Going Backwards: Reverse Logistics Trends and Practices

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Opening of The Reverse Logistics Centre

For instance, the existence of an alternate, cheaper way of buying a luxury brand could damage consumers' perception of it as a premium product. The financial motive for selecting this disposal strategy would largely rest on the revenues to be gained from auction and discount sales. However, companies should also consider the associated costs, such as handling, transportation, and administration.

Those that handle discount sales through factory outlet stores, of course, must also consider the total cost of operating those stores. There are several nonfinancial implications of this route. Existing customers may feel let down when they find that others have paid less for the same product. If discount sales are frequent, then customers may wait for a discount sale to buy the product. Also, brand reputation and market positioning will suffer if discount sales are conducted through the primary "A" channel retail outlets.

Option 3: Disassemble and recycle. Note: The term "recycling" here includes all activities where the original identity of the item is completely lost. Recycling returned goods helps to extract and recover raw materials and parts for use in the production of new parts or products.


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Financial considerations for recycling would comprise the costs of the recycling process, including transportation, handling, and administrative costs as well as the value that can be reclaimed from the recycled material. Recycling electronic products, for instance, makes economic sense because the cost of extraction of rare earth metals from electronic waste is less than that for mining. Nonfinancial considerations would include branding and regulations. If branding as "recycled" gives a product a premium image, then a company should strongly consider recycling.

Option 4: Redistribute.

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Sometimes goods are returned due to delivery overages, or they may be unsold or discontinued items. In such cases, it makes sense to redirect the shipments to other geographical areas where they might be consumed. For assets like containers, pallets, and packaging materials, redistributing—that is, introducing them to the forward supply chain—leads to better asset utilization.

Another consideration is that the cost of disposal for these assets can be as high as their purchase price. Research has shown that reusable assets are more economical in the long run even though the purchase price is initially higher than that for one-way counterparts. There are several financial considerations that influence the feasibility of this option.

To begin with, the ability to resell goods at the original prices without a deep discount is important.

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Second, redistribution may incur some costs, such as for transportation beyond state or national boundaries. These must be accounted for, along with customs duties and other taxes. Companies should also add in any costs incurred in making changes to the products and packaging before redirecting them, especially to other countries. Examples include changing the language on products and packaging, and adding new product labels and certifications required by the new destination's regulations. For transport packaging materials, the value of assets that can be recovered and reused in the forward supply chain with minimal expenditure is the important criterion.

With regard to nonfinancial considerations, the shelf-life of the goods is an important factor, especially in the case of food items. Various countries' import regulations mandate a minimum remaining shelf-life at the time of entry. In addition, certain types of goods may be subject to antidumping laws by the destination countries if those governments believe the goods are being sold at less than the cost of production. There also are risks to the brand image if only discontinued or older models or versions of a product are available, or if customers find out that that the company sells returned products as new.

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Option 5: Donate. Donating returned goods can be appropriate when the handling and transportation costs for other disposal methods will be high and no value will be derived from the sale of the goods. The potential tax savings to be obtained from government and local authorities may also make it an attractive option. There are a number of organizations that facilitate charitable donations and assist in obtaining tax breaks; just one example is the U.

Option 6: Energy generation from waste. Refurbishing and recycling, of course, is not a viable option for food products. A more practical option for disposition of food items is energy generation. Organic waste can be converted to renewable energy through a process called anaerobic digestion. This method of decomposition is a good way to dispose of returned, expired, and recalled food products.


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The financial driver for selecting this option would be the monetary value of energy generated or the utility costs that can be offset compared with the cost of transportation, handling, administration, and running the waste-to-energy plant. Nonfinancial drivers for adopting this disposition route would include compliance with food disposal norms and regulations and the positive image that a company can build by highlighting it as a sustainability initiative.

Food and beverage companies are increasingly following this route. Option 7: "Zero returns" policy. Under this unusual policy, a manufacturer does not accept returned goods.

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Instead, it incentivizes retailers and distributors with a "return allowance" and provides guidelines for disposition. The financial benefit from such a policy is derived when the cost of handling the returns and disposition exceeds the return allowance. However, because there is no universally accepted, objective formula for establishing return allowances, big retailers may use their buying power to push for higher allowances and thus reduce or eliminate this cost advantage. There are some potential nonfinancial pitfalls associated with this option.

Retailers might sell returned goods through the "A" channel, diluting the products' brand image. In addition, under the increasingly widely accepted Extended Producer Responsibility principle, the manufacturer may incur some legal liability if the retailer improperly disposes of the product. Landfill disposal is the simplest option of all but it should be the last resort.

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Governments around the world have been discouraging landfill disposal for a long time. In Europe, certain types of waste are strictly prohibited in landfills, and companies have to either find alternate means of disposition or treat them before disposal. For food items, landfill disposition is allowed subject to regulatory compliance. Incineration also typically is subject to regulation. Since this type of disposal is a last resort, the financial drivers are immaterial. However, regulatory restrictions represent a strong nonfinancial driver that discourages companies from taking the landfill or incineration route for their returns.

Financial framework A formal financial framework is imperative if companies are to make the right choices in the reverse supply chain, identify areas of improvement, and monitor performance.

lastsurestart.co.uk/libraries/gear/1616-mobile-skype-tracker.php But more importantly, a financial analysis that communicates the performance and benefits of reverse supply chain initiatives is bound to attract the attention and support of top management. In order to treat the reverse supply chain as a "profit center" in accounting terms, it is necessary to identify the relevant revenue and cost drivers.

These are discussed below. If parts are not sold but instead are used within the company, then their market value can be considered as revenues.


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This can amount to a substantial amount of money. In the case of the "auction or discount sale" option, the proceeds can be directly considered as revenues. The "disassemble and recycle" option generally is handled by third-party scrap dealers and recycling plants, which pay a nominal fee for acquiring the scrap. The proceeds from selling the scrap to these third parties constitute revenues from the reverse supply chain.

For the "redistribute" option, there are two possible revenue sources. One is the proceeds from products sold at different locations after passing through the reverse supply chain.