Running head: REVERSE LOGISTICS    1
Isreverse logistics a cost or a profit centeranddoes it boostthe bottom line?
Reverselogisticsrefers to all activities designed to reduce material flow back,facilitate re-use and recycling of the materials. “Reverselogistics encompasses the traditional logistics activities oftransportation and inventor,` management, but its focus shifts togetting product back from customers rather than moving product tocustomers.(Mollenkopf & Closs, 2005)” Traditionally, reverse logistic isthe movement of products from the consumption point through the chainof distribution to the manufacturer for the purpose of recapturingthe value and ensure proper disposal if not fit for human use(Farrow,2013). Returns results from several reasonsdepending on the pointofinitiation (consumers, retailers or wholesalers).Most firms haveresulted to reverse logistics toimprove products and services as wellas generating profits. Managers in some companies are evenrequestingproducts from customers as part of enhancing businesseffectiveness and as a strategic center for profit making.Interest inreverse logistic has accelerated in the modern age with mostcompanies engaging in reverse logistics as strategic centers ofprofit maximization.
Historically,reverse logistics have been impeded by tough liberal policies thataffected the management of returns. However, most firms have realizedthe need to create cost centers where returns are managed. Somecompanies have developed centralized return centers for managingreturns more efficiently and quickly(Mollenkopf, Frankel& Russo,2011). Indeed,Companies have started to shift from a view of as anecessary cost center to a strategic profit center.Under centralized cost center, all reverse logistics are taken to acentralized facility where appropriate decision is made on productsmanagement. These centralized cost centers help improve on reverseflow order thereby creating a positive impact on thebottom-line(Farrow, 2013).Centralized costs centers help in laborsaving, enhance consistency of returns management decisions, spaceutilization and lower transportation costs. Furthermore, centralizedcost centers improve on customer service(Mollenkopf,Frankel& Russo, 2011).
Accordingto a UK-based research firm, seventy percent of high technology firmsare using cost centers to manage reverse logistics (Farrow, 2013).Firms are embracing centralized cost centers as a way of optimizingreverse logistics operations. Reverse logistic is viewed as a cost insome firms while to others reverse logistic is a profit center. Forinstance, companies that do not have centralized costs centers orthird party logistics to manage returns find reverse logistic as acostly affair(Farrow, 2013). Some companies that are unable to managereturns apply tough liberal policies against reverse logistics.Studies indicate that most purchases are returned to themanufacturers leading to high costs and lose (Farrow, 2013).
However,effective management of these returns is significant in reducingcosts and improving the business bottom-line. In particular, reverselogistic facilitates a ‘green’ environment by enhancing therecycling and effective disposal of obsolete and hazardouswastes. Notonly related to goods physically moving back through the supply chainto the origin, but also servicing and generating profit from reverselogistics activities.Customers benefit from reverse logistic where default products arerepaired, improved and re-designed this promotes more market andcustomer loyalty. Historically, most business firms did not viewreverse logistic as a strategic capability, however, due to the needto keep consumer products flesh and reduce environmental degradationreverse logistic has piqued in most firms. Reverse logistic has thusbeen used as a strategic sign of corporate responsibility, enhancinga clean channel of distribution, recapturing value andassets(Mollenkopf,Frankel& Russo, 2011).
Furthermore,increased competition on customer service and demand forenvironmental safety has enhanced the development of reverse logisticmechanisms in addressing various aspects associated with productionand distribution of products.However, many firms view reverselogistics as a complicated system due to lack of expertise inmanaging the returns. Other firms have not embraced reverse logisticsfor poor understanding on the strategic values associated withreverse logistics(Farrow, 2013).Nonetheless, the increased need forenvironmental safety, effective customer service and need to create apositive corporate image will influence most firms undertake reverselogistics as part of improving the business bottom line(Mollenkopf,Frankel& Russo, 2011).
Mollenkopf,D., Frankel, R.& Russo, I.  (2011). Extending Customer ValueTheory:  Returns Management at the Marketing-OperationsInterface, Journalof Operations Management,29, 391-403
Mollenkopf,D & Closs, D.J (2005). The Hidden Value in .SupplyChain Management Review
FarrowSophie (2013). 70% of Hi-Tech Companies still Consider ReverseLogistics as a cost center. Retrieved fromhttp://www.eft.com/hi-techelectronics/70-hi-tech-companies-still-consider-reverse-logistics-cost-center