Closing the global supply chain loop: Waste Not, Want Not

The ongoing economic “volatility” is teaching manufacturers and retailers a great deal about squeezing the margins of inventory and creating a viable and sustainable alternative distribution network, says a prominent reverse logistics expert. According to Dr. Dale S. Rogers, Professor of Logistics & Supply Chain Management, and Co-Director of the Center for Supply Chain Management at Rutgers University, logistics managers are under more pressure than ever before.

“Rising transportation costs along with global clinical uncertainty and shifting demand patterns have increased the complexity of their missions,” he says.

One overarching trend Rogers pointed to was less reliance on China.

“With the wage structure rising there, and added expenses associated with the reverse cycle, we see a gradual move away the massive manufacturing sourcing of the past,” he adds. This will not happen suddenly, cautions Rogers, who maintains that the first temptation for U.S. shippers might be to simply send aftermarket goods into landfills. But with the growing global focus on sustainability, that tactic will not last long.

“Environmental pressures will be exacerbated by commercial forces as well,” he says. “With the shortage of precious, and rare earth metals, the need for reuse will be enormous. And you can’t return old electronic goods to China. Those days are coming to an end.”

At the same time, Rogers says, Brazil and other emerging nations are drafting laws to require manufacturers to recycle unsold goods. This will further complicate a supply chain based on point-of-sale imperatives.

“The lack of infrastructure in some of the more remote regions of Brazil, make it almost impossible to regain any margin on the reverse cycle,” he says. “It’s very expensive to just get your product to market in the first place.”

The traction that “near-shoring” is gaining will have an impact in the long-term, says Rogers, with more sourcing going to cross-border factories in Mexico.

“It’s not going to happen all at once,” he cautions, “but it will make local refurbishment less costly eventually. This is especially true of high-tech products that require a high yield rate in the secondary market.”

For Edgar Blanco, research director at the MIT Center for Transportation & Logistics, shippers should also keep their eyes on the Caribbean Basin for reverse logistics.

“The Panama Canal expansion is going to be a game-changer,” he says, “driving a great deal of logistical activity in the region. We are keeping a keen eye on Columbia, for example. Electronics manufacturers there are recycling batteries and cartridges on a massive scale. This is a very aggressive reverse process that neighboring countries are going to emulate.”

Blanco, who also serves as the Executive Director of the MIT SCALE Network in Latin America says that U.S. manufacturers may even move some repair and repackaging operations in the coming years.

“Miami is already feeling the impact of this, and other major U.S. cities in the Gulf may be next,” says Blanco. “At the same time, however, a secure network of suppliers has to be put in place. This means complete transparency between first-, second -, and third-tier partners. Without that, there’s too much risk. Food and pharma shippers will be the most vigilant in this regard.”