How useful is a reverse supply chain for the retailers

Saturday, May 9, 2009

How useful is a reverse supply chain for the retailers

A reverse supply chain is a creative process that has gained inroads in the world of retailing

A reverse supply chain can be defined as a process that commences from the point of consumption to the point of origin and follows the same trend as a regular supply chain.

The only difference probably is the opposite direction that a reverse supply chain travels.

The importance of a reverse supply chain has gained a foothold because of the increasing pressure a retailer faces to provide a liberal product return policies.

A reverse supply chain is certainly useful for the retailers.

If you look at the market, the apparel retail segment has the highest percentage of returns, around 35% in the United States, the rate of product returns for electronic goods stands at around 5%. There are other retail segments where rate of product return is usually around 10-15 %.

The retailers would face an uphill task to make profits if there is no reverse supply chain. The rate of product returns would eat up their profits.

In order to make the retail environment conducive for the retailers, a reverse supply chain was created out of compulsion.

In the hindsight, a reverse supply chain reduces operational costs of the products. The process of reusing goods and components, utilizing wastes, and getting the best use of defective products helps the manufacturers to develop an efficient use of products and thereby satisfy the retailers in the process.

How does a reverse supply chain work?

A reverse supply chain is usually divided into 4 stages. The first stage is called gate keeping, where returned merchandise is evaluated and decided whether to allow the returned goods into the reverse supply chain or not.

Collection is a process of arranging products and putting through the reverse supply chain.

Then the returned product goes through the process of sortation, a way of identifying as what should be done with the product.

Disposition is the final stage of the cycle to deliver the sorted merchandise to the desired destination.

A more professional use of the reverse supply chain could work both ways, firstly it helps a retailer to protect profit margins, and secondly, it also enhances a manufacturer and a retailer’s image in the eyes of the customers, as customers are more satisfied with the manufacturer’s liberal return policies.

Though, the returned goods, may not find the first hand shelves of a retailer, yet the loss could be prevented as the returned merchandise lands itself on a discount shelf, or a factory’s seconds outlet after it completes the reverse supply chain.

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