Reverse Logistics

2.1.1 Definition and Importance

Reverse logistics is a process in which a manufacturer systematically accepts previously shipped products or parts from the point of consumption for possible recycling, remanufacturing, or disposal. A reverse logistics system incorporates a supply chain that has been redesigned to manage the flow of products or parts destined for remanufacturing, recycling, or disposal and to use resource effectively. The general information about reverse logistics has been described by so many scholars since 1980s in Table 1. We most agree with Hillegersberg (2001) who has defined the reverse logistics is which the logistics of return flows, called reverse logistics, aims at executing product recovery efficiently.

Table 1: The Definition of Reverse Logistics

Author Definition (Description)

Lambert and Stock, 1981

Going the wrong way on a one-way street because the great majority of product shipments flow in one direction

Murphy and Poist, 1989

Movement of goods from a consumer towards a producer in a channel of distribution

Stock, 1998 The role of logistics in product returns, source reduction, recycling, materials substitution, reuse of materials waste disposal and

refurbishing, repair, and remanufacturing Kroom and Vrijens,

1995

Reverse logistics refers to the logistics management skills and activities involved in reducing, managing and disposing of hazardous or non-hazardous waste from packaging and products Carter and Ellram,

1998

The process whereby companies can become more environmentally efficient through recycling, reusing, and reducing the amount of materials used

Council of Logistics Management, 1999

The movement of material from the point of consumption toward the point of origin

Rogers and

Tibben-Lembke, 1999

The process of planning, implementing, and controlling the efficient, 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 or creating value or proper disposal

Dowlatshahi, 2000 A process in which a manufacturer systematically accepts previously shipped products or parts from the point for consumption for

possible recycling, remanufacturing or disposal

Hillegersberg, 2001 The logistics of return flows, called reverse logistics, aims at executing product recovery efficiently

Reverse logistics Executive Council

Reverse logistics is the process of moving goods from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products

When the businesses were going more competitive, the manufacturers are looking for ways to save money, and there is a lot of opportunity in the reverse logistics. These companies can get more than 50% value for goods being returned. The reverse supply chain is one of the last places where there is still a lot of easy money to be saved.

The reverse logistics is not only emphasized on internal cost reduction, but also by external forces. The literature indicates that a firm’s reverse logistics activities are directly affected by one or more of four environment forces: customers, suppliers, competitors and government agencies. (Achrol, Reve, and Stern, 1983) has developed a model of the environmental forces affecting reverse logistics activities as below Figure 2 (Carter, C. R. and Ellram, L. M., 1998).

The suppliers and buyers are the potential areas to influence the reverse logistics a lot.

Figure 2: A Model of the Environmental Forces

Due to the increasing of environment protection and concern, it has led to increased interest and focuses on reverse logistics and repair services. How the company manages the reverse supply chain will set the company apart from competitors and keep the company’s growth from becoming cancerous. There are so many authors emphasize the importance of the reverse logistics in Table 2.

Table 2: The Importance of the Reverse logistics

Author Importance Cohen, 1988 Remanufacturing is estimated to save between 40 and 60% of the

cost of manufacturing a completely new product Vandermerwe and

Oliff, 1991

Cite a public opinion poll from 1989 where 80% of US consumers said that protecting the environment was important enough to warrant increased costs

Steuteville et al, 1993 Many US states are focusing on the demand side of recycling and have expanded or created tax credits for remanufacturing firms Ellington, 1994 Cites a study by the G.H. Gapplop International Institute which

revealed that in 16 of 22 countries surveyed respondents reported a willingness to pay higher prices for environmental protection Thierry et al, 1995 Reverse logistics is widely used in the automobile industry. It provides automobile firms with far-reaching cost and strategic advantages in a highly competitive industry

Giuntini and Andel, 1995

The effective use of reverse logistics can help a firm to compete in its industry, especially when confronting intense competition and low profit margins

Melbin, 1995 Conceptually, reverse logistics can be an alternative use of

resources that can be both cost effective and ecologically friendly by extending a product’s normal life cycle beyond its traditional usage

Flapper and de Ron, 1996

Whereas take-back obligations may confront producers with excess quantities of returned products for which reuse options have to be found, remanufactures are reported to have difficulties to obtain sufficient used products of satisfactory quality to be overhauled Phelan, 1996 Conceptually, reverse logistics can promote alternate uses of

resources that can be cost effective and ecologically friendly by extending products’ normal life cycle

Thierry, 1997 A ‘green’ image has become an important marketing element Blumberg, 1999 Blumberg conducted an empirical analysis of the assessment of

current and emerging expenditures for reverse logistics and

concluded that reverse logistics (a $7.7 billion industry by the year 2000) will become a major business opportunity in the 21^st century Gentry, 1999 Overall, customer returns are estimated at 6% of sales and may be

as high as 15% for mass merchandisers and up to 35% for cataloguer ad e-commerce retailers

Stock, 2001 Reverse logistics costs in the USA are about $35 billion per year Langnau, 2001 Analysts predict that the average cost per product return will be

$30-$35 Stock and Shear,

2002

The total value of products returned by consumers in the U.S. is enormous estimated at $100 billion annually

Christos and George, 2007

The increasing interest in product reuse originates not only from the reinforcement of environmental awareness and legislation but also from the fact that the engagement in reuse activities has

been proven profitable in many cases.

2.1.2 Framework of Reverse logistics

Carter, C. R. and Ellram, L. M. (1998) pointed out a lack of theoretically grounded and holistic views of reverse logistics, with most writings descriptive. Therefore, Dowlatshahi, S.

(2000) developed strategic factors in reverse logistics systems. The operational factors scope of reverse logistics system is very widely. It consists of one external factor - the customer and six internal factors. Each factor is further subdivided into two components as below Figure 3 (Dowlatshahi, S. 2000) .

Figure 3: The Operational Factors of the Reverse logistics System

If we are more focus on each function of reverse logistics activities, Blumberg, D. F. has lists and defines each reverse logistics functions in Table 3 (Blumberg, D. F. 1999).

Table 3: The Definition of Reverse Logistics Functions

Functions Definition Storage & filed

distribution

Storage of parts and material and supply to the field

Product substitution Replace of one unit or stock keeping unit by another to tell and order Collection and return Collecting, labeling and pick-up of used material and return for

processing

Depot repair survey Check for good materials to be immediately recycled, separation of warranty versus non-warranty covered, and identified of no trouble found (NTF)

Refurbishing and return

Processing to bring material and units back to useable and up-to-date status

Disposal Disposal of “dead” and unusable material

Return for re-use Return to field use of repaired and refurbished material

Reuse of products and materials is not a new phenomenon. Metal scrap brokers, waste paper recycling, and deposit systems for soft drink bottles are all examples that have been around for a long time. Fleischmann, M. and Bloemhof-Ruwaard, J. M. (1997) have subdivided the reverse logistics into three main areas, namely distribution planning, inventory control, and production planning.

1. Reverse distribution framework

Reverse distribution is the collection and transportation of used products and packages.

Reverse distribution can take place through the original forward channel, through a separate reverse channel, or through combinations of the forward and the reverse channel.

Figure 4: Reverse Logistics Framework - Reverse Distribution

As we can see from the Figure 4 (Fleischmann, M. and Bloemhof-Ruwaard, J. M. 1997), reverse distribution is not necessarily a symmetric picture of forward distribution. Special characteristics of reverse distribution include a “many-to-few” network structure and considerable system uncertainty. Both supply of used products by the customers and end markets for recovered products typically involve many more unknown factors than their counterparts in forward distribution networks.

2. Inventory control framework

A second major framework in reverse logistics is inventory management. Appropriate control mechanisms are required to integrate the return flow of used products into the producer’s materials planning. The objective of inventory management is to control external component orders and the internal component recovery process to guarantee a required service level and to minimize fixed and variable costs.

Figure 5: Reverse Logistics Framework – Inventory Control

A major characteristic of the inventory control methods is the growing uncertainty within the system which partly counterbalances the material savings. The producer typically has little control on the return flow in terms of quantity, quality and timing. This is a consequence of the take-back obligations imposed by current environmental legislation, reflecting enhanced producer responsibility. The effects of the return flow in this situation are twofold. On the one hand it may be cheaper to overhaul an old product than to produce a new one. On the other hand reliable planning becomes more difficult due to increased uncertainty which may lead to higher safety stock levels. To avoid excess inventory of used products disposal may be an additional option (Possibly adding to the costs). The objective is to optimize the trade-off between holding costs and shortage costs.

3. Production Planning

Assumedly, the production planning method in reverse logistics is different from traditional production planning because of a large extent on the specific form of reuse considered. The direct reuse where returned products can be reused ‘as is’ no additional production process has to be taken into account, it more focus on inventory and distribution aspects rather than on production planning. Material recycling surely does involve new production processes.

Returned parts and products have to be transformed into raw material by means of melting, grinding etc. However, the difficulty lines in the technical conversion to usable raw materials rather than in managerial planning and control of these activities. From a production management point of view these activities are no different from other production processes.

Figure 6: Reverse Logistics Framework – Production Planning

Extended approaches are required for the scheduling of production activities related with product and material reuse. Two aspects add complexity to this task, namely an additional disassembly level and high uncertainty with respect to timing, quantity, and quality of the return flow. However, the overall impression of production planning in a reuse context is that it’s not yet been well investigated and the comprehensive framework has not been established.

2.1.3 Remanufacture

In previous section, reverse logistics has defined as a supply chain that is redesigned to efficiently manage the flow of products or parts destined for remanufacturing, recycling, or disposal. The process of resource regeneration through the recycling of used product whose usable life has expired. The process normally implies removal by the customer of a modular component or assembly from a parent product and return to a specialized facility for teardown, salvage and / or reprocessing / replacement of component material, and reassembly and testing for resale or return to the customer.

In some consumer product applications, it may involve the reprocessing of the entire product, rather than just modular components. Product disposal may no longer be the consumer’s responsibility as products need to be recycled or remanufactured by the original manufacturer. From manufacturer’s point of view, to provide the protection warranty is required the comprehensive process of testing and remanufacturing of the units or parts. As the use of remanufacturing grows in the near future the effective management of production will be needed. Figure 7 (Daniel R. Guide, Srivastava, R and Spencer, M. S., 1996) is the flow of typical remanufacturing unit.

Figure 7: Flow of Typical Remanufacturing Units

As we can see, the remanufacturing firms contend with a number of complicating factors that make traditional methods of manufacturing planning and control difficult to use and require new techniques to be developed. The complicating factors include probabilistic routing files, probabilistic material replacement, and highly variable processing times needed to perform required repair operations.