Reverse logistics is imperative in the circular economy and improves sustainable development while increasing profits and client satisfaction. Keep reading to explore the relationship in detail.
Sustainability is one of the driving forces and a strategic component of business intent in the twenty-first century. Not only is it contributing to the profitability and growth of a business, but it is also essential for the survival of the business. But all the more important is the minimization of environmental impact and overall improvement of the economy and community.
With nearly 1.8 billion people set to join the worldwide consumer segment by 2025, consumer spending is set to increase as people spend bigger shares of their income in buying consumer goods. For example, China is set to gain more than 100 million working-age consumers by 2030 that will double their current consumer spending rates. These projections are enough to make the investors hopeful as the consumer sector is growing at an incredible speed.
However, one of the major conditions that can impede a company’s growth is its sustainability performance, measured by social, environmental, and economic impact. Churning out goods and selling them depends on reliable and affordable supplies of energy and natural resources along with permission from investors, regulators, and consumers to do business. This situation makes it difficult for businesses to take these enabling factors for granted.
Bloomberg, Capital IQ, and McKinsey analysis in 2016 finds that the net operating profit less adjusted tax (NOPLAT) value for the world’s 50 largest CPG companies ranges from 18% to 88%. Their combined market capitalization is USD 2.68 trillion. But this is not where it ends for market leaders with superiority, the global scientific consensus bolstered by the pledges of government and business leaders calls for dramatic improvements in sustainability performance.
Sustainability in the Supply Chain
Over the past few years, sustainability in the supply chain has gained considerable attention. It is primarily because of the community concerns about the environment and organizations’ adoption of ‘green’ strategies. Along with these, there are other concerns like:
- Organizations’ recognition of social responsibility
- A need for the companies to respond to the legislation aimed at curbing environmental impact
- Realities of the challenging market and economic completion
But Why Were Supply Chains Considered ’a Missing Link’ in Sustainability?
A high-functioning supply chain consists of an entire hierarchy of organizations, from energy providers to companies involved in manufacturing and distributing goods. These supply chains enable a consumer company to manage two types of sustainability-related risk.
Sustainability Impact of Providing Goods and Services to Consumers
A typical consumer company’s supply chain creates a more prominent social and environmental impact that exceeds its own operations. It accounts for nearly 80% of the greenhouse gas emissions and 90% of the impact created on air, land, water, along with biological and geological resources.
Sustainability Impact That Interferes With Consumer Companies’ Supply Chains
The overall environmental impact created by global consumer companies is interfering with the supply chains of several of them. In 2014, an Australian agricultural company GrainCorp reported a 64% drop in profits due to a drought that cut down its grain deliveries by 23%. Unilever has reported a 300 million Euro loss per year due to reducing agricultural productivity and water scarcity that results in increasing food costs.
Although such risks exist in supply chains, few companies are working tirelessly with their suppliers to manage such risks and improve their sustainable endeavors. In 2015, CDP- a nonprofit organization that encourages disclosure of environmental impact data, revealed that only 25% of the companies that reported greenhouse gas emissions are working with their suppliers to reduce them.
Several approaches can mitigate sustainability risks in supply chains, including:
- Identifying critical issues in the supply chain
- Aligning the company’s sustainability objectives to the global sustainability agenda and
- Ensuring suppliers manage their impacts
Reverse logistics is one practical approach that ensures the above processes and helps manage sustainability in supply chains.
Importance of Reverse Logistics and Its Vital Role in Managing Sustainability in Supply Chains
Our idea of reverse logistics is that it is an essential logistics function that deals with the backward flow of products from customers to suppliers. Product returns can occur due to various reasons and at different points in the supply chain, starting from manufacturing, distribution, and customer-related returns. It is a key component of Green Supply Chain Management (GSCM).
But how can reverse logistics positively influence GSCM?
Reverse logistics reduce the waste generated by handling and disposition of returned and used products. It employs multiple disposition options that involve critical decision-making about what can be done regarding used or returned products. Reverse logistics involves the following standard disposition options:
- Recycling and
Reverse logistics amps up sustainable development by creating tangible and intangible benefits that result in a competitive advantage for an organization and its supply chain. These are:
- Recapturing value from used or returned products
- Increasing the lifecycle of products
- Minimizing the purchase of raw materials
- Reducing necessary resources like workforce and time
- Cost reduction
- Increased profitability
- Improvement in customer satisfaction
- Improving future product design by incorporating customer feedback and understanding the reasons for product returns
Reverse logistics has been one of the most significant and most influential GSCM practices, and it has produced positive sustainability and performance-related outcomes for organizations and their supply chains. In addition to improving leading companies’ competitiveness and economic performances and minimizing their environmental impact, reverse logistics has potential links to social and operational areas.
One of the studies involving reverse logistics in some of the leading ISO 14001 companies in Southeast Asia found out that greening the inbound functions and production stages results in the greening of the outbound functions, leading to increased profitability. A comprehensive impact on environmental and economic performances was noted due to the recovery and recycling systems that are key areas of reverse logistics. Apart from the increased revenue from the sales of recovered and re-manufactured products, customer satisfaction also grew when they found that their preferred organizations act in a socially and environmentally responsible manner.
Hence, it is true that reverse logistics has a holistic impact on each dimension of triple-bottom-line sustainability performance and can be leveraged suitably to amp up sustainable development.