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May 9, 2002

Shift Into Reverse

Implementing a reverse supply chain can increase profits and reduce the bullwhip effect

By Ram Reddy

Continued from Page 1

For example, garment designers' reverse supply chain may move their clothes from retailers to outlet stores for disposal. A consumer electronics firm may retrieve its products, recondition them with new microprocessors, and put them back into distribution channels. The electronics example is a closed loop system — reconditioned products are put back into the traditional supply chain. In the garment example, companies dispose of the slow-moving products through other channels. Most companies will find themselves between these two extremes: One extreme where there's no recycling and the other where the entire product is recycled into the traditional supply chain. A general-purpose technology solution to address both these extremes is almost infeasible.

Enabling Technologies

The key enabling technology to support reverse supply chains is technology infrastructure that links applications to applications across multiple enterprises and has workflow features. New product extraction, recycling, and distribution companies for a reverse supply chain must be brought in quickly as needed. The participating companies may have little or no existing technology infrastructure. Given this reality, the enabling technology at the user end must support a wide variety of interfaces — including telephones, handheld devices, intelligent character recognition, and interactive voice response systems.

Consider a hypothetical reverse supply chain for personal computers and dumb terminals. Businesses and consumers undertake periodic upgrades, and the old systems — monitors, keyboards, system units, mice, and so on — must be collected. In the case of a corporate upgrade, hundreds of old computers may have to be replaced in a coordinated manner. The company retrieving the PCs will need technology to schedule and coordinate the retrieval according to a master plan. In the case of a household upgrade, a phone call to a small local outfit may suffice to coordinate the pick-up. The local outfit then breaks up the equipment and routes the material to the appropriate recycling group in the reverse supply chain. The corporate retrieval and disposal company needs a higher degree of IT infrastructure to collaborate with the companies and the reverse supply chain. In both instances, the downstream processors of the old equipment have different IT linkages with the retrieval companies — based on scale. This approach may be repeated as you traverse down the reverse supply chain. It depends entirely on understanding the reverse value-add processes as you recycle and recondition a particular product.

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The key point to keep in mind when selecting and implementing the IT infrastructure is that the supporting technologies for the reverse supply chain don't need the tight application integration required of an online transaction processing system. The focus is on ease of use and rapid deployment ability. Any technology that's complex and requires implementing a sophisticated infrastructure at all participant locations in the reverse supply chain has minimal chance of success. The convergence of portal technologies, application servers, integration brokers, and Web services gives a range of options for the enterprise to select from. The optimal mix of enabling technologies to extract value from your reverse supply chain will be primarily dictated by your product's attributes and your company's business strategy. Start there and the technology will follow.

Ram Reddy [ramreddy@tacticagroup.com] is the author of Supply Chains to Virtual Integration (McGraw-Hill, 2001). He is the president of Tactica Consulting Group (www.tacticagroup.com), a technology and business strategy consulting company.