Find New Revenue through Reverse Supply Chains

Find New Revenue through Reverse Supply Chains

Product returns are more than a cost – they are an opportunity to grow the bottom line. Here's how business can build reverse supply chains.
NBS June 10, 2011

Think beyond "new" products.

Product returns have long been viewed as a nuisance rather than an opportunity. Managers, focused on the forward supply chain of new products, are often unaware of the losses resulting from reverse supply chains. Revenue opportunities exist for managers willing to elevate the priority and urgency of handling returns in their organization. Going a step further, developing front-end processes and technologies that could create an efficient – and profitable – reverse supply chain in which companies efficiently refurbish, reuse, or recycle products.

A $100 billion opportunity?

Too many companies design a reverse supply chain to minimize the cost of processing the return, and fail to focus on recovering the value of the return. Considering that product returns represent $100 billion annually in the United States alone, one can begin to understand why a growing body of industry innovation has focused on this issue.

How to Build a Reverse Supply Chains

Here are four strategies for taking action.

1. Make it a priority. Management must, by objectives and actions, establish high priority for the returns process and make it a supply chain responsibility. This way, returns become a key part of the supply chain management process.

2. Treat returns as perishable assets, not a waste stream. By recognizing the urgency of dealing with returns (and their loss of value over time), successful companies emphasize quickly extracting value from returns rather than disposing of the product.

3. Start the clock. Many firms do not track time metrics in their reverse supply chains. They are unaware of the losses in product value simply from time delays in the process. If returns are viewed as perishable assets, the percentage of asset value recovered is proportionate to the speed of recovery.

4. Decentralize through technology. Returned products are often evaluated in at a centralized location to cut costs, but this means longer delays. If product evaluation can be simplified and carried out at the point of customer return, the need for a centralized evaluation process is reduced. This decentralized model can become attractive even for a low time-value product.

Managers should give reverse supply chains as much attention as forward supply chains. Recognize that i) the significant value remaining in product returns and ii) the time sensitivity of returns is key to designing reverse supply chains. Poorly handled return streams and increasing returns volumes can quickly erode profits.
Blackburn, Joseph D., Guide Jr., V. Daniel R., Souza, Gilvan C. and Van Wassenhove, Luk N. (2004). Reverse supply chains for commercial returns. California Management Review, 46(2): 6-22.

Additional Resources

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