ManufacturingOperations ConsultingStrategy ConsultingSeptember 16, 2022by fieconReverse logistics and its application to  the FMCG sector in Kenya

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Once a product has reached its last mile of distribution, most companies will not invest their resources in tracking the performance of that product. Concerns of incomplete orders, product mismatch or delayed delivery time have to be taken up by customers themselves to the company’s customer care department. Yet in the event that any of the aforementioned concerns arises, companies are presented with an opportunity to grow their bottom line through reverse logistics.

Reverse Logistics (RL) can be best described as the return of products from the end consumer back to the manufacturer. It has become an emerging trend in supply chain management that firms are leveraging on to gain a competitive edge for profitability and sustainability. The process starts at monitoring the life cycle of products after they have arrived at the end consumer, up until they decide to return the products. The returned products are collected from the customer through product acquisition after which the company inspects and sorts them in different categories for disposition. Disposition dives deeper into creating value from the delivered products through the 3R concepts of reuse, recycle and remanufacture. The end goal is to reverse the flow of materials from customers to suppliers in order to maximize their value or reduce their operating costs.

In the recent days, the concept has been gaining momentum as a result of competition, environmental concerns, social marketing and competition among firms. There are two types of reverse logistics; return logistics and recycling or waste logistics.

Return Logistics

It entails managing products returned to the manufacturer of wholesaler and is very common in the e-Commerce sector as it presents a differential value. It is critical in maintaining customer loyalty and the firms revenues. Across most industries, consumer returns are estimated to range between 3% to 50% of total shipments, accounting for 3-5% of an organization’s total revenue. In the case of e-Commerce, consumers prefer dealing with firms that have hassle free return policies, which impacts the sales of inventory. According to Forbes, 42% of online shoppers’ ship back their products to retailers and 48% of them will make new purchases. Return logistics also allows for processing and reselling the returned products with the aim of positively impacting the revenues as well as repairs and which help businesses carry less inventory and lower their return costs.

Waste Logistics

Recycling or waste logistics entails recovering, recycling or treating of waste with the goal of using or reusing it so as to minimize its impact on the environment. Companies are employing smart recycling to recover valuable materials which slashes their cost of managing the retuned products and to remain compliant with the set rules and laws.

The Case of Apple and Amazon

Apple manufactures and sells iPhones and other electronic products to its customers who get to enjoy the product up to a point in time when they wish to update it. Through its give back policy, these customers can trade in their iPhone and other accessories to an Apple Store for an upgrade at a discount. The collected products are gathered and returned to its factories where they are recycled systematically. Also customers who take their used batteries to Apple Stores enjoy a free service without being required to buy a new battery in the store.  Not only is apple saving on its production costs by recycling its old products into new models, but also minimizing environmental pollution through e-waste management.

Amazon has made a name for itself in reverse logistics through its standardized procedures and training programs that deliver quality services. Through its state of art automation and standardized procedures carried out by its highly trained warehouse workers, the company is able to cut down on its shipping and storage costs. The firm also leverages on repairing/refurbishing and repackaging its returned products for reselling to recollect profits through its Amazon warehouse deals reverse logistics policy.

Reverse Logistics in the FMCG Industry in Kenya

In the FMCG industry, food and beverage contribute the most to the industry. While these sectors are dominated by Multinational Corporations, their efforts towards reverse logistics are minimal. Also local firms in food and beverage production are yet to fully exploit its advantages. The industry can borrow a lot from the RL practices by Amazon and Apple, with the goal of reducing environmental pollution due to the food loss that occurs at every stage of the supply chain. 20% loss occurs at harvest stage, 40% at post-harvest stage and remaining 40% at retail and consumer stage. These losses impact the environment through pollution by manufacturers, suppliers and consumers in form contaminants, excessive use of disposable kitchenware, energy emissions among others.

According to World Bank, Kenya’s capital city Nairobi which hosts over 4.4 million people generates an estimated 2,400 tons of solid waste daily, 20% of which is in plastic form. Only 45% of the generated waste is recycled or reused which is below the 80% set target by the National Environmental Management Authority. Often the waste collection is a government function and waste recycling is taken up by small sized third party companies. Following these trends, the industry cannot ignore its responsibility to protect the environment. Coca-Cola Kenya has been working towards improving the recycling rate of its cans and bottles and promote circular economy.

Companies need to take up the RL initiatives after evaluating their supply chain within which the business operates; but should anticipate hurdles in compliance to policies and unevenness of quality and quantity in return loads. They will however benefit in terms of maximized profits, minimized costs and a competitive advantage as consumers become more environment-conscious. The government through its legislative arm should come up with laws that will enforce reverse logistics for FMCG companies and procedures to support and enable the processes.

Author: Inzillia Sasi

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