Reverse logistics gaining ground in Indian market4 min read . Updated: 04 Sep 2009, 12:31 AM IST
Reverse logistics gaining ground in Indian market
Reverse logistics gaining ground in Indian market
Mumbai: For Hitendra Chaturvedi, all it took to wade into the relatively virgin business of reverse logistics were four questions that he, as head of the $400 million (Rs1,956 crore) original equipment manufacturer (OEM) unit of Microsoft Corp.’s Indian unit, once asked his clients.
He asked them the percentage of products they sold that were returned by customers, what it cost to process a return and what percentage of the value of a returned product they managed to eventually recover.
“They had no answer, and these were the VPs (vice-presidents) of supply chains and country managers," Chaturvedi, 38, says. “The fourth question that scared them was, are you complying with the government’s e-waste regulations?"
Reverse logistics is the process of moving a product from the consumer—the typical final destination—to the manufacturer, the point of origin, for re use or disposal. The process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business.
Shortly after Microsoft asked him to return to the US, in 2000, Chaturvedi decided it was time to start his own business, called Reverse Logistics Co. (RLC), in an industry that is just beginning to be recognized as an integral part of the business supply chain.
Under normal circumstances when, say, in case a new laptop turns out to be defective, the consumer would return it to the retailer, who returns it to the distributor, who in turn gives it back to the manufacturer. This causes consumer dissatisfaction, cash lockdown for the retailer, and a rise in the distributor’s inventory. This is where a reverse logistics company steps in to reduce the time and cost involved in the backward chain.
Only a handful of specialists, such as New Delhi-based RT Outsourcing, Kolkata-based Aforeserve.com Ltd, and Yantra Solutions Pvt. Ltd, the India business of Massachusetts-based Yantra Corp., are active in the business. Wipro Technologies, India’s third largest software services provider, has its own reverse logistics division.
According to Chaturvedi, in India, aftermarket returns that form part of the reverse logistics industry are estimated at $10-15 billion.
Aftermarket is the secondary market that supplies accessories, spare parts, second-hand equipment, and other goods and services used in the repair and maintenance of returned products.
In contrast, the logistics industry contributes around 13% of India’s $1 trillion gross domestic product (GDP).
“Reverse logistics is a loss-making venture here. Everybody was (so) focused on forward logistics that nobody cared about reverse logistics," said Chaturvedi, who has in the past worked in the US with Newgistics, a reverse logistics company funded by Texas-based Austin Ventures in 2000.
Forward logistics includes all the procedures involved in moving the product from the manufacturer to the consumer.
Still, reverse logistics has the potential to become a key route to cost optimization as the Indian economy grows.
In October last year, Chaturvedi received seed funding from Sasha Mirchandani of Mumbai Angels for RLC. He declined to reveal the amount.
“Logistics is an exciting area to invest in India, it is an industry in transition," said Vishal Sharma, founder and managing director of Tuscan Ventures, a Mumbai-based venture capital firm that focuses on the logistics sector. “Reverse logistics is a sunrise sector within logistics, though as an industry it is still evolving. The business opportunity is large but the execution risk is high."
According to R. Sundararaman, head of operations for Wipro infotech professional service division, the logistics division of Wipro Technologies, reverse logistics serves as a major tool for cost optimizing. “Customer support is going to be the key area for all businesses. The service industry is going to record growth," said Sundararaman, explaining why reverse logistics is going to be an integral part of service delivery.
According to Rahul Gupta, director of RT Outsourcing, the sector is gaining importance as India’s usage of information technology and telecom products grows.
“In India in the past, the products and the volumes were less and cities were very few," he says.
Reverse outsourcing could also receive impetus from government efforts to reduce e-waste that’s piling up as companies and consumers replace products ranging from mobile phones to computers that are becoming obsolete more rapidly.
The Union ministry of environment and forests is on the verge of finalizing one of the most stringent e-waste disposal regimes in the world that will make manufacturers of products personally liable if they don’t have environmentally safe procedures for the disposal of e-waste in place, The Economic Times reported last month.
E-waste refers to discarded electronic and electrical products.
Sharma of Tuscan Ventures says that competition would force companies to have a product return policy.
“So for entrepreneurs who are focused on this, it’s going to be a huge opportunity," he said.
Future Group, which runs a number of retail chains across product categories including Big Bazaar, started reverse logistics in-house two years ago.
It was also the first retailer in India to start such a unit and is considering offering its expertise to other retailers. The group currently offers product return facilities in its fashion and furniture businesses.
Average spending on reverse logistics is about 10-15% for garment firms and about 20% for furniture companies, according to Anshuman Singh, managing director and chief executive officer of Future Logistic Solutions Ltd.
“It is a very tedious and specialized job and not every retailer can do it," Singh said. “As we already have our warehouses and other facilities, we plan to offer reverse logistics to other retailers as well."
Jharna Mazumdar contributed to this story.