Why reverse logistics is an essential part of a circular economy
For a long time, reverse logistics has been seen only as logistics going in the “wrong direction”. But that should no longer be the case. Today return flows are becoming the norm rather than the exception. In the last 15 years, more than 260 Extended Producer Responsibility (EPR) policies, which drive return flows, have been adopted worldwide. In France, one out of every five tons of material flowing through the economy is waste (and therefore, return flow), and the importance of reverse logistics continues to grow as the transition towards a circular economy accelerates.
Reverse logistics is essential to close the circular economy loop
Reverse logistics is the process of moving goods from their point of consumption to a consolidation point for the purpose of capturing value or proper disposal. It encompasses the collection of goods, transportation to a central location, and sorting according to ultimate destination, e.g., remanufacturing, refurbishing, reusing or recycling. By closing the loop of product lifecycles, reverse logistics plays an important role to transitioning to a circular economy, an opinion shared by 87% of respondents in a recent survey conducted by UPS and GreenBiz.
Steelcase Eco’Services division assists businesses in the collection and redeployment of furniture
Companies typically do not rely on their existing forward logistics capabilities and infrastructure, rather they develop new ones. For example, they design products and packaging for reverse logistics. At Xerox, packaging is designed to facilitate customer and distributor returns by providing protective packaging for returns that requires no tape. Whenever required, they also establish dedicated reverse logistics networks and organisations to capture the value of end-of-life goods in a timely fashion. Steelcase has set up Eco’Services, an initiative that assists businesses in the collection and redeployment of furniture in France, Switzerland, Belgium, and Luxembourg. Paprec, a waste management company, uses barges instead of trucks to transport construction waste from Paris to a sorting centre outside of the city.
Needless to say, before setting up reverse flows, companies need to evaluate the whole system in which the business operates. This means looking at the wider business model, and often includes returning to the design phase, making sure products, can be reused, remanufactured, repair or recycled. There is no point getting a product back if its value cannot be recovered.
Getting around the cost issue
But reclaiming assets through reverse logistics can be challenging. Companies willing to undertake reverse logistics flows face many hurdles including policies regulating the transport of waste as well as the variability, in quality and quantity, of return flows.
However, the cost of reverse logistics is by far the biggest challenge because it undermines the business case for the circular economy. The cost of reverse flows is usually high, while comparably, the residual value of goods is usually low. Collection of goods is often expensive due to geographic dispersion. Transport cannot be fully efficient due to a lack of scale. Sorting is often expensive without local infrastructures. Yet the cost challenge, like most other hurdles, can be overcome.
Many circular economy initiatives are not viable economically because they rely on existing logistics capabilities and infrastructure. However, investments could greatly improve the circular economy’s business case. For example, France Boissons, Heineken’s distribution company in France, installed equipment at its customer sites that crushes and stores up to 20 kg of glass. This equipment reduces the space required for empty bottles by 80%, lowers transportation costs, and minimises health and safety risks for employees handling glass. La Poste in France deploys a service that enables individuals to return products through their mailbox. The postman picks up goods to be returned while delivering letters and parcels.
Collaborate for scale – because scale matters
Scale really matters in the reverse loop, improving the marginal cost for collection, transportation and sorting operations. To reach sufficient scale and build effective and efficient reverse logistics, companies need to consolidate their return flows by collaborating along the incumbent value chain, and adjacent or cascaded activities. Return flows are usually easier to consolidate across companies than forward flows because they are not subject to the same timing and confidentiality constraints.
Aggregating volumes can be essential, especially when it comes to high-volume, low-value products. Photo via VisualHunt.com
Some service providers are offering to aggregate return flows within industry sectors. In the textile industry, I:CO, a reverse logistics company, manages the reclamation of 700 tons of used apparels daily in 90 countries for large apparel brands such as H&M, Puma or Levi’s. CoremanNet, a subsidiary of Bosch Group, has set up a dedicated logistics network and associated information system to manage the return flows in the automotive remanufacturing industry.
Return flows can also be consolidated with forward ones. In the city of Nantes, Veolia collects retailers’ waste by utilising available capacity of trucks once they have made their deliveries.
Get users involved
Because users of end-of-life or end-of-use products trigger reverse flows, they need to be included in the reverse logistics. To get their products back, companies can incentivise their users to return them. Lush, a cosmetic company, exchange empty cosmetics pots from its customers against new products and once collected, empty pots are recycled into new ones. Caterpillar links used engine cores to a deposit and a discount system to maximize the capture of used components into their remanufacturing operations.
When reclamation of the product at its end-of-use is critical, companies can adopt a pay-per-use model whereby users no longer own the product, and are required to return it. Because recovery of used mobiles is challenging, some companies, such as Apple or the telecom company O2, lease phones to their customers to ensure their return.
Leverage new technologies to handle the reverse flow
New technologies can also help firms manage return flows that are less predictable and more variable than forward ones. For example, connected devices can track the location and condition of assets and resources. Businesses can know where their assets and materials are, even after they exit the supply chain, and quantify recovery value on a product-specific level. Komatsu, the manufacturer of construction and mining equipment, has fitted all standard equipment with sensors that send data to a central platform. The platform is able to compile and analyse data on equipment location and condition, allowing Komatsu to quantify the cost and benefits of various reverse logistics options, including reusing, remanufacturing or refurbishing. It also allows the company to better plan maintenance operations.
Finally, governments can play a critical role in supporting the implementation of efficient and effective return flows. In the Netherlands, the Council for the Environment and Infrastructure has recently published recommendations to make “Dutch logistics 2040: designed to last” and support the circular economy. The French government has recently announced that, as part of its France Logistics 2020 national strategy, it will conduct an assessment of the reverse logistics in the country. China’s central government is promoting the use of the Internet of Things and big data to improve the performance of reverse logistics.1A Fast Changing Landscape – Recent Logistics and Reverse Logistics Developments in China. Haozhe Chen. Iowa State University. March 1, 2016.
Companies willing to improve their reverse logistics processes can start by assessing them. To address this need, Deutsche Post DHL Group, Cranfield University and the Ellen MacArthur Foundation’s Circular Economy 100 have developed a useful reverse logistics maturity model.
Companies has spent a lot of time and money fine-tuning their logistics. Today they need to give just as much thought to their reverse logistics. In a circular economy where materials are kept in circulation at all time, reverse logistics could represent a golden opportunity the logistics sector cannot afford to miss.