when a resource could move from the customer to the retailer or manufacturer. The reverse logistics process includes remanufacturing activities and refurbishing activities. This is a crucial part of business operations, and it is also considered as a cost (Agarwal et al., 2015). And the overall research ensures that the benefits of reverse logistics have outweighed the costs of reverse logistics. According to the study, returned products have the greatest costs of any inbound logistics, particularly for retailers. All these costs start before the goods is ever sold, and they rise proportionally when the product is returned (Panigarhi et al., 2018). Furthermore, the cost of returning products is influenced by the development of legally binding warranties, return policies, and service contracts (Pince et al., 2016). According to the study, the most frequent problem with logistics is the time it takes to deliver products to retail outlets or into the hands of consumers. Typical cost-benefit evaluations consider whether the expense of air freight is worth it to improve customer happiness, as well as other straightforward cost-benefit scenarios (Hubner et al., 2016).

Background

The factors including legal implications, overall quality, environmental sustainability, and overall quality are some techniques improves customer satisfaction by allowing faster refunds or distribution of rectified goods that were previously returned due to defects. Dealing with product errors also improves the product’s quality, raises the company’s profile among customers, and ensures customer loyalty. By ensuring that waste items are correctly disposed of, reverse logistics helps to save legal costs. Businesses are considered legally responsible for the proper disposal or recovery of waste generated during the manufacturing or distribution of their products in most countries (Garlapati, 2016).

A firm can achieve environmental sustainability by maintaining accountability in trash disposal. In business initiatives, reverse logistics may also result in unanticipated gains or reduced losses. The most significant impact is made by the reverse logistics or from the return of the products from the end user or consumer to the manufacturer or creater. This return of the product can impact the supply chain process. After the product has been dispatched and delivered on time, most supply chains will stop assessing the success of their items. While this is an effective way to gauge customer satisfaction and profit, it does not account for every situation (Hsu et al., 2016). Businesses would suffer considerable losses from defective or returned products before implementing reverse logistics. Businesses can currently repair and resell such products or scrap and resell their parts on secondary markets. Reverse logistics, when done correctly, lowers shipping, administrative, and aftermarket support expenses. There is also a requirement to understand the whole costs of the entire operation, including both direct and indirect expenditures. There are several hidden costs associated with the reverse logistics process. Workers who deal with client relations, customer support, transportation and shipping, repairs, and warehouse charges, for example, may result in higher labor costs for a business (Jaaron & Backhouse, 2016).

Literature Review

Even though this is a new field of operations, it has piqued the interest of academics due to its long-term viability in corporate operations. The expense of complying with environmental legislation is one of the critical business concerns. In all probable scenarios, corporate organizations must do a comprehensive cost-benefit analysis to avoid losses resulting in higher costs (Huscroft et al., 2013). This section will examine the most recent research on the subject to highlight recent discoveries and provide guidance for future intervention strategies. In today’s supply chain sector, reverse logistics is becoming increasingly important.

Logistic centers serve as the hub for a company’s national and worldwide logistics, transportation, and distribution. Because the returns flow is unpredictable, logistics facilities must have excellent information technology. A reverse logistics system is likewise quite complex and necessitates the use of IT tools. Technology has enhanced the reverse logistics process, according to research. When a customer returns an item online, they can specify why they are doing so. As a result, a unique barcode is created for their return label. Back at the warehouse, a team member can scan that code to discover if the item is damaged and hence unfit for resale, or if it was simply the wrong size for the consumer (Morgan et al., 2016). According to Kayanak et al. (2014), the most major hurdle to reverse logistics is resistance to change. To cut wasteful expenses, all supply chain operators and stakeholders must be willing to accept change. Creating a logistics center that offers a credible reverse logistics model eliminates stakeholder resistance and prevents confusion. Despite possessing logistic hubs, businesses may suffer hidden expenses that offset the benefits of reverse logistics (Jede & Teuteberg, 2015). To avoid losing money, a cost-benefit analysis is essential. Shaharudin et al. (2015) identified seven key challenges to reverse logistics, including a “low rate of reverse logistics practices adaptation, limited material consumption, costly operations, a lack of norms and regulations, insufficient assistance, poor customer operation performance, and customer perception.”

Findings

Reverse logistics is a crucial part of every company’s operation. It can help a company save money on operations overall. It can help organizations gain a competitive advantage by expanding their service market share. There are some of the critical revenues that are associated with reverse logistics including remanufacturing benefits, environmental benefits, and material reproduction income. And the costs related to reverse logistics include testing costs, disassembly costs, material reproduction costs, and collecting costs (Mangla et al., 2016). As a result, a rigorous cost-benefit analysis is required to determine whether the cost savings justify the investment in the reverse logistics process. Preliminary analysis indicates that there are significant savings opportunities. However, each company must consider its own distinctive qualities.

Conclusion

Overall, a cost-benefit analysis will determine the viability of reverse logistics. It will also enable organizations to identify the most effective measures for maximizing profitability and long-term viability. It is necessary to justify the investment made compared to the costs incurred. The cost-benefit analysis allows a company to completely comprehend reverse logistics costs to improve management. In transporting goods from the manufacturer to the customer, all players in a supply chain play a significant role. In the same way, all stakeholders are required for reverse logistics to be successful. To avoid confusion during difficult operations, firms that choose to embrace reverse logistics must build a climate that accommodates change and facilitates operator training. Organizations that conduct adequate reverse logistics research are more likely to develop a cost-effective model that is acceptable to all stakeholders and environmentally friendly.

Future Research Recommendations

Future research will concentrate on individual industries to determine the best techniques. A well-designed model is required to connect investments and outcomes, allowing companies to make timely decisions on the issue. In reverse logistics, researchers must also develop various models to meet the needs and specifications of various sectors.

Future research should also consider the function of reverse logistics costs and their expansion as strategic costs. Future research should examine whether companies in the same industry encounter similar reverse logistics issues. This type of study might track the returns flow in various businesses to see if they are all vulnerable to reverse logistics issues. Researchers must also consider why certain businesses embrace reverse logistics while others avoid it.

References

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Sathish, T., & Jayaprakash, J. (2017). Optimizing supply chain in reverse logistics. International Journal of Mechanical and Production Engineering Research and Development, 7(6), 551-560.

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