Analyst Insight:  APQC has worked with a number of leading-edge organizations to learn how they design and implement responsive, cost-effective and efficient channels for the backward flow of returns. One aspect of successful reverse logistics is the strategic design of the returns function. The critical elements are gaining stakeholder support, identifying and solving the reasons for returns, and developing a sound disposition plan.

-Marisa Brown, director of APQC Knowledge Center, and Rob Spiegel, knowledge specialist

Failure to implement effective reverse logistics can result in numerous problems, including: higher and unnecessary costs; higher customer-service administration costs; greater finance, accounting, and credit issues; habitual product quality problems; messy, inefficient warehousing; and increased numbers of dissatisfied and lost customers.

Raising awareness is key to designing a successful reverse logistics program. The best-practice organizations APQC studied recognize the importance of reverse logistics initiatives in meeting the organization's goals. They implemented and continue to execute their returns programs in order to accomplish common goals such as increased profitability, increased customer responsiveness, and maximized asset recovery.

Cross-functional support for reverse logistics is also critical. Best-practice organizations create cross-functional alliances among the reverse-logistics team and finance, sales, procurement, manufacturing, and customer service. The alliances were involved in setting reverse-logistics and returns management policies.

Another important process is analyzing returns information to minimize returns. Reason codes - shorthand explanations for customer dissatisfaction - were developed to communicate returns information. The goal is to identify and correct counterproductive internal processes that lead to returns.

Finally, best-practice organizations make disposition part of the reverse logistics strategic design. The organizations work with customers and suppliers to predetermine disposition business rules to minimize handling and improve asset recovery. Innovative disposition avenues were sought not only to remain compliant with environmental regulations and minimize risk, but also to recover the most value from returned product.

The Outlook

APQC found in its reverse logistics best practices study that successful reverse logistics strategy design requires the buy-in from a number of groups in the organization. A reverse logistics effort must be championed by senior management and supported by cross-functional teams. Reasons for returns must be identified to solve problems that cause returns, and a disposition strategy should be an integral part of the reverse logistics strategy.