Reverse Logistics and Supply Circles: The Manufacturer's Competitive Advantage

Today, I am excited to introduce to you Max Moriarity as a guest writer for today's post.  Max provides an interesting  perspective on Reverse Logistics (RL).  All too often, I hear of RL as a pure service-related play.  However, Max shares good insight on how manufacturing companies can leverage the RL supply chain as a competitive advantage.  

This is a snapshot of manufacturing as a grand industry(-ish), but as I pointed out in the RL blog post earlier this month, some companies do redeploy returned assets into other programs.  And in some instances,  companies are able to harvest parts (a.k.a. parts reclamation) from returned product to be used to refurbish other products (i.e. refurbished phones from the earlier article).  This is a huge cost mitigation strategy and an area flourishing in the high-tech industries especially.  Before I get too excited, here's Max:

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McKinsey released a great story about two weeks ago exploring the idea of circular economies and supply circles.  After reviewing McKinsey’s extensive research and analyses, it led me to start thinking about how manufacturing companies can leverage advanced reverse logistics practices to their advantage.

As McKinsey noted, volatility in the commodity market and increases in global consumption have dramatically increased raw material prices reaching all time highs.  In fact, McKinsey states, “with supplies of many raw materials becoming harder to secure, commodity price volatility may not be a temporary phenomenon”[1].  This volatile environment has necessitated the need for manufacturing companies to think well outside of the proverbial box to lower the cost of inputs to create one output.  It is this need that has led to the concept of supply circles, where manufacturers not only create products but utilize reverse logistics to obtain materials from recycled or returned products.

Manufacturers who understand the value in a strong reverse logistics operation will benefit from creating a new source for procurement of valuable materials and components from recovered or recycled products.  Additionally, manufacturers will be able to further refine their product designs to fully take advantage of these recycled materials as well as improve how their products are produced.

Instead of just seeing reverse logistics as a way to deal with mistakes, companies who realize the importance strategic reverse logistics operations can gain a significant competitive advantage over their competitors.  The list of companies who failed to innovate and adapt includes many well-known companies like Circuit City, Blockbuster and Kodak.  In order to remain viable in today’s competitive economy, I will remind everyone that it was H.G. Wells who said, "adapt or perish, now as ever, is nature's inexorable imperative." 

Max is a consultant in the Supply Chain Operations Practice of Chainalytics.  Max has advised clients in designing and implementing supply chain transformations in the areas of reverse logistics strategy,  distribution network strategy, and large-scale transportation network optimization.  For more information, visit Max's LinkedIn profile here.

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[1] McKinsey & Company (n.d.).  From Supply Chains to Supply Circles.  In McKinsey & Company. [Website]. Retrieved August 16, 2012, from http://www.mckinsey.com/features/circular_economy