Shifting Logistics Into Reverse
Once confined to handling product returns, the field is expanding to include a wide range of activities that parallel the development of supply chain management.
“The state of development of reverse logistics is analogous to that of inbound logistics 10 to 20 years ago,” said James R. Stock, a professor of marketing and logistics at the University of South Florida.
Mr. Stock authored a groundbreaking report on reverse logistics in 1991 and recently published a follow-up report for the Council of Logistics Management on implementation of such programs.
“Europe is doing more. They are forced to by regulation,” he said. “In the U.S., reverse logistics is in its infancy. Most companies don’t put it as a high priority.”
However, among companies that have improved their logistics systems, reverse logistics becomes “much more important,” Mr. Stock noted.
“Leading edge companies are doing things,” he said. “I haven’t found a single company that does it right that doesn’t make money” from reverse logistics.
Reverse logistics today encompasses not only product returns, but recycling, packaging and waste disposal, as well as refurbishing, repair and remanufacturing.
One executive described the business this way: A giant conveyor belt transports raw materials to the manufacturer, then to distributors and retailers and finally to the consumer.
“We handle all of the product that falls off or is taken off the conveyor belt. And there’s a lot of it,” said Kevin Sheehan, president of Dallas-based Processors Unlimited Co.
He estimates that at least $35 billion worth of consumer products are returned every year, with his firm handling approximately 500 million pieces.
No one knows exactly how large the reverse logistics business is, but Mr. Stock is convinced it is larger than any one industry, such as trucking, can handle.
“I don’t see that changing for another five or 10 years,” he said.
The increasing sophistication of reverse logistics has spurred the development of specialized service companies.
Genco Distribution System of Pittsburgh, for instance, processes nearly $5 billion worth of product returns a year for retailers such as K-Mart, Wal-Mart and Target and consumer goods manufacturers like Elizabeth Arden, Braun and Whirlpool.
The company operates 53 return centers in the U.S. and Canada, using a network of less-than-truckload carriers to make pickups.
Founded as a drayage firm in 1898 with a blind horse and wagon, Genco operated for years as a trucking and warehousing firm. It entered reverse logistics in 1990 when a customer in the grocery business asked for help in reclaiming damaged merchandise.
After developing a PC-based scanning system to help track product returns, the company realized it could offer a turnkey service — what it calls lifecycle logistics — by salvaging components and reselling products for retailers and manufacturers.
“Returns are an ugly stepchild,” said Steven South, vice president of Genco Logistics. “The freight business is different as well. Returns tend to mess up their deal.”
Most LTL carriers charge for transportation based, in part, on shipment weight. That’s impractical for returned merchandise because stores lack scales, and weight varies widely based on the type of product being returned. Genco developed a system of pallet-pricing based on average weight. Actual weights are checked when the goods are delivered to return centers, and that information is then shared with carriers.
Genco is now considered the largest company of its kind. The firm sponsors an annual management conference that attracts hundreds of retailers and manufacturers and played a key role in the establishment of the Reverse Logistics Executive Council. The council meets quarterly to discuss ways of streamlining the process of handling returns and eliminating product waste.
For the full story, see the Jan. 18 print edition of Transport Topics. Subscribe today.
