Definition: The Council of Logistics Management defined reverse supply chain as "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"[10]. Reverse supply chain also includes remanufacturing and refurbishing activities, processing returned merchandize due to damage, seasonal inventory, restock, salvage, recalls, excess inventory and recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery. Necessity of Reverse Supply Chain: Recent awareness or motivation for the industries to invest in reverse supply chain is basically due to two reasons. 1. Social Responsibility: Companies have started realizing that making profits is not the only thing they should be concerned of. They have also become aware of their moral responsibility to do everything within their reach to keep the environment healthy, and reverse supply chain is the key to it. In some cases companies are forced to set up reverse supply chain because of environmental regulations. E.g. From 2003, European Union brought a legislation that requires the tire manufacturers [3] operating in Europe to arrange for the recycling of one used tire for every new tire they sell. All the organizations have absorbed the fact that creating reputation and maintaining it in the market is one of the most challenging tasks. 2. Monetary Benefit: The foremost reason behind companies giving importance to reverse supply chain is that it reduces operating costs by reusing products or components. E.g. The Este Lauder Companies Inc. is one of the worlds leading manufacturers and marketers of quality skin care products. Previously, they used to dump nearly $60 million worth of its products into landfills every year. However, after setting up their reverse supply chain they have been able to reduce the volume of destroyed products by half, which is a significant saving. Companies have started realizing the importance of reusing or recycling products and thus reverse supply chain is becoming an integral part of the companies strategic planning. The increased emphasis on new high tech products and product "freshness" has caused a need to clear the distribution channel more often, requiring an efficient mean to bring back obsolete, outdated or clearance items to avoid stagnation. Big companies like Xerox replace or upgrade hundreds of office printing machines every month. With the use of high tech products increasing at such a rapid pace, in many cases nowadays there is not much difference between the prices offered for the same product by different competitors. The thing, which differentiates these competitors, is the after sales service they offer, which in turn leads to consumer satisfaction. Thus, even firms like GE Aircraft Engines have started investing more in servicing its aircraft engines. Firms like Nike encourage their consumers to return the old shoes to their

stores. These are then shredded and used to build athletic tracks and basketball courts. So, the combined effect of environmental concerns and optimization of resource consumptions has created a necessity of increasing research activities in the field of reverse supply chain. Apart from these there are a number of forces that seem to be influencing this increase in need for reverse supply chain[4] activities. These include: Increased number of customer goods returned for credit as a result of increased demand for customer service and satisfaction. Large retail chains usually have an agreement with suppliers allowing them to return goods. While originally intended to cover failed products, it has expanded to cover perfect goods that simply have not sold. From the consumer perspective, the buyer may return a good simply because they have decided not to keep it. Shortened product life cycles. As products become obsolete more quickly the possibility of and potential for returns increases. The drive to reduce costs. Firms are striving to reuse potentially good items through reuse, recycling or secondary usage. For example, Ford Motor Company has a program for recycling plastic bumpers into tail light housings. Increase in e-commerce sales. The massive increase of sales made via the Internet is conducive to increased returns as consumers buy merchandise "sight unseen" only to be disillusioned or dissatisfied with their purchase. Increased demand for repairs, re-manufacturing, upgrades, or re-calibration. Potentially valuable products that are no longer viewed as such by the current user. Consumers may purchase a new TV or washer/dryer even though the one they own still has a useful life. Warranty returns. For many items with warranties, the good is first returned and then its disposition determined. Rental returns. The proliferation of rental businesses ensures the return of used but still valuable furniture and appliances. Product recalls. Products may be recalled by the manufacturer due to potential failure in the field or safety concerns.

Forward Vs Reverse Supply Chain: Reverse supply chains differ from forward supply chains in information flow, physical distribution flow and cash flow. To manage reverse supply chain, companies need sophisticated information systems

Supplier re (fabric &trims)

G arment Manufacture r Refurni shing sites Warehou se Collect ion sites Distribut or Distribution channel Transpo rt

Outlet /showroom

Retailer

CUSTOMER

Fig : Supply Chain

Represents forward supply chain Represents reverse supply chain

.Some of the technology involved in reverse supply chain is similar while in some areas the technology used differs from that of traditional supply chain. Depending on the volumes and complexity of the returned goods flow, there is some information capture specialization and processing efficiencies in returned goods processing that requires some unique systems, not to mention the legal issues and regulations associated with them. Unlike European countries, in USA, product take back by the firms at their end of life is not mandatory. Therefore, the major source of reverse flow till recent times was due to consumers returning the product either after their use or due to product dissatisfaction, defects. Nowadays, due to environmental concerns, even firms are responsibly taking back their end of life products. The way in which reverse supply chain activity is initiated in a firm also differs from the traditional supply chain. In the traditional supply chain, things are initiated based on forecast of future sales, and then implemented based on planning and decision response to actions by consumers or downstream channel members. Repair optimization; slow moving inventory optimization; and remanufacturing, are the areas where reverse supply chain differs from forward supply chain. As Fleischmann et all point out that reverse supply chain is not necessarily a symmetric picture of forward supply chain. An overview of the

differences is given below, these could also be viewed as the barriers or issues in implementing an optimum reverse supply chain[5]. 1. Many to One transportation: In traditional supply chain the flow of finished product generally starts from one destination, the manufacturer, and ends at various sites where it is supposed to be delivered to the end user. On the other hand, in reverse supply chain the flow of product starts from various sites as origins and ends up in one location, a Distribution Center or a Re-manufacturer Warehouse. E.g. in Exide Batteries, the recycling of lead acid batteries, involves such milk runs from various destination or consumers to a central warehouse. Thus, this is one of the most important properties distinguishing the two types of supply chain, the difference of origin and destination sites. Forward chain generally has a One to Many flow, whereas, reverse chain has a Many to One flow. Also, as the quantity of returned products varies, a full truckload could never be guaranteed. This leads to higher transportation costs. Considering the fact that transportation costs carry a big percentage of overall costs, this issue becomes an important one. 2. Forecasting Difficulty: As discussed in traditional supply chain, the forecasts are done based on the consumer future demand by studying the demand in past. For reverse supply chain forecasts are needed not only for customer demand, but also for the availability of product to be remanufactured. Future planning becomes difficult as individual customer initiates reverse chain, and in case of recycling forecasting the quantity of product available for reuse at a particular time, becomes complicated. Large amount of sales due to sales promotions on holidays, generally leads to post-holiday wave of returned products. One more complication involved in this matter, is the decision making about the return rates for the various products. Thus, Marketing and the Logistics department have to be clairvoyant even more. 3. Product and packaging quality: During return of products in the reverse supply chain, there is no guarantee for the quality of product or its packaging. The packaging is generally damaged due to consumer negligence or damage during shipping. The damage to the packaging and the product also creates difficulty for identifying the product, unlike the new product in forward chain. Also, due to package damage and variability, palletization of products becomes complicated. 4. Destination / Routing complicated: In forward chain the finished product is generally sent to the warehouse or the distribution center and from there to one of the customers. In some cases the destination of that particular customer may not be specifically known, as the delivery would take place as per the demand. While in case of made to order or urgent shipments the name and the address of the consumer is printed on the shipment. On the other hand, in case of reverse supply chain it becomes really complicated and sometimes impossible to detect where the product traveled after its first delivery and what would its final destination be on return. This may be easier in case of automotives, as a huge database of each vehicles destination and origin is available (viz. Vehicle Identification Number: VIN)[13] but becomes

tedious for other products. 5. Varied pricing ranges: In normal cases, the manufacturer fixes the price for a particular product based upon the internal costs and the range of customers it expects to buy its product. This product is then sold to the retailer in bulk, with certain discounts. The retailer then again sells it to the vendor, and they to the consumers with different prices based upon the quantity, demand and profit they wish to make. Considering this fact, it is quite obvious that the pricing in case of reverse supply chain and returned products becomes highly complicated. Generally, the returned would be sold in bulk and each buyer or broker would bid a different price for it. Also, for these products buyer would first inspect it, and again the price would change depending upon the quality and life of the product. Thus, pricing for the end of life products becomes less of procedural matter and more of marketing and intuitive task. 6. Different priority for delivery: The key factors in capturing market in the traditional supply chain are the 3 As: Acceptability, Affordability and Availability of the product. Thus, timely delivery to the destination is of foremost importance. In todays highly evolving technology era, failing to deliver the product on time not only makes it obsolete, but, also results in loss of value and loss of the customer, and eventually the business. The product if not sold, also increases the inventory holding cost. In the reverse supply chain, delivery time is not a major priority as most of the times the return is not an order placed by any consumer. Also longer the product sits in some distribution center, the more potential for damage, and this will lead to depreciation at higher rate. This reduces the products value, for instance value of a seasonal product after the season reduces considerably. So compared to forward chain, neither do the firms invest much on faster means of transport nor for gathering real time data on the routes and costs of transportation for returned products in the reverse chain. 7. Management commitment: Unlike the forward chain, in most cases management has least commitment towards reverse chain. Most firms still believe that investing in optimizing the reverse supply chain is a waste of money and time. Without the awareness and support from higher-level decision makers, implementing a cost efficient and environmental friendly reverse supply chain is next to impossible. Based on above discussion, a comparison chart between the forward and reverse supply chain is shown in Table 1.1. Above observations also give us an idea of the cost concentration factors involved in reverse supply chain compared to forward chain. As the value of returned products reduces considerably due to damage and obsolescence the inventory handling cost reduces. Also the collection points increase the handling and sorting tasks. Based on this a comparison Table of Reverse Supply Chain Costs involved is shown in Table1.2.[5]

[10]

Forward supply chain Generally One to Many Transportation Forecasting relatively straightforward Product Quality Uniform Product Packaging uniform Routing destinations and sources clear Pricing relatively uniform and predictable Timely Delivery often first priority Transportation cost closely monitored due to availibility of complete data Inventory management consistent

Reverse supply chain Generally Many to One Transportation Forecasting complicated Product Quality Variable Product Packaging generally damaged Routing becomes complicated Pricing dependant on various factors and Unpredictable Delivery speed often not a priority Transportation costs not directly visible due to absence of complete data Inventory management not consistent

Price and cost negotiations between parties Straightforward Marketing methods well known Real time information generally available Complete management commitment Available

Negotiations complicated due to various Factors Marketing also becomes difficult Visibility of process less transparent Management commitment lacking

Table 1.1 Forward Vs Reverse Supply Chain [5] Cost in comparison with forward supply chain: Costs Transportation Inventory Holding Obsolescence Collection Sorting, Quality Handling Repackaging Change of Value Compared to forward chain Higher Lower May be Higher Much Higher - Less Standardized Much Greater Much Greater Significant, almost non-existent for Forward Significant, almost non-existent for forward Table 1.2 Reverse Supply Chain Costs [5]