Editorial from the November 2006 issue of Managing Automation

Examining Reverse Logistics(Put It in Reverse)

by Eric Marks, Contributing Editor

Dell's and Apple's recent battery recall challenges offer several insights into these corporate icons, both in terms of manufacturing and logistics and customer care and crisis management.

Will Dell, whose manufacturing and supply chain processes are its core competency, be able to handle this unprecedented product recall with grace and minimum negative customer impact? What about Apple? It is riding a surge of market momentum based on strong demand for its iPod and its overall product innovation model, yet it is also caught in the midst of the Great Battery Recall of 2006.

Dell is recalling 4.1 million notebook computer batteries made by Sony Corp. due to overheating and fire risks. This represents the largest recall in Dell's history, affecting 2.7 million notebook computers in the United States. And it isn't just a record for Dell; the recall is the largest in the history of the consumer electronics industry. For its part, Apple issued a recall for 1.8 million iBook and PowerBook laptop batteries, also made by Sony Corp.

The recalls expose an aspect of the supply chain that has gained prominence in recent years: reverse logistics. Reverse logistics is the product distribution process traced backward -- from the consumer to the manufacturer. It involves processing product returns because of damage, recalls, excess inventory, end of life, and other factors. Plus, it not only involves products but the packaging of those products as well.

The cost of reverse logistics equals about half of one percent of the U.S. gross domestic product. Think big here. In 2004 this amounted to roughly $58 billion. Reverse logistics is increasingly becoming part of a total product and customer experience model, especially in the consumer-electronics-driven economy we live in. Why shouldn't the return of an old PC or VCR be planned as part of the product end-of-life strategy, while offering up-sell and cross-sell opportunities?

Allowing a customer to easily dispose of their old electronics when upgrading to the next generation of technology may well secure that customer through another technology cycle. Reverse logistics processes also help purge the channel of old technology so customers can purchase the latest products. There are compelling reasons why reverse logistics has become critical for market growth and customer retention.

There are environmental considerations as well. Given the growing emphasis on green manufacturing and environmentally friendly products, reverse logistics can play a significant role in the salvage and recycling loop as well. Safe disposal and recycling or salvage of electronics waste has received a lot of attention as product cycles shorten and the number of old PCs, VCRs, and even remote controls in our basements and our landfills continues to grow.

Back to Dell. As it manages its way through the recall of fire-prone laptop batteries, it has one chance to get this right, given its recent poor performance with customer service. Its stock price is down, its earnings are off, and HP, despite its own headaches, is coming on strong. The question is, can Dell's vaunted supply chain handle the reverse logistics challenge it now faces in such a way that customers won't defect in droves? If not, Dell's recall will cost it far more than the estimated $300 million the company will spend. It could cost Dell its reputation.