Elsevier

Journal of Cleaner Production

Volume 149, 15 April 2017, Pages 1144-1156
Journal of Cleaner Production

Product return management: Linking product returns, closed-loop supply chain activities and the effectiveness of the reverse supply chains

https://doi.org/10.1016/j.jclepro.2017.02.133Get rights and content

Abstract

The aim of this study is to examine the extent to which product returns motivate manufacturing firms to adopt closed-loop supply chain activities that influence the effectiveness of reverse supply chains. The hypotheses have been tested using data from a sample of 150 environmental management system ISO 14001 certified manufacturing firms in Malaysia through the census sampling approach. The results of the empirical test using LISREL Version 8.70 for the structural equation modeling support the fundamental explanation of the influence of the institutional forces towards the adoption of closed-loop supply chain activities and the effectiveness that can be reaped by the manufacturing firms from their adoption. These findings extend the prior research through the verification from the empirical survey on the importance of product returns in the adoption of closed-loop supply chain activities, which eventually impacts the firm’s effectiveness in the reverse supply chain. The findings also help managers to understand the factors that can improve the outcome of the adoption of closed-loop supply chain activities by intensifying the extent of involvement in product returns, which provides a valuable insight about a significant predictor of firm performance in reverse flow chains.

Introduction

The adoption of green practices in supply chains is no longer an option since it has a more important strategic role in the present business environment. This explains why, in recent years, companies are engaging themselves in the environmental responsibilities beyond their boundaries in order to reduce waste and for pollution prevention. Now, companies have started to recognize the extension of their green practices, such as the strategy for waste minimization and green technologies in the upper stream and lower stream of the chain supply (Sarkis, 2006). This includes the re-designing and re-structuring of their supply chains throughout the product’s lifecycle right from the initial stage of the product design until the end-of-use of the products.

One major reason for the adoption of green activities is the products’ short lifecycle. This product characteristic is evident especially in the electronics industry. For example, according to the United States Environmental Protection Agency (EPA), statistics have shown that there were about 500 million obsolete PCs discarded between the years 2000 and 2007. This is because the short lifecycle of products normally results in higher unsold products, returns, packaging materials and waste (Hoek, 1999). However, the proper treatment of recycling products is vital as they contain toxic substances that are dangerous to the environment. Simply disposing of products in landfills is not a proper solution to improve the sustainability of the environment (Hoek, 1999).

The transformation of the existing traditional supply chain allows the exploitation of virgin resources at an optimum level. This is because the waste can be transformed to resources that can be used again through the sustainable activities, such as reusing and recycling. Through this way, the level of waste can be kept at a lower level and the dependency on the virgin materials can be reduced at all times. This also contributes to the improvement of the gross domestic product (GDP) by increasing the efficiency in the energy usage and recyclable materials. As a matter of fact, this clearly indicates that the difference between the traditional cradle to the grave concept of supply chains and the contemporary cradle to cradle supply chains lies in the capabilities in generating eco-efficiency, which is the central strategy towards sustainable supply chains.

The closed-loop supply chain (CLSC) concept is seen as one of the strategies towards attaining a sustainable supply chain (Govindan et al., 2014, Ramezani et al., 2014), on which the product returns are transformed into resale products through a series of reverse supply chain processes (Fleischmann et al., 1997) and forward supply chain flow of activities (Talbot et al., 2007). This indeed can provide a good business prospect, a catalyst to the sustainability advancement and to achieve a higher competitive level than other competitors in the market (De Koster et al., 2002, Jack et al., 2010). Realizing the significant impact to the environment, a number of consumers and NGOs in developing countries in Asia are trying to encourage the adoption of the industrial ecology through the recovery of waste through recycling and reuse by means of the closed-loop system approach (Hsu et al., 2013). Hence, the effectiveness through the holistic production and waste management can best be achieved by means of developing the closed-loop production systems (Winkler, 2011) with the greatest objective being to attain sustainability in the manufacturing operations (Sahamie et al., 2013).

The extent of product returns dominates as an integral part to the overall effort of firms to reduce the amount of waste generated in the reverse flow chains. This is largely due to the increasing timing, quality, quantity and type of returns which inevitably push the manufacturers to take action and deal with it in an effective way. In relation to this, CLSCs play an important role so that the product returns can be managed and recovered effectively, of which the failure to encounter it would possibly diminish their value (Varnavas, 2011). Nevertheless, only a few firms have proper strategies to handle the returns and many tend to ignore them, especially firms with the conventional supply chain approach (Jayaraman and Luo, 2007), and fail to recognize the difference with the process in the forward flow chains (Shaharudin et al., 2015a). The basic understanding of the source and the outcome of the product returns in CLSCs, especially in developing countries, is still limited due to the lack of interest and inadequate number of studies; although, the CLSCs’ implementation is highly encouraged by the Malaysian government for the sake of achieving the developed nation status and the realization of the country’s sustainability objectives (Shaharudin et al., 2015b). On this part, very little evidence of studies on the impact of product return management on the adoption of CLSC activities can be found in the literature. Most of the studies have focused on the causes on why customers are sending back products (Mannella, 2003, Rogers and Tibben-Lembke, 2001). Hence, it is difficult to recognize the role of product returns and this study is expected to provide a better insight of the importance of product returns towards the adoption of CLSCs and the achievement of sustainability in the operations.

According to Huang and Nie (2012), the magnitude of the product return rate gets higher if a large investment has been made by companies in the acquisition of returns. Conversely, the extent of product returns is low if no investment initiative is rendered in collecting the returns (Huang and Nie, 2012). Besides volume, the quality of the returns also significantly influences the degree of the CLSC adoption by determining suitable recovery activities to enhance the value of the recovery (Tan & Kumar, 2003). Early and late returns also have an effect on the extent of the adoption of CLSC activities (Krikke et al., 2013). These effects are particularly important when making decisions, especially to the products with shorter lifecycles and which are becoming fast obsolete, such as in the case of PCs with the estimated value drop of 1% per week (Blackburn et al., 2004, Guide and Wassenhove, 2001), so that appropriate CLSC activities can be applied to recover the highest possible value to the returns. Hence, the knowledge of the varying uncertainty factor of the product returns including their effects to the supply chains are vital for the successful implementation of the CLSC (Zhou et al., 2016).

Based on these circumstances, it is, therefore, imperative for this study to examine the link among the extent of product returns, the adoption of CLSC activities and the effectiveness of reverse supply chains. This is because the significant latest progress on the product returns and its practices are still limited (Krikke et al., 2013); although, such information is vital in demonstrating the prospective value in business including case propositions of the return management to the industry (Guide and Wassenhove, 2006). Despite the importance of product returns, it is important to highlight that there is a dearth of literature discussing the effects of the extent of product returns in the reverse logistics studies. In Malaysia, the lack of published evidence about product returns is due to the preserved information specifically for manufacturer in-house intended usage only (Shaharudin et al., 2015b).

In the following sections, the study presents the literature review and theoretical foundation to develop the study’s theoretical framework and research hypotheses. In the subsequent section, the methodology and results as well as the discussion are presented. Lastly, the theoretical and managerial implications are provided ahead of the conclusion of the study. The suggestion for the future research is offered towards the end of the section.

Section snippets

The adoption of closed-loop supply chain activities

A closed-loop supply chain (CLSC) is a concept in the supply chain that combines forward and reverse activities in a unique system (Guide et al., 2003a, Guide et al., 2003b, Paksoy et al., 2011) that aims for economic, environmental, and social accomplishments (Giovanni, 2011). The expansion of the product flows in forward logistics into reverse flows is explicitly related to the firms’ sustainability efforts by increasing the environmental performance of the manufacturing operations to new

Natural resource-based view theory

The Natural Resource-based View (NRBV) theory has transpired and originated from the support of the past Resource-based View (RBV) theory (Hart, 1995). The NRBV encompasses the inclusion of environmental perspectives, which according to Hart (1995), was inadequately addressed in the RBV theory in determining the future resource and capability to contribute to the firm’s performance and competitive advantage. This is because the RBV theory has excluded the limitations that firms may encounter in

Research model and hypotheses development

The overall key constructs shown in Fig. 2 are used to guide the subsequent discussion on the proposed research model and hypotheses of the study. Based on the literature review, it is proposed that the extent of product returns could potentially influence the adoption of CLSC activities and subsequently contribute to the effectiveness of reverse supply chains by improving the performance of the manufacturing firms. Through the fundamental applications of the NRBV, it is argued that the

Research base setting: Malaysia

The selection of Malaysia as the base of the research setting was due to the country’s industrialization trend which is towards an industrialized economy that focuses on electrical and electronics and other heavy industries as the substitution to the previous traditionally agricultural-based economy (Rao, 2004). In the year 2011, the manufacturing sector was on the rise and accounted for about 27.5% of the GDP and contributed 67.7% of the total Malaysian exports (MIDA, 2012). As such, the

Respondents’ profile

As mentioned earlier, the initial sampling frame consisted of 600 ISO 14001 certified manufacturing firms in Malaysia. Since the piloted study used 14 companies and the in-depth interviews utilized 5 companies, the total number of companies left was 581 from the total population of 600 companies as identified from the MIDA, SIRIM and FMM directory lists. Thus, the questionnaires were sent to the 581 manufacturing firms across Malaysia. Through follow-up with two reminder letters as well as

Discussions

According to a literature review, the sustainability in production and waste management can be substantially accomplished through the adoption of the CLSC production systems. Some studies have examined the causes on why customers are sending back products (Mannella, 2003, Rogers and Tibben-Lembke, 2001) but have not focused on the potential impact of product returns on the adoption of CLSC activities and, consequently, the effectiveness of reverse supply chains. Thus, this study has

Limitations and future studies

Although the aim of this study has been successfully achieved, there are certain limitations that should be taken into account prior to generalizing its results. Firstly, this study used a survey sample limited to the EMS ISO 14001 certified manufacturing firms in Malaysia. However, the regulatory requirements and rigorousness vary among countries and as they have an effect on adopting CLSC activities, the future studies should test the research model of this study in different countries.

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