In many ways, the traditional linear supply chain model is approaching its limits. As the global logistics industry grows larger and becomes more interconnected, we’re starting to see businesses and even entire regions running up against limiting factors: waste, energy and more. All of these points, taken together, point to one thing: Now is the time to adapt.
In a recent survey, Gartner found that 51 percent of supply chain professionals expect that the focus on their circular economy strategies will increase over the next two years. This finding follows closely on the heels of previous Gartner studies, such as the company’s February finding that 70% of supply chain leaders are planning to invest in the circular economy in the next 18 months.
It’s not just big players that stand to benefit from strong reverse logistics strategies, and the barriers to entry are not as high as you might imagine. As with many business endeavors, strong principles and solid execution is what leads to success, no matter the scale of the organization or initiative. One of my personal favorites is RealGood Stuff Co. (formerly Real Good Juice), a small business here in Chicago that specializes in – you guessed it – cold-pressed juices and smoothies. In addition to adding some extra deliciousness to my morning commute (when commuting was a thing), they’ve also maintained a strong focus on reverse logistics, encouraging consumers to return their empty juice bottles for recycling and reuse. There’s one sitting on my desk right now, in fact.
So, for those companies looking to get moving with reverse logistics (which, let’s be honest, should be just about everyone) what do you need to know? To answer that question, I’ve spoken with top business leaders throughout the logistics industry about how businesses can get value out of reverse logistics, and condensed their advice down into a handful of key points.
What is reverse logistics, and how does it work?
Gartner defines the circular economy as an economic model that separates the ability to achieve economic growth from the consumption of natural resources. The definition I come across most often is a cumbersome one. It states that reverse logistics is the process of planning, implementing and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.
My personal definition is a bit simpler: Reverse logistics is simply the art of getting goods back from where you sent them. In recent years, the terms circular economy, circular supply chain, and closing the loop have been used more or less interchangeably with the concept of reverse logistics. The expression “what goes around, comes around” comes to mind.
Some examples of reverse logistics include:
Returning a piece of medical equipment that was sent to your home.
Returning your old, worn-out tires when you get your car service and tires replaced.
Zappo’s robust return and exchange model
UPS is a master of logistics -which you have to be when you’re tasked with moving millions of products and parcels all over the world each day. Given that, there are few people better positioned to talk about the limits of our current logistics models than Mike Turner, who worked for more than 30 years at UPS and joined us earlier this year for an executive panel on maximizing reverse logistics within the modern supply chain.
In Mike’s view, reverse logistics is seldom a profit center, at least not right away. However, its potential for improving efficiency and eliminating waste throughout the supply chain is tremendous. More than a trillion dollars are wasted within the global supply chain each year, meaning that even if you’re not turning a profit on your reverse logistics endeavors, there’s still significant opportunity to cut costs, improve performance and increase customer satisfaction and brand loyalty.
“I would say, every company that I’ve come across has some degree of a return logistics strategy associated with their business model. The question then becomes ‘How evolved is it?’…Many times, in today’s environment, you have a [reverse logistics] scenario being bolted onto the existing process they have in place.”
– Mike Turner, Vice President, Enterprise Retail Group
As Mike pointed out during our discussion, corporate sustainability must become a part of the strategic intent of an organization, and from there, folded into the day-to-day operating model. This will likely be a slow process at first, but over time companies will begin to see returns on this investment, as raw materials costs decrease and the system becomes more stable.
Many companies who were early movers in the reverse logistics space are today enjoying major benefits not only in terms of operational efficiency, but also when it comes to brand identity and loyalty. When companies take those steps to really build a strong reputation as an organization that cares about the environment and does everything in its power to minimize its carbon footprint, consumers respond in a very positive way.
How Does Reverse Logistics Relate to Sustainability?
The biggest difference between a traditional linear economy and a circular economy is the amount of waste each system generates. In a circular supply chain, waste is reduced, repurposed or recycled into new products after it reaches the end of its product lifecycle, as shown in this Gartner graphic:
Rick Blasgen is President and CEO at CSCMP, the Council of Supply Chain Management Professionals. He also sat on our reverse logistics panel earlier this year, during which time he talked about the challenges of balancing the cost and environmental impact of food packaging materials with its ability to keep the food it carries safe and fresh.
“You’re trying to minimize the amount of packaging, yet still protect the product,” he said. “So if I can get that packaging back and recycle it, figure out a way that it doesn’t end up in a landfill or elsewhere, it’s going to benefit the environment, and it’s going to benefit my cost structure as well.”
Because of this, research and development related to packaging and material handling supply chain is a critical part of where leading F&B and CPG companies are investing today. But I’m not only talking about packaging at the consumer level either. Packaging for components needed in upstream manufacturing, as well as packaging associated with warehousing, transportation and distribution are also areas where it’s critical to balance the safety and durability of the product with the sustainability of its packaging.
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There are many ways that companies can begin to enact reverse logistics strategies and lower both their operating costs and their carbon footprint. As we find ourselves deeper and deeper in a global climate crisis, the time is right for companies to begin taking steps to reign in their impacts on the world we all share. If they do, the benefits they stand to reap are far more than simple short-term gains. After all, the stakes at this point in the game are no less than survival. And if we can do it better, shouldn’t we?