Economic Crisis is Blessing in Disguise

by Dr.ir. Harold Krikke,
Professor of (Reverse) Logistics, Open University

Reverse Logistics Magazine, Edition 16

Many economists and financial specialists are fairly confident that the current recession will be over by 2010. That may or may not be true, but in fact it is of less concern than what will happen thereafter. One must look beyond the recession. What will happen next? No one knows exactly, but it is clear that we should be prepared for some more changes.

Unfortunately the credit crunch is only the first of major disruptions of our economic system. We are nearing the end of an era of almost unlimited available resources. Major oilfields are at the peak of their production, and vital materials, such as copper, are becoming scarce. Once the global economy regains momentum, oil prices will soar again. And so will commodity prices.

But also the distribution of wealth and resource allocation will be re-shuffled. Did you know that today the US consumes 25% of all resources (worldwide) whilst representing 6% of the world population? Moreover, climate change is progressing regardless of any economic development. Environmental pressures will lead to new treaties and government directives.

I know what you must thinking: is this a prediction of doom? No, not at all. There is hope.

Reverse logistics not only saves money, it actually creates value by supplying vital materials, components and products to the 'forward' chain. A well-known European copier firm now sources almost 50% of its parts and materials via its own Asset Recovery department, often in collaboration with first tier suppliers and specialized repair firms. Non-repairable returns are recycled into materials. As a result, their demand for virgin materials has dropped dramatically. Energy use equals 1/3 of new production, in turn leading to reduced CO2 emission. And last but not least, profit margins of remanufactured products are significantly higher than of new machines. These guys are no treehuggers!

The key to success lies in seeing the reverse channel as part of a bigger whole. It is not just a disposal channel, something that takes away a problem from the customer. It is an internal supplier. The company at hand also adapted its business model and gives incentives to customers and sales agents to properly and timely return products, parts and packaging. It also has installed quality management procedures specifically geared to remanufacturing. And the number of warranty claims is less or equal compared to new parts.

Crises happen suddenly after a long period of slow decline. To recover quickly from crisis, one has to be prepared. Those who are will benefit in the long run. Others will perish. Supply chains for sure will have to be more eco-efficient. It is time for the 3rd party suppliers, but also for OEMs and retail, to acknowledge the full potential of reverse logistics. For a long time 'reuse' has not been an issue but under pressure everything becomes fluid. Crises force us to rethink our strategy. It paves the way for new innovation.

So after all it may be a blessing in disguise, at least for reverse logistics.

Dr.ir. Harold Krikke, Professor of (Reverse) Logistics, Open University. Harold Krikke has been a member of the Department of Organization and Strategy at the Tilburg University since 2004. He first studied Industrial Engineering and Management at Twente University of Technology in Enschede. At the same university he completed his Ph.D. in 1998 in the field of reverse logistics. Since then, he has worked an assistant professor at Erasmus University Rotterdam and as a business consultant at Tebodin consultants. As of 2002 he is a project manager of CentER Applied Research and recently became Associate Professor at the faculty Economics and B.A. of Tilburg University.