What is Reverse Logistics?

For OEMs, delivering a high-quality finished product to the customer after months or years of prototyping, refinement, pre-production runs, and production ramp-up, is the culmination of the hard work and ingenuity of their team and their external partners.

It signals the end of one very long and arduous set of processes, but also the beginning of the next stage in the product’s lifecycle – the stage where service (including repair) and support take center stage. Getting products into the hands of paying customers is one thing; providing smooth logistical flow for the off-chance a product comes back, for whatever reason, is another. Planning for this critical aftermarket process is called Reverse Logistics.

Reverse Logistics begins after products have reached the marketplace, the consumer purchases said product(s), and then has an unsatisfactory interaction with it, causing them to return it to the original equipment manufacturer (OEM). It begins with the backward flow of information, product & subsequent interactions from customer to OEM. In addition to satisfying the customer’s needs that were not initially met, it’s incredibly important for the manufacturer to recapture the value of their returned product. Strict procedures must be in place to handle things like returns management, warranty claims management, return merchandise authorization and remanufacturing/reconditioning/refurbishing activities.

In this article, we’ll explain the issues specific to reverse logistics, what value it adds to an OEM when executed well, and why OEMs often benefit from outsourcing reverse logistics.

More than Manufacturing in Reverse

There are many reasons why a product might return back to the OEM, including: malfunction, product performance not meeting the customer’s expectations or requirements, or the termination of a hardware leasing agreement. Of these three reasons, product returns due to malfunction in the field best illustrates why reverse logistics isn’t merely normal manufacturing logistics run backward.

Normally, when a customer wants to return a defective product, they contact the OEM (or distributor), explain the reason for the return, and obtain a return material authorization (RMA). By initiating the RMA, the OEM is given an initial “heads up” that the unit is returning. This advance notice can help the OEM prioritize repairs, schedule repair techs, and even order parts, so that work can begin on the product as soon as it arrives. There is one big caveat: the problem description on the RMA may not accurately reflect what (if anything) is wrong with the product, since that problem description comes from the customer and is often general and/or incomplete and can’t be relied on to guide advanced planning like replacement part procurement.

When the customer receives the RMA, arrangements for the shipping of the product are usually provided as well (e.g. shipping labels), enabling the customer to send the product back. In some instances, products already come with a return label and supporting documentation that include instructions and areas that need to be filled out by the consumer. This ensures that the return goes exactly where it’s supposed to, and is accompanied with the appropriate paperwork.

Once that product arrives at the OEM (or distributor), the manufacturer then has to test the product, determine the root cause of the failure, and then either repair, recycle or dispose of all or some of the product’s parts (even in a defective product, there are some parts that are still good and can be used for future repairs).

If the product is repaired, replacement parts sometimes need to be quoted and ordered before technicians will be able to perform the necessary rework. If, however, the OEM decides that the product will be scrapped or recycled, any hazardous materials will need to be segregated from the non-hazardous parts before the appropriate waste collection and disposal can take place.

Depending on the type of product and how the consumer was using it, additional procedures may be necessary before that product ever hits the OEMs receiving dock. For example, if the product was exposed to any sort of biohazard in a hospital or medical setting (e.g. infectious agents or bodily fluids), the product may need to be routed to a third-party decontamination facility first.

Although the goal is usually to return the reworked product back to the customer (or a new replacement unit), there are times when the customer prefers a refund instead, leaving the OEM with extra refurbished product that can then be sold at a discounted price, usually in an e-commerce setting. The Reverse Logistics workflow covers these cases as well.

(note: this high-level summary skips other details which are unique to reverse logistics, like repair quote generation, component-level troubleshooting and rework, and warranty claims management.)

Why OEMs Can Benefit from Outsourcing Reverse Logistics

The same rationale behind outsourcing manufacturing and logistics operations also applies to the outsourcing of Reverse Logistics. Dealing with product return issues and the support required with dedicated personnel, tools, and space, all add up to a significant cost burden to the OEM.

Many smaller OEMs may need to keep their attention and resources focused on product development & improvement, marketing, and sales. This can be especially true of smaller startups that don’t have the capacity, let alone the necessary skill set, to provide Reverse Logistics. The ability to hand off returns, repair, refurbishment, and warranty services to an outside partner keeps the innovators focused on innovating.

Maturity of the OEM is also a factor in the outsourcing of Reverse Logistics. Younger and smaller firms sometimes don’t have official, smooth-running quality management systems (QMS) to ensure quality rework and customer service. Established contract manufacturers, however, almost always do.

Reverse Logistics is its own unique workflow, with its own challenges and requirements. For many of today’s OEMs, outsourcing this process to a contract manufacturer is a smart, competitive decision.

With a deep bench of highly qualified assemblers, technicians, and logistics personnel, RiverStar can provide outstanding value for Reverse Logistics services to OEMs across countless industry segments.

Summary
What is Reverse Logistics?
Article Name
What is Reverse Logistics?
Description
There are many reasons why a product might return back to the OEM, including: malfunction, product performance not meeting the customer’s expectations or requirements,
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RiverStar Inc.
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