Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain

V G Venkatesh*

The objective of this paper is to research on the current strategies and importance of Reverse Logistic (RL) operations and their impact. This review also establishes the role of the returns policy in the fashion supply chain. It also covers the different strategies adopted in the reverse supply chain across various supply chains and how it can be interconnected in the fashion supply chain. Retrogistics has always been considered as one of the least explored cost-oriented research areas. Beyond the handling of recycling and reuse, there is a tremendous scope for analysis of the returns in the RL process for identifying the causative factors. An analysis of causative factors may help in taking remedial measures for reduction in number of returns. Hence, several retail organizations have started giving importance in developing a best strategy and process for returns on the management program. Again, it is imperative for evolving strategy specific to the fashion industry/business to their specific needs and nature of operations. This review paper discusses different elements/strategies of operations involving RL in the fashion supply chain, different applications highlighting advantages and profit improvement/cost savings.

Introduction
Reverse Logistics (RL) has been defined as the movement of the product or materials in the opposite direction for the purpose of creating or recapturing value or for proper disposal (Rogers and Tibben-Lembke, 1999). Reverse logistics is basically the process of planning, implementing and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or creating value or for proper disposal (Daughtery et al., 2002). Going beyond the recycling and reuse, RL involves other processes including handling of the returned goods or merchandise, excess inventory, restock, product recalls, refurbishing, product disposals, etc. At the stage of supply chain designing, organizations should incorporate strategies for proper returns management. Such a proactive move can result in substantial savings in costs later. There is no one RL strategy that is applied/suited to all industries. Professionals call RL with other names such as reverse supply chain, after market supply chain, after market logistics or retrogistics. This is gaining momentum in the industry positioned as a competitive strategy for retailers. Many players consider the returns process an integral element in the product life cycle. Nevertheless, many supply chains do not have an element called returns management in their supply chain. Research potential is enormous in the area of reverse supply chain as a process. RL also goes beyond the stage of selling the product to the
* Associate Professor, Business and Technology, Pearl Academy of Fashion, 82 Sterling Road, Nungambakkam, Chennai, India. E-mail: venkatesh@chennai.pearlacademy.com 77

2010 IUP. All An Imperative Reverse Logistics:Rights Reserved.Area of Research for Fashion Supply Chain

customer. It also considers the stage of disposal of product or reselling of product by the customer. This review helps fashion professionals to understand the trends, inside processes and importance of returns management as an imperative element in their supply chain.

Reverse Logistics is Different from Forward One

The position of RL is given a low profile when compared to the forward one. Many organizations face tough situations and competition in terms of differentiating their returns management strategy with forward logistics. Figure 1 gives the complete skeleton of processes inside forward and reverse logistics extensively covered by the report given by Rogers and Tibben-lambke (2002). The characteristics of both the systems have been extensively reported. Some of the main characteristics of RL are: Many to One Consolidation: In forward, the goods are distributed from one Distribution Centre (DC) to various destinations but in reverse, it is going to be from different places to a single point; it can be a return hub/centre. Difference in Product Quality: In the reverse process, the products are of wide variety which cannot be negotiated for uniform quality, whereas in the forward supply chain, only a single product gets distributed. Routing or Distribution Pattern/Network is not Clear: In forward one, the definite distribution plan is highly established whereas in RL routing exercises are not done methodically. Transparency in Costs: Costs are not transparent in reverse as the processes are not standardized, whereas in forward, the cost structures can be clearly established and the product life cycle management becomes more complicated.

Process Review on Reverse Supply Chain

The RL process is completely different from forward logistics. Figure 1 gives the basic elements of both forward and reverse logistics. In forward logistics, products are being sent to the DCs and then to respective stores. In this, it is much easy to predict the projections and track shipments via various visibility tools such as advanced shipment notifications, etc.; but RL does not have transparency and it is predominantly reactive, i.e., the company plans the handling of the returned materials after it reaches the manufacturer or place of disposal. Research study conducted by Rogers and Tibben-Lembke (2002) reveals that the cost of RL accounts for only 4% of the total logistic costs. However, companies still consider it as a non-revenue generating process and this often results in few resources used in this phase of supply chain. The report says that 51.65% of apparel companies agree to take back returned products if they are defective or damaged in shipment. Approximately 48% take back merchandise because of wrong size purchase. Concurrently, there are concerns about sustainable development, environmental issues and legalities associated with the RL
78 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

Figure 1: Forward vs. Reverse Logistics

Forward Logistics Product Development Design and Development Forecasting and Trends Technology Innovation Prototyping Manufacturing and Distribution Manufacturing Process Systems for Manufacturing QA Process Authorization and Transportation Shipment and Distribution Customer Fulfillment Material Management Vendor Relations Planning and Production Control Purchasing Inventory Planning and Allocation Fabrication of Component Parts (WIP) Reverse Logistics Customer Service Cost analysis involved in Reverse Logistics Return Centre Management Distribution Centre Repair/Facility Management Technology in Returns Centre Customer Information Management Recycling Refurbishment/Repacking Returns Authorization Returns Management Parts Management Transportation Warehousing Warranty Management New Product Introduction

process. Much effort has gone into handling the product returns in the best cost effective manner together with lots of research leading into customer satisfaction. Table 1 refers to a general return rate in various segments.
Table 1: Selected Return Rates for Different Merchandise Category
Business Products Hard Goods Gifts Home Dcor High-Tech Products Casual Apparel Shoes Fitted Apparel High Fashion Apparel
Source: F Curtis Burry and Company

(in %)

< 1 to 5 5 to 9 5 to 10 5.5 to 20 10 to 20 10 to 30 20 to 30 25 to 40

Elements in Reverse Logistics in Fashion Supply Chain

To look for factors that contribute towards RL control, the role of elements in Figure 2 can be individually analyzed. The controlling factors for RL are discussed in detail.
Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain 79

Figure 2: Process Elements in Reverse Supply Chain

How to Process Returns?

Reasons for Returns Reverse Logistics

Drivers for Returns

Where to Return

Who is Returning?

Why Returns or Drivers for Returns?

Experts in RL substantiate the reasons for establishing the returns management program for an organization. The main driving forces are economic, legislation or corporate responsibility factors. Well-structured returns program can have the value added service to reduce the disposal costs and this also helps in evolving the new field of operation in retail field. In textile and apparel field, returns management has been analyzed as a sensitive topic, as the recycling of clothing already exists as part of the supply chain. Garments with typical errors such as label, pattern, manufacturing errors, etc. are considered to be the main cause for entry as returns. The process is being considered a step beyond recycling the packaging materials and creates value for the returned materials. Direct advantages gained by reverse management program are, gaining of input materials, cost reduction and value added recovery processes. It gives indirect benefits such as market protection, a green image to the supplier, customer loyalty, etc. Companies report that they take back products in an effort to maintain customer satisfaction, loyalty and goodwill.

Why Do We Receive? Or Reasons for Returns

In the fashion field, reasons for returns can be classified into three main categories: product/manufacturing returns, distribution returns and customer returns.
80 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

Manufacturing Returns Surplus raw materials in the plant, rejected products during manufacturing, production leftovers and other products with the same materials come under this category.
This is widely accepted as stocks in the manufacturing houses are handled according to a variety of terms and agreements with the fashion brands. In several apparel manufacturing hubs, it has been sold as secondary goods in the local markets with or without the knowledge of the concerned brands. Raw materials should be stored in such a way that they are finally consumed in the processes. Any excess storage should be avoided, otherwise they have to be shipped back, resulting in higher RL costs. The systems such as JIT help to reduce the returns in the case of excess raw materials. The areas which can be explored in this category of returns are: Raw material ordering and usage analysis; Rejection pattern and reasons, strategies to cut the rejections; Production leftovers, a commercial analysis across the plant for different buyers and also for different category of materials; Buyer returns which cannot be taken as periodic returns. This is the least explored area and is more complex; and Manufacturer returns to suppliers (OEMs to different Tier 1 suppliers).

Distribution Returns This is business to business commercial returns, product recalls, distribution errors, stock adjustments and change in market scenario. The research in this particular domain with respect to fashion goods is unexplored. The other area which needs attention is the relationship between the RL and the product life cycle. In the fast changing environment like the fashion field, it is highly challenging for the retailer to plan for the forward movement of goods. Unless the products move out of the DCs, it is considered as equivalent to returned merchandise and this could be a huge liability for the fashion brands. In some cases, the retailer may also end up having returned merchandise due to wrong distribution planning and addressing. Importance of Customer Return Centers in Reverse Supply Chain When the customer returns the product, the product is returned to Centralized Return Centers (CRCs) or return hubs created by the company or to third party logistic solution providers such as FedEx, UPS, etc. A portion of a DC is allocated to act as CRC. The retailer collects the materials from the consumers and passes it to the vendors (product suppliers) at regular intervals. In turn, the vendor has different mechanisms to handle returned merchandise. The challenge for the retailer is that they would be receiving it in very small lots with lots of variety resulting in the disorganized and unplanned shipments to their CRCs.
Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain 81

 A consumer within Business to Customer (B2C) or another company within Business to Business (B2B) transactions may return a product that is part of the distribution chain (Smith, 2005). In the current business climate, many operations believe that a RL system helped the specific industry to gain competitive advantage. The competition has moved beyond firm to firm rivalry to rivalry between supply chains (Sunhilde, 2008). So far, reverse chain is considered for cleaning up the old stock of merchandise, so that they will be able to handle new SKUs. Jayaraman and Luo (2006) articulated that firms should recognize the importance of having an effective RL strategy in order to reduce the risk of damaging customer relations and jeopardizing brand image and reputation. Many fashion brands such as Nordstrom, Eddie Bauer, Neiman Marcus, etc., have adopted returns management in their supply chains (Curt, 2003). B2C commercial returns, warranty returns, due to fitting errors, end of life returns and end of use returns are also possible in different areas. This is a highly challenging area in the fashion field.

Fashion Life Cycle with Reverse Logistics

From the purchase of a product to the return of a product, RL is a specialized process and involves all information to make the most out of the returned product. These concepts and their operational management are essential components in defining customer service through Customer Relationship Management (CRM) principles (Anton and Petouhoff, 2002). Not enough research attempts have been made on linking reverse supply chain with product life cycles concept, especially in the apparel field. Major phases identified in product life cycle are: development, introduction, growth, maturity, decline and ousting (cancellation phase). There has been little work on the relationship between RL and product life cycle which leads the product sales and returns to be unknown. It is imperative for any fashion brand to establish the base work on the reverse processes during the development stage itself and decisions made during this phase are long lasting. During the development phase, designing a product, so that customers can easily and intuitively figure out how to use it will help to reduce the number of non-defective items (Smith 2002; and Tibben-Lembke, 2002). In the introduction phase, the returns will be high as the product may not stabilize in the life cycle. During the introduction of the new style into the life cycle, customers may get confused or will not be able to get the absolute picture on certain characters such as product performance, etc. The visibility of returned products is more evident in this phase of product life cycle. The growth phase sees increase in customer expectations and variations in the products which ultimately results in the increase of returns handling. Smith (2002) and Tibben-Lembke (2002) report growth of product returns against increase in the customer base.
82 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

In the maturity phase, major attention goes to cost-reduction. It is needed to find out quicker methods of returns processing by using methods reported in this paper. The emphasis is on keeping the costs of RL low to increase the profit margin at the retailer. In this phase, if CRCs get the products that cannot be used any further (as most of the customers may have indication about declining interests), this can be given to charity. Hanna Anderson, a retail player in childrens clothing has a returns program called Hannadowns, in which customers are asked to return old clothes purchased from the same store, in return for 20% reduction on new merchandise purchased. The garments returned by the customers are recycled and given to orphanages (www.hannaanderson.com). In the declining phase, retailers are also less interested in selling the product which ultimately causes decrease in the sales. The decline in the product movement does not mean the end of the returns for a product and the returns strategy is dependent on the companys return policy together with the phase out plan of that particular style. For the end of the product life cycle, the cancellation phase also has considerable importance. The quantity of returns will continue to decline before complete stop on sales of the product. CRCs and customers need to be properly informed about the product life cycle movement along with the next product introduction.

How to Process the Returns?

The third important element in operations of returns management is how to organize the return process and how to dispose them. Figure 3 represents the total operation sequence of process returns. A three step approach on RL process: Step 1: Retrieval of Products: It happens by interaction with the customer. Here, the customer would have decided to return the product citing/identifying clear reasons for it. The organization will clearly instruct the place to return the products either through established counters or through the central product return handling centre. Value-added services such as calls to arrange pick up, validation of returns authorization through technology such as Radio Frequency Identification (RFID) and customized information interface options Electronic Data Interchange (EDI) can be included in the retrieval process. Step 2: Transport of Products: The products which will be collected at the established counters or central product return handling centre will be moved to the return processing centre (whether it is a consolidated or single consignment) followed by inspection by professionals of return management such as recycling specialists. The services of third party logistics have been taken for transportation. Step 3: Disposal Management or Recovery Process: Items can be disposed through different processes such as repair, refurbish, repackaging, remanufacture, reclamation of parts, incineration and recycling. There are dedicated outsourcing agencies available for
Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain 83

Figure 3: Returns Process

Interaction Management Resell Recycle Inspect Single Consignment Customer Transportation SORT Scrap Refurbish Re-alignment

Consolidation

Retrieve

Transport

Dispose

specialized activities. Potential buyers also identify product disposals. These can be secondary markets, buyers from whom orders are got, outlet malls, etc. Professionals observe two divisions in the recovery process. They are direct recovery and process recovery. Direct recovery involves re-use, re-sale and re-distribution. Process recovery includes cleaning, dis-assembling and assembling of the products. It also covers product repair, refurbishing, re-manufacturing, retrieval, recycling and incineration. Strategies that help for better planning in the returns management process are: An in-depth analysis on the returned garments and reasons for returns (quality of material, quality of product, conditions in which the garments were returned). Complete analysis on the return management costs and re-capturing value. Gauging customer behavior. Setting up separate division for RL to handle issues related to returns. In disposal management, the following information is needed for planning returns handling: Product information; Location (origin and warehousing); Legal and market-related information; and Process and utilization information.

Zero Return Policy

The development in the returns management process include introduction of the zero returns policy, in which retailers are credited for customer products; but the
84 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

products are never returned physically to the manufacturers. Zero returns policy has helped retailers reduce excessive costs associated with logistics and other processing costs. In a typical zero returns program, a supplier tells customers that no product will be accepted for return once ordered. Instead, the supplier gives the customer a discount on the invoiced amount. Depending on the supplier, the retailer either destroys the product, or disposes it in some manner.

Personnel Involved in Return Process

Major players involved in the return management process are forward players such as: Suppliers, manufacturers, retailers and wholesalers. Reverse chain players such as recycling specialists, job workers, specialized service providers including third party logistic providers. Government bodies such as Federal, EU or national Governments playing in regulation of reverse processes. Autonomous bodies and directives such as Waste Electrical and Electronic Equipment Directive (WEEE Directive).

Objects to Return (What to Return)

Product characteristics and product types hold a huge responsibility on RL processes. Professionals in RL process give the following elements in what to return: Product characteristics such as composition, deterioration, use pattern such as intensity, location, etc. Product types can be consumer, industrial goods, packaging materials, parts, accessories and other materials such as wastes on grinding, pulps, etc.

Concerns in RL Process
Manufacturers vs. Retailers
Retailers and manufacturers confront each other due to following reasons: Product is returned from the customer. It is not satisfying the quality or marketability requirement of the product. Time of return. Both the parties should develop a goodwill relationship with each other to manage the RL process, otherwise it would end as a cost increment process.

Symptoms in RL Process
The identified symptoms are: Returns arriving faster than processing or disposal. Unidentified or unauthorized returns.
Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain 85

 Large amount of returns inventory held at the warehouse. Lengthy processing cycle times. Unknown total cost of the return process. Customers have lost confidence in the repair activity.

Cost Savings Through RL Process

There are some hidden costs of surplus/holding returns which could be saved through the process of efficient RL processes. The companies that show well-defined RL procedure are aimed to save costs in following areas: Poor Space Utilization: If we dont have proper RL operation procedure, surplus/ return goods will take up extra spaces in shelves and in warehouses crowding out the materials resulting in unproductive works. Tracking Expenses: Monitoring the surplus/returned goods with technooriented streamlined process for which the costs/energy can be diverted to revenue-generated activities. Maintenance Expenses: Returned goods have maintenance costs and attempts should be made to reduce these costs. Insurance Costs: If RL process is not functioning effectively, the necessity arises for the management to go for insurance against return goods against further loss or destruction. Opportunity Costs: The returned goods not only have the cost of lost sales, but also may have costs in terms of goodwill loss. Labor Costs: It is evident that labor costs of the entire supply chain will go higher, if they do not have defined RL process in their operations. With the product movements, the major focus of research should be on how to reduce and control transportation cost. It is very important to consider the cost of coordination which is nothing but the cost of exchanging information and incorporating the information into a supply chain system.

Micro Case Study

Indian fashion retailers have primary knowledge and set-up for handling returns in their domain. A study with a retailer was identified to get more knowledge into the returns process. It has 14 retail stores and two regional warehouses with space of approximately 80,000 sq ft each. The organization is trying to implement the reverse supply chain principles effectively to handle returns. The two warehouses approximately handle 24 stores together. The space allocated to returns handling is approximately 10,000 sq ft They handle return goods under three categories: defective goods, return to vendor (first quality goods), store stock and end life of merchandise (the first quality merchandise that vendors
86 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

are not willing to take back). Both the warehouses are handling the returns process under the above three categories. Defective Goods Handling: All defective goods are handled by the stores and properly scanned and go in an un-assorted manner inside a box and a separate bar-code sticker is created. It then moves into the returns hub centre with complete details. The observation study made during two weeks shows that it takes 2-3 weeks for processing the returned goods at the returns centre. Return to Vendor (RTV): The second case is when the merchandise (that has to be returned to vendors) is also handled at two warehouses effectively. These are called as RTV or goods accommodated. The store prepares the carton, scans it and sends it to returns centre; but the returns warehouse people need not open the carton to inspect the merchandise. Store Stocks or End-life of Merchandise: The final category is being operated at the carton level. During packing at the store, products are being handled separately and logged into material accounting system as a separate carton. This enables the retailer to re-sell the materials to seconds quality store. Seconds seller may act as a structured buyer with the customized quantity. This can be another major area of research in the fashion field.

Opportunities for Reverse Logistics Industry in India

When firms view returns as just a cost centre or a regulatory compliance issue, they miss potential value that can be created for themselves and their customers (Mollenkopf et al., 2007). Being one of the pioneers in the apparel business, India is a huge potential for the logistics industry. At the same time, apparel supply chain in India as far as the RL process is concerned is at a nascent stage. Indian players have started giving importance to the returns process in the supply chain design with the primary objective to improve customer satisfaction. The principles and directives in apparel supply chains are slightly different when we operate it with the RL system when compared to other industries such as automobiles and electronics. Brand establishments in India are still in the initial stages and are yet to adopt international practices in their supply chains especially in reverse management. The identified areas of growth in India associated with RL are: Software for the reverse processes and integrating it to the forward supply chain. Logistic service providers for reverse supply chain. Growth of re-packaging industry. Standards for re-packing. Return market including seconds stores for international brands.
Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain 87

 Integrating the warehousing operations with the returns processes. Highly professionalized systems in handling returns including warranty management. Potential research areas in the fashion business are: OutsourcingWorking out the model for the reverse supply chain with individual/third party logistic providers. Establishing the standard reverse supply chain procedures for different supply chain networks. Research on the supply chain elements as compared to that of forward supply chains. Communication network analysis and technology research. Cost analysis on the supply chain network.

Conclusion
In the global environment, innovations in handling the returned goods are essential to increase the effectiveness of the supply chain which in turn increases the profit of the product cycle. All supply chain managers should start looking at the returns management process as a constituent element in their supply chain. Companies should start paying strong attention towards this management process by structuring the RL structure to deal with the challenges. Also, it is important to highlight that the success of the returns management process lies in the handling of customer and financial limitations. The concept of RL is evolving and not a single model or framework of RL can fit or suit all companies across industries. This is because the time, frequency of returns, supply chain systems and product types differ between organizations. Any organization, which wants to survive in the margin should establish good procedures for carrying out the returns management program, as returns reduce the profit levels for retailers.

References
1. Anton J and Petouhoff N L (2002), Customer Relationship Management: The Bottom Line to Optimizing Your ROI, Pearson Education, Upper Saddle River, NJ. 2. Curt Barry (2003), How to Develop a Reverse Logistics Strategy, Catalog Success Magazine, pp. 1-3. 3. Curtis F Barry and Company (2009), The Best of Inventory, White paper, Company Resources, available at www.ncof.com/NCOF2008/... The_Best_of_Inventory White paper.pdf 4. Daugherty P J, Myers M B and Richey R G (2002), Information Support for Reverse Logistics: The Influence of Relationship Commitment, Journal of Business Logistics, Vol. 23, No. 1, pp. 85-107.
88 The IUP Journal of Supply Chain Management, Vol. VII, Nos. 1 & 2, 2010

5. Jayaraman V and Luo Y (2006), Creating Competitive Advantages Through New Value Creation: A Reverse Logistics Perspective, Academy of Management Perspectives, Vol. 20, No. 1, pp. 56-73. 6. Mollenkopf Diane, Russo I and Frankel R (2007), The Returns Management Process in Supply Chain Strategy, International Journal of Physical Distribution and Logistics Management, Vol. 37, No. 7, pp. 568-592. 7. Rogers D S and Tibben-Limbke (1999), Going Backwards: Reverse Logistics Trends and Practices, RLEC Press, Pittsburgh, PA. 8. Rogers D S and Tibben-Lembke R S (2002), Differences Between Forward and Reverse Logistics in a Retail Environment, Supply Chain Management, Vol. 7, No. 5, pp. 271-282. 9. Smith A D (2002), Loyalty and E-Marketing Issues: Customer Retention on the Web, Quarterly Journal of E-Commerce, Vol. 3, No. 2, pp. 149-161. 10. Smith A D (2005), Reverse Logistics Programs: Gauging Their Effects on CRM and Online Behaviour, Journal of Information and Knowledge Management Systems, Vol. 35, No. 3, pp. 166-181. 11. Sunhilde Cuc (2008), Reverse Logistics in Supply Chain Management, Annals of Ordea University: Fascicle of Management and Technological Engineering, Vol. 7. 12. Tibben-Lembke R S (2002), Life After Death: Reverse Logistics and the Product Life Cycle, International Journal of Physical Distribution and Logistics Management, Vol. 32, No. 3, pp. 223-243. Reference # 34J-2010-03/06-06-01

Reverse Logistics: An Imperative Area of Research for Fashion Supply Chain

89

Copyright of IUP Journal of Supply Chain Management is the property of ICFAI University Press and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.