Huge Reverse Logistics Savings Potential Exists in the Heart of Europe

by Sven Verstrepen and Kris Neyens, Flanders Institute for Logistics

Reverse Logistics Magazine, March/April 2007

All too often, Reverse Logistics (RL) is being overlooked by companies as a way to realize considerable savings by deploying relatively simple means. Especially in view of the fact that most outbound processes have already been squeezed and optimized, more logistics managers should look at the way they are handling reverse flows. This is one of the striking conclusions of a large-scale survey on reverse logistics conducted by the Flanders Institute for Logistics.

Flanders, the northern part of Belgium, lies at the geographical heart of Europe and is according to independent studies the most important logistic gateway to and from the European consumer markets. The region around the Port of Antwerp has the highest concentration of European Distribution Centers of the entire continent (almost four EDCs per every 100 square kilometres).

The Flanders Institute for Logistics interviewed as many as 55 companies, manufacturers and logistics service providers about their reverse logistics processes. The study revealed that about 75% of them are frequently dealing with reverse flows. And, an even larger number of companies report they have frequent reverse flows of packaging materials and returnable transport items (RTIs) such as pallets and boxes.

The most important RL processes have to do with: picking-up of products and transport (87% of all interviewed companies), claims handling (84%), administrative and financial processing (65%), sorting (58%), destruction (58%) re-distribution (49%), inspection and testing (45%) and re-packing (42%). Yet, only a few companies in the region had ever paid any attention to RL and many companies had never discussed the subject of RL with their customers This is remarkable as a wave of European and national laws and regulations has been building up, and a great deal of time and money are obviously being wasted in a flawed reverse logistics pipeline.

Mostly Manual

A surprisingly large portion of the reverse logistics activities are the result of transport damage or wrong deliveries. In a way, these are avoidable flows. By making the outbound logistics process more accurate, companies can avoid unnecessary transport and obtain considerable cost savings. By actively managing the reverse flow and setting up a structured process, companies can realize even greater savings. As a side-effect, return stocks and working capital will dwindle.

The hidden cost of reverse logistics flow is heavily underestimated. A rough calculation of the physical, operational and administrative workload, comes up to an average of 15% of the capacity of the total logistics apparatus in a company. Another remarkable conclusion is that about 44% of all reverse flows are still being processed manually. ICT departments have no interest in RL as it is not yet being considered a core logistics process. 41% of companies therefore have no or limited information and reporting capabilities about their reverse flow of products. Here too, a lot of improvement possibilities exist...

An interesting market for outsourcing RL is developing in Flanders. About 25% of the companies already outsources, and another 50% plan to look into the idea in the near future. The most obvious areas for outsourcing lie in picking-up and transport.

International process

More than half of the returned products are eventually written off or destroyed. By selling more such products or materials outside of the regular market channels, e.g. via internet auctions or alternative channels, one can make good money. The UK, the US and Germany already seem to have a well-developed aftermarket system, e.g. via eBay. This practice is clearly still missing in Flanders.

The Flanders Institute for Logistics is setting up a similar survey in other European countries, because it strongly suspects that Flanders does not perform worse than other regions or countries. The fact that more than two-thirds of the all interviewed companies are active on a European or global scale, reinforces this belief. RL is clearly an international process.

The researchers recommend the development of clear legislation and best practices in order to demonstrate the possibilities of RL. The market is asking adamantly for RL examples, tools and roadmaps. The Flanders Institute for Logistics is currently in the process of developing such tools in order to support logistics service providers in the region.

Reverse Logistics Magazine, March/April 2007