Reverse Logistics

APQC’s best-practices research report, Reverse Logistics: Backward Practices That Matter, supplemented with thought leadership from the Warehousing Education and Research Council (WERC), uncovers how best-practice organizations design, establish, enable, and measure service-oriented reverse logistics and disposition strategies that minimize cost and liability while maximizing reverse velocity, profitability, asset value recovery, and customer loyalty.

The research scope focused on:

1.   Designing a service-oriented reverse logistics and return disposition strategy that minimizes cost and liability but maximizes reverse velocity, profitability, asset value recovery, and customer loyalty.
2.   Establishing a physical reverse channel and information flow to support the strategy (including standardized processes and procedures for minimizing for the causes of returns and facilitating the efficient physical flow of planned returns from customer to final disposition).
3.   Assessing information systems solutions and operations systems solutions to enable the reverse logistics strategy.
4.   Measuring the success of the reverse logistics strategy and providing for its continuous improvement.

The best-practice organizations studied in-depth include Carolina Supply Chain Services Inc., GENCO Distribution System Inc., McKesson Corporation (Pharmaceutical Distribution—McKesson Supply Solutions), and Raytheon Aircraft Company (RAPID—Raytheon Aircraft Parts Inventory and Distribution).

McKesson is the largest pharmaceuticals distributor in the United States, with reported sales of $80 billion. The pharmaceutical distribution business delivers pharmaceuticals, health and beauty care products, medical supplies, and equipment from more than 30 distribution centers serving the United States.

Examining the costs of returned products prompted the organization to become more process-driven rather than functionally segregated. Due to the buy-and-hold inventory model in the pharmaceutical wholesale industry, wholesale customers had incentives to buy surplus inventory in anticipation of price increases on pharmaceutical products. Higher inventory levels led to a significant number of returns; as a result, reverse logistics absorbed the losses on the back-end processes. Furthermore, a decentralized reverse logistics strategy created process inefficiencies and financial impacts as McKesson managed multiple return processes and supplier returned goods policies.

McKesson developed a reverse logistics initiative to support key organizational goals to maximize product recovery value and increase profitability. Goals to reduce costs and cycle time also drove the initiative. Additional customer-oriented goals include increasing customer responsiveness and service while minimizing discrepancies. Results in these areas are achieved by implementing effective reverse logistics processes and asset recovery practices, as well as understanding returns operations costs. Reverse logistics velocity; visibility/traceability of returning goods; and positive practices to avoid returns, including product improvement and innovative practices, also contribute to key goal achievement.

McKesson’s reverse logistics policies and process accountability involve cross-functional stakeholders including finance, procurement, operations, sales and marketing, and customers. The company has established the position of vice president of reverse logistics, the individual responsible for managing returns policies, stakeholder relations, and reverse logistics strategy execution. This position reports directly to the vice president of supplier processes, who reports to the general manager of the financial service center organization. The supplier processes group primarily manages the transactional relationships that occur between suppliers and the organization.

To read this entire case study from APQC, please click here.