Logistics in the Global Scenario by Removing the Risks out of Reverse Logistics!

A global warning in reverse logistics was encountered when a 2nd counterfeit version of the best-selling cancer drug Avastin was found by the US Food & Drug Administration. This paved way for lessons to be learnt by the shippers of higher value goods like food and electronics items that they need to carefully manage the return process through their distribution channels while handling these goods.

As per the records of the US Congressional study the counterfeiting incidents are on the rise in the pharmaceutical sector as the ingredients used in these drugs come from various places across the globe which happens to be one of the challenges of the supply chain practices.

This is becoming a major issue as a result of which not only the shipper but also the manufacturer of the goods is affected. Their corporate image also takes a back seat through the bad mouthing and law suits faced in this ordeal. Even though a premium is charges by the shippers of the pharm and bio-medical products a recall puts a lot of things under the scanner right from the way in which the goods move backwards along with the action plan to handle such situations.

According to the estimates provided by Healthcare Distribution Management Association (HDMA) close to 4% of the products emanating from the pharmaceutical warehouses end up being returned. A portion of that is re-distributed, returned or destroyed by a 3rd party manufacturer or processor. It is also further estimated that about 2% will also be returned back as a part of credit facility extended as a part of trading agreement amongst the partners.

Today most of the manufacturers spend close to somewhere around 4% of cost of goods sold on non-value adding distribution aspects like reverse logistics & returns. With this huge volume going through the reverse chain the return mechanism shall be well facilitated by technology in the pharma-sector supply chain.

Hi-technology values
With the evolution and growth of the electronics industry more and more value is being added to develop new revenue streams support reverse logistics schemes like after sales support through creation of value added tools to facilitate and create more value to the customers. In a recent survey conducted by Eye for Transport into logistics and transportation a lot of businesses are showing keen interest to invest on hi-tech solution lead logistics provider companies to rely on insights and have better decision making in place. These technology companies view the after sales market and the reverse logistics support as a major cost saving activity after the product sale or supporting point creating a differentiating product aspect. This cost saving effort leads to about 45% savings typically. This is a key area most of the companies should pay attention to as missing this leads to loss of profits. So this mechanism is adopted as being able to leverage after sales and reverse logistics aspect as profits, add more value to the same or just an after sales support initiative.

Greater transparency was favoured by these hi-technology oriented companies when product returns were looked from cost and performance perspective. The collaboration of these technology based companies and the logistics service seeking companied typically had the following support interface requirements for bringing all these ones onto a same platform through their solutions like: partnering with retail customers, repair & call–centre support in addition to reverse logistics support providers. There was a wider scope to collaborate in real time to effectively maintain reverse logistics cost at an optimal value. It was also noted that shippers were in lesser collaborating agreement with the product manufacturing company in terms of supporting them all along more effectively. This created a disconnect between the 2 parties with regards to sharing more information and creating transparency.

Effective outsourcing
There are primarily 2 reasons why the shippers of the products sign contracts with a third party at the time of reverse logistics outsourcing, the first thing being that clearer terms and conditions are made available to both of them at the time of running the operations and billing requirements. The second reason for this partnership is to have a clear cut framework to severe operation support if something goes totally awry and out to control during the time of engagement. Also knowing when to quit if things go wrong is another impart aspect. In fact many firms that are into outsourcing do not pay attention to the finer nuances and do not have the risk mitigation plan in place in case something goes wrong. Also terminating such a contact with or with any valid reason does not stop a firm in loosing on millions of dollars in cost towards legal formalities to be handled. The shippers on their part have to think about how and what will happen to the inventory being handled by them, the cost invested on the equipment towards handling the goods, the operating expenses to be incurred by them, the cost of shutting or closing the operations and other things like what if this client of theirs were to go away from them before embarking on signing the agreement with the product creating company.

If this relationship were to end then care must be taken to review points that talks about severing the partnership and the clauses in place addressing it. These are some of the reasons why the outsourcing of reverse-logistics goes to a third party. The key aspect to be taken into account is to have points that address the interest of all parties involved in this contract and then proceed in achieving the goals set out originally. This way relationship get to a win-win state between parties defining success and profitability better on the longer run.