Logistics Cost Benefits Drake Nash

RLMT 305 Cost and Benefits Analysis in Reverse Logistics-- Fall 2015

Ayers

When it comes to a company that moves any sort of raw material, products or shipments in general, the subject of logistics is a very important one. Whether one is speaking of forward logistics or reverse logistics, there should be a fairly constant amount of cost/benefit analysis used and harnessed so as to maximize profit and logistical capacity. Indeed, there is almost always more than one way to do something form a logistical standpoint but the benefits of each method as well as the costs should always be assessed to make sure the proper method is used. Both cost and benefits need to be taken into full account because both matter a great deal.

Logistics Cost/Benefit

Some people might be confused by forward logistics as compared to reverse logistics. However, the subjects are actually fairly easy to absorb and interpret with the proper definition. Products and materials, even if slightly compromised, typically retain their value even if they are partially damaged or otherwise tainted. As such, any company that is wise needs to know this and properly deal with these products and materials in all the ways they can. Indeed, if a manufactured camera just needs a new flash, it would be a terrible waste to just throw away the entire camera. This report shall do a brief literature review and analysis of the costs and benefits of both forward and reverse logistics and why these terms and subjects are important to the firms that have these logistical factors in play. While reuse and recycling of compromised products and materials can sometimes be problematic and cost-prohibitive, these items are certainly not worth nothing and should be salvaged if at all possible.

Literature Review

Supply Chain Brain offers a fairly good example of what the difference between forward and reverse logistics happens to be. They use the example of a flexographic press. When that press was originally planned for, sent out and installed, that would be an example of forward logistics. However, if that flexographic press breaks down, it has to be replaced or repaired. If the whole unit is swapped out then that is where reverse logistics comes into play. Indeed, the faulty unit can probably be repaired. It is just a matter of what is wrong with the unit and how much it would cost to fix the unit. As such, the value of the unit is not zero and thus there is a cost/benefit analysis that can be conducted for when the unit is retrieved and hopefully refurbished to make it functional. It may not be cost-effective to do so, but an analysis of whether that is the case can be done for the potential benefit of the firm who is replacing the bad unit. The bad unit can be repaired and put back into service in some way or it can be sold as-is to another party that is willing and able to absorb the costs of fixing it. The buying party might want the broken unit at a discount. However, that is better than having a broken unit and nothing to show for it. Indeed, if the company only needs one and they have already put in a new one that works, they might as well get something for it. If they use multiple units, they can repair it (if it's cost/benefit-efficient to do so) and redeploy it when it is needed. It all comes down to the benefits that the firm needs and the costs involved with each option. There is obviously an opportunity cost to each option. This is why a cost/benefit point of analysis should be conducted for each situation and the best choice made based on the overall costs and benefits involved with each option (Supply Chain Brain, 2015).

The example above is a basic one. However, there is a wealth of literature out there regarding the different types of logistics and the associated costs and benefits that emanates from a more scholarly corner of the planet. One of the factors that has to be taken into account in many forward/reverse logistical situations would be uncertainty and the possibility of slowdowns or shutdowns of facilities due to things like adverse weather conditions, terrorist attacks, supply or raw material shortages, machine breakage and so forth. Precisely that is explored in a recent journal article that appeared in the International Journal of Computer Integrated Manufacturing. Within the text of that article, they note...

The use of information systems and computer modeling can be used to compute cost/benefit analysis, risk analysis and the best overall path forward in terms of logistics. Of course, the data that comes out of such projections and computations is only as good and complete as the data that goes in and even computers can be wrong sometimes (Hatefi, Jolai, Torabi&Tavakkoli-Moghaddam, 2015).
Even more complex are forward or reverse logistic situations that involve third parties like vendors, suppliers and so forth. Like the source just pointed to, this new source also points to the use of modeling and computing when it comes to logistics. Lee, Baker and Jayaraman (2012) assert that the factors that should be included are price, transportation mode and outsourcing cost. Lee et al.'s way of doing things is bounced against a more prolific simulation method that is known as Monte Carlo. They suggest that using a fuller model that takes into account very important variables like the use of third parties and so forth are vastly superior to models that do not specifically take those factors into account. The result of this more complex model is data that is more complete and that properly analyzes the situation in full from both a forward and reverse logistics standpoint. A firm's business structure and tolerance for variance are also very important factors. For example, a firm that is more able to take a cost hit will more likely do so if there is a large amount of benefit involved. However, a firm with less risk tolerance would probably eschew that option given the pickle the firm would be in if the gambit goes awry. Obviously, these facts and presumptions as they truly exist should be part of whatever model is used and a huge part of whatever decision is made and why it happens to be the one selected (Lee, Baker & Jayaraman, 2012).

Even the environmental sustainability movement is getting on board with the use of forward and reverse logistics. Of course, environmental sustainability is about the idea of using as much renewable and low-cost energy as possible so as to limit carbon and other pollution into the environment. Many of the analytical and other firms involved in that movement have made heavy use of cost/benefit analysis as well as the general topics of forward and reverse logistics. This is prescient given that a firm of any major size will be doing all of the above in some form or another, if not many forms. A huge upside for both the environment and businesses is that both the carbon footprint of a firm as well as the overall cost/benefit ratio can often be maximized at the same time when it comes to solutions to problems. Some of these models are so complex that they can lead to an entire path along a flow-chart that involves decisions being made at each juncture. The presumed or predicted outcome for each choice can be at least estimated with some precision for both forward-facing and backward-facing logistics (Choudhary, Sarkar, Settur & Tiwari, 2015).

Forward and reverse logistics is often micro-managed to every last detail including how and when things are stored. When storage is done in the proper way, it greatly streamlines the overall logistics process and thus saves time and money for the firm. As such, a cost/benefit analysis of such a process would reveal just how much of a boon it can be to a firm. Even a nominal benefit per day can add up over time and mitigate losses found due to unforeseen glitches or bad circumstances. One example of this in motion would be the use of lot-streaming policy and how it relates to recovery capacity investment. Strategies to optimize space management can be fairly simple or they can very multi-faceted and complex. The use of information systems yet again comes into play here because the computer, usually without error, can make the best decisions and things will go swimmingly so long as the people involved in the process are using the roadmap set by the model and the computer. As echoed by the example at the onset of this report, this overall strategy example considers "the problem where after usage the finished goods are collected at a constant rate and returned to the manufacturer…