Why do Manufacturers Need Reverse Logistics?

It takes a lot to launch a product into the marketplace through manufacturing: prototypes must mature into finalized designs after many iterations, the individual links in the supply chain must be connected, production-specific issues must be detected and resolved, and finally, distribution partnerships and networks must be ready by the launch date.

Getting a product into the marketplace, however, is only half the battle. Successful products require continued support throughout their lifetime, and a key element of that support is reverse logistics: the process that occurs once a product has reached the marketplace and then returns back to the company that made it. In a nutshell, reverse logistics is the flow of material in a direction opposite of the normal supply chain, assembly, and distribution systems.

Reverse Logistics is a Manufacturing Necessity

In order to understand why manufacturers need to implement reverse logistics, let’s start with a really simple example: de-kitting.

Normally, when a subassembly or entire product is assembled on the manufacturing floor, someone gets tasked with pulling the required individual parts and material out of the inventory bins, as detailed on that assembly’s bill of material (BOM). Part go into a package or container that is then sent to the assemblers out on the floor. That collection of parts is called a kit, and usually those parts stay in that kit until the work order for that assembly has been completed and the assembly if fully built.

There are times, however, when it’s necessary to remove parts from a kitted work order. For instance, if a higher priority build is fast approaching its shipping deadline, and that build requires a part whose stock in inventory has run out, that part may be removed from a lower priority kit so that the more important assembly can move forward. In effect, that lower priority kit has been cannibalized so that another work order can be kitted, assembled, and shipped.

De-kitting is a very short reverse flow, because only one step (picking parts from inventory and placement into the kit) needs to be undone. The logistics are fairly straightforward because the kit hasn’t been assembled yet, and none of the material has left the factory.

The term reverse logistics, however, usually refers to scenarios where finished product has actually left the factory. In those cases, a lot more steps need to be undone, as any company involved in a product recall can attest.

Reverse logistics isn’t just about gathering up defective products; it can also support and even benefit a company’s bottom line. This is because reverse logistics also includes and enables product support, repair (including warranty work), and refurbishment—activities that serve customers and open secondary revenue streams.

The Benefits of Reverse Logistics

Well implemented reverse logistics improves customer satisfaction and loyalty, by quickly and smoothly managing the return and either repairing or replacing the faulty merchandise. In addition, important customer feedback can be gathered during the process, leading to design improvements that reduce future product returns.

Reverse logistics can also help efficiently extract more value from returned merchandise, saving the time and money that would otherwise be spent on acquiring new parts and assembling them. Efficient reverse logistics can recoup the material and labor costs invested in the material salvaged from returned products in two ways: by using the parts that are still good to replace parts in other repairs, and by selling refurbished merchandise.

Why Manufacturers Outsource Reverse Logistics

In order to deliver those benefits, reverse logistics requires resources spent on warranty tracking, returns management, and additional parts procurement (for when refurbished parts aren’t available).

Aside from those logistics requirements, the repair and rework aspects of reverse logistics usually require a highly-skilled technical staff. That’s because repair and rework require troubleshooting skills, diagnostic equipment knowledge, understanding of the relevant engineering domain (electronics, optics, pneumatics, hydraulics, mechanical), and often specific certifications and formal technical training. Although assemblers can put a unit together, skilled technicians are needed to determine why a product isn’t working right, or at all, which is why technicians command higher wages.

To illustrate that cost with actual data, consider that according to the most recent data from the United States Bureau of Labor Statistics, the hourly mean wage for electro-mechanical equipment assemblers is $17.02. Electro-mechanical technicians, however, earn $27.82 an hour, a 63% premium.

Small and even mid-sized OEMs often can’t afford the investment that reverse logistics requires. This is why many of them outsource their reverse logistics to companies like RiverSide Integrated Solutions, who can. Not only do they get top-notch technical and logistical personnel to handle their reverse logistics, but these companies also gain peace of mind, allowing them to focus on product improvements, customer service, and new product launches.