Shift Into ReverseImplementing a reverse supply chain can increase profits and reduce the bullwhip effectBy Ram Reddy Resource scarcity and liposuctioned IT budgets can bring clarity and a sense of purpose to technology selection and implementation decisions. More significantly, the current economic environment is finally shifting the focus to business strategies and processes as opposed to looking for the next technology silver bullet. An area that was long ignored is back in vogue — the reverse supply chain. This area has potential to not only increase profits in times of stagnant or declining sales but also reduce the bullwhip effect. (For a definition of the bullwhip effect, read my June 13, 2001 column "Taming the Bullwhip Effect.") The IT department's ability to deliver enabling technologies is challenged because a general-purpose package application isn't available to serve this category. Understanding the unique attributes of your product, the value-added processes, and the supply chain is necessary to craft a suitable IT solution to support the reverse supply chain. Switching GearsThe traditional supply chain and its enabling technologies focus on sourcing, manufacturing, and distributing products to consumers, retailers, and distribution outlets. The reverse supply chain aims to recover used products from consumers for recycling and disposal. For example, consumers replace the toner cartridge found in most laser printers after its useful life of two to three months. They then have the option of buying a replacement cartridge from the original equipment manufacturer (OEM) or a recycled toner cartridge at a considerably lower price. Clearly, if the print cartridge OEM had a reverse supply chain, it could revert this revenue stream from the recycling companies by retrieving used products from the consumer, moving them to a recycling location, and then feeding them back into the distribution channels. Enabling technologies to support the retrieval and logistics activities are relatively easy to implement, but the business challenge is more difficult to address. Should the OEM let the cheaper recycled products cannibalize the more profitable new cartridge business? Connecting the traditional supply chain with a reverse supply chain forces an enterprise to rethink its business strategy. A good example to illustrate the link between business strategy and reverse supply chains is disposable cameras. These cameras in reality aren't as disposable as the name implies. After a consumer turns in the camera for developing, the camera is recycled with fresh film and put back in the distribution network. There's growing demand to increase the recycling content in everything from automobiles to personal computers. This demand is sure to fuel the need for reverse supply chains and enabling technologies. The economic benefits from having a reverse supply chain are clear: The enterprise continues to retain contact with existing customers while providing a valuable recycling service and making customers feel good about themselves. Reducing the Bullwhip EffectSimilarly, companies can use a reverse supply chain to get slow-moving products off the shelf, the showroom, distribution networks, and warehouses and into discount or recycling channels. In the traditional supply chain, companies assume that consumers will buy all products put in the distribution channel. If the products aren't moving, then sales strategies, such as markdowns and close-out sales, are employed to entice customers. These sales practices send false demand signals up the supply chain, creating increased production of the very items that are slow to move off the shelves. An oft-quoted example of this problem is the case of the green Volvos. Car dealerships found little demand for green Volvos, so to entice buyers, dealers gave additional incentives on that color. This practice moved the green cars off the lots faster than other colors, but it had the inadvertent effect of sending the wrong signal to the manufacturer who in turn made even more green Volvos. Having a reverse supply chain could minimize the effect of sales practices designed to sell slow-moving items. The reverse supply chain in this example would have isolated the traditional supply chain system from receiving false demand signals. The reverse supply chain could then move the products to other channels for profitable disposal. Enabling technologies will have to be developed to support the reverse supply chain, based on a company's specific product attributes and business strategy. This process makes the development of a general-purpose reverse supply chain product aimed at the core activities of product retrieval, logistics, storage, processing, and reentry into the traditional supply chain difficult.
|
 |
Most Popular This Week
IE Weekly Newsletter
Subscribe to the newsletter
| |
|