17-03-2012, 11:35 AM
IMPORTANCE OF REVERSE LOGISTICS IN SUPPLY CHAIN MANAGEMENT
1. INTRODUCTION
Reverse Logistics is the reverse method of doing logistics in supply chain. Today reverse logistics become very important issue for companies to capture the value of used products to manage returned products, to use return information came for customer satisfaction, to maintain green image and because it is imposed by legislation. The Indian logistics industry is expected to reach a market size of over US$ 125 billion by 2010.So it is significant value to keep attention towards RL.
A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.
Supply Chain Management (SCM) refers to the management of materials information distribution, to the final consumer. It also includes after-sales service and reverse flow as handling customer returns and recycling of packaging and discarded products. The supply chain management can be defined as:“ A set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time in order to minimize system wide costs while maintaining the desired service levels”. Supply chain management is a cross-function approach including managing the movement of raw materials in to an organization, certain aspects of the internal processing of materials in to finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. SCM have five basic components:
1. Plan- This is the strategic portion of SCM. We need a strategy for managing all the resources that go towards meeting customer demand for our product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, cost less and delivers high quality and value to customers.
2. Source – Choosing the suppliers that will deliver the goods and services which we need to create our product.
3. Make – This is the manufacturing step. Scheduling the activities necessary for production, testing, packaging, and preparation for delivery.
4. Deliver – This is the part that many insiders refer to as logistics. Coordinating the receipt of orders from customers, developing a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
5. Return – The problem part of supply chain generally referred as Reverse Logistics. Creating a network for receiving defective and excess products back from customers and supporting customers have problems with delivered products. Figure 1 representing the return flow clearly.
Typical supply chain management have two types of flow of materials, one from supplier to customer (forward logistics) and another is from customer to manufacturer (reverse logistics). Material purchase, manufacturing, distribution to customers follows after market customer services which includes customer services, depot repair, service logistics, replacement management, end-of-life manufacturing, recycling, refurbishment, etc.
2. SUPPLY CHAIN DECISIONS
We classify the decisions for supply chain management into two broad categories: strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.
There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.
2.1 Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. Although location decisions are primarily strategic, they also have implications on an operational level.
2.2 Production Decisions
The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.
2.3 Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.
2.4 Transportation Decisions
The mode choice aspect of these decisions is the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.