A reverse logistics decisions conceptual framework

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Abstract

This research work proposes a reverse logistics decisions conceptual framework that offers flexibility and covers a wide variety of situations that may arise in the practical working environment. The methodology adopted in this paper is inspired by and taken from the various research papers published in the literature. The proposed framework considers seven important elements of the reverse logistics system. It is divided into three hierarchical levels (strategic, tactical, and operational). By carrying out experimentation with the proposed conceptual model, all three levels were tested in different industrial sectors during its development. Three real-world case studies are presented to test and to show the flexibility and applicability of the framework. The proposed conceptual framework will help practitioners in the field to structure their reverse logistics activities and also help academics in developing better decision models.

Highlights

► The seven elements are: coordinating system, gatekeeping, collection, sorting, treatment, information system and disposal system. ► Each of these is reviewed in terms of generic process mapping, decisions, economics aspects, and performance measures. ► The participating companies operate in different sectors: electricity utility, electronics multinational and small manufacturer of domestic products.

Introduction

Reverse logistics (RL) is the process of planning, implementing, and controlling the efficient and cost effective flow of raw materials, in-process inventory, finished goods, and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal (Rogers & Tibben-Lembke, 2001). Moreover, it prevents pollution by reducing the environmental burden of End-of-Life (EOL) at its source (Toffel, 2003). The rise of green concerns makes reverse logistics a time demanding and relevant area of interest. Recycling, remanufacturing, and disposal are the three main factors in this arena for facing the challenges of globalization and sustainability. Available holistic literature and theory on developing a reverse logistics system is still very limited. In general, the related literature and resources found in this area usually lack in-depth insight with respect to the processes that construct such a system.

The directive of the European Union (EU) on Waste Electrical and Electronic Equipments (WEEE) works very effectively on electronic manufacturers for the collection and proper disposal of their End-of-Life (EOL) products. Although different countries have their own regulations for recycling and disposal of by-products and waste, European legislation is generally believed to be more advanced and as such, provides guidelines for other countries. For example, the Japanese government has been following a planned strategy since the early 1990s under the basic 3Rs directive–Reduce, Reuse, Recycle (Department of Trade, 2005).

In addition to green proactive concerns, there are many reasons which may push a company to implement reverse logistics (RL): they may be legal, economic, or commercial. Legal motivations are one of the most effective, but are not necessarily the most welcomed. In the case of the WEEE directive, governments enforce manufacturers to be responsible for the entire lifecycle of their products for the purpose of sustainability. Economic factors act as the second motivation for implementing RL. For example, the case of recycling used cars where the scrap yard takes back the car, removes all valuable components for resale, and sells the rest for its metal value. This process usually generates profits. The EU directive on End-of-Life (EOL) vehicles requires automakers by 2006, to reuse or recycle 85% of an EOL automobile’s weight and 95% by 2015 (Toffel, 2003). Every year, Black and Decker, a renowned consumer electronics company generates revenue of $1 million from their remanufactured products (Alvarez, Berrone, Husillos, & Lado, 2007). For this company, the organizational slack has a positive effect on reverse logistics to meet the demand of both internal and external pressures. The third motivation for implementing RL is for commercial reasons which actually means that the business contacts dictate the terms for returning products, as in the case of unsold or defective products, or those requiring service. Trust and commitment from both sides is essential in this case. But no matter what factors are considered for the successful implementation of reverse logistics, the choices made by top management and individual attitude (proactive or conservative) are the two most critical determinants in the decision-making process (Alvarez et al., 2007).

The importance of RL is difficult to evaluate because it is often embedded within other processes in a company’s logistics infrastructure. Stock (2001) estimates RL to be about 4% of the total logistics cost. To put this figure in perspective, the total transportation costs in the United States in 2004 reached $636 billion according to Wilson (2005), meaning that approximately $25 billion were spent on RL transportation costs. After adding obsolescence and revenue loss, this figure greatly increases. In the United Kingdom, about 40% of RL costs are attributable to inefficient processes as reported in Tulip (2004). In 2005, the cost of RL in North America was estimated at about $46 billion (Blumberg, 2005). Total transportation costs were up 14.1% and total inventory carrying costs increased by 17% (Wilson, 2006). With increasing fuel costs, logistics costs will continue to rise.

The absence of a complete RL decisions conceptual framework could explain these astonishing figures (Pimor, 2003) as RL literature is indeed very limited on the subject. Stock (1998) explains that a company that wishes to engage in RL must first map its business processes and put in place an activity-based costing system, but does not present a generic roadmap to successfully implement RL. Later, for controlling the returned products, a process map is generated (Stock, 2004). Carter and Ellram (1998) explain the different actors affecting reverse logistics, namely suppliers, governments, buyers and competitors. They also propose a hierarchy of reverse logistics ranging from resource reduction to disposal in landfill. By establishing appropriate strategies and programs, the problems related to the returned products can be eliminated significantly (Stock, Speh, & Shear, 2006). Reverse logistics represents one of the largest and most overlooked opportunities to facilitate return profits to a company. Currently, very few companies are doing a good job in addressing this issue. Most companies are overlooking their reverse logistics supply chain and are missing opportunities to improve customer satisfaction and loyalty (Vitasek, Manrodt, & Murphy, 2005). Chopra and Meindl (2007) propose a framework for designing a supply chain in four phases without any reference to reverse logistics. In light of the lack of the state-of-art literature on successful implementation or comprehensive undertaking of RL, this paper proposes a decisions conceptual framework that includes the generic business process, the decisions, the economic aspects, and the performance specific to RL activities. Through an extensive review of the literature, the paper identifies the most important and relevant elements to address RL activities in a comprehensive manner. In addition and based on a qualitative approach, the proposed decisions framework is divided into hierarchical levels: strategic, tactical, and operational. This segmentation is helpful in assigning different responsibilities to the proper levels of management.

The remainder of the paper is organized as follows: Section 2 begins with a literature review. Section 3 presents the methodology used to develop the framework. Section 4 elaborates and discusses the structure of this proposed framework. Section 5 presents an application of the framework to real-world industries where three case studies are addressed. Finally, conclusion and recommendations for future research are presented in Section 6.

Section snippets

Literature review

Fleischmann, Bloemhof-Ruwaard, Dekker, Van Nunen, and Van Wassenhove (1997) subdivide reverse logistics into three main areas; these are: distribution planning, inventory control, and production planning. They present a survey addressing the logistics of industrial reuse of products and materials from an Operational Research perspective. More recently, Meade, Sarkis, and Presley (2007) categorize the reverse logistics literature from 1998 to 2006 into four research categories: empirical,

Proposed methodology

The proposed methodology is based on the literature review, interviews and uses identified elements as summarized previously in Table 1. From the literature Giuntini and Andel, 1995b, Rogers and Tibben-Lembke, 1998, Stock, 2004, Schwartz, 2000 consider a four-step RL system: gatekeeping, collection, sorting and treatment. The disposal is not mentionned explicitly but it is required as it may happen at any of the 4 steps because of the nature of a product. In this era of information technology,

Reverse logistics conceptual framework

As indicated earlier, the proposed conceptual framework is made of the following seven elements: the coordinating system, the gatekeeping, the collection, the sorting, the treatment, the information system, and the disposal system. Each of these elements is reviewed in terms of process mapping, decisions to make, costs involved, and performance measures. Table 2 presents the performance measures of interest to RL, as derived from the literature. It is important to remember that the selection of

Application – industrial case studies

The main goal for developing a conceptual framework is to help managers organize their activities related to RL systems and for the growing concern over the environment. So, the exhaustive literature review presented earlier, which serves as a foundation for our qualitative methodology, is complemented by considering three different industrial cases to demonstrate and test the applicability of the proposed decisions framework in addressing real world situations. For this purpose, preliminary

Conclusion and recommendations for further research

There is no single reference model that all organizations can use to make their supply chains more efficient; each company must find a solution that best fits its specific situation. In this paper the proposed decisions conceptual framework includes generic process mapping, decisions, economic aspects, and performance measures with a distinction made with respect to the strategic, tactical, and operational levels. The application and demonstration of this decisions conceptual framework was

Acknowledgements

The authors acknowledge the constructive comments made on the manuscript by three anonymous referees. They also acknowledge the Natural Sciences and Engineering Research Council of Canada (NSERC) and Hydro-Quebec for their financial support, as well as the other participating companies for the opportunity to apply and validate this research work.

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