The Concepts of Reverse Logistics Decisions

Reverse logistics (RL) has gained popularity over the recent years due to the advancement of technology and also due to the associated economic, social, and environmental benefits. RL is a process that consists of series of operations that begin at the consumer level with the collection of products and end at the manufacturing facilities with the reprocessing of these products. The following paper explored the various aspects of RL such as recycling, returns, remanufacturing, refurbishing, etc. The elements and components of decision-making framework in RL were closely examined. The paper found that adopting a sound RL model as one of the business strategies imparted the necessary integrity to a company by providing the opportunity to deal with the product-related issues in a more or less seamless manner.

Reverse Logistics (RL) has gained popularity in the last few decades owing to the potential of value recovery from the used products. Besides material recovery, waste management, part or product recovery, RL is known to promote “Green Business.” Agrawal, Singh, and Murtaza (2015) defined RL as “the sequence of activities required to collect the used product from the customers for the purpose of either reuse or repair or re-manufacture or recycle or dispose of it”. Despite the growing popularity of RL, many companies still focus only on the forward flow of supply chains and ignore the reverse flow of the supply chains. However, due to growing environmental concerns, legislation, corporate social responsibility, customer awareness, and sustainable competitiveness, incorporation of RL into the operations has become more crucial than ever. Furthermore, the advancement in technology and the growing use of e-commerce business models have generated a dire need for developing sophisticated RL systems. The customers are more aware of the options available to them and expect full value for money while purchasing products. Therefore, the companies face the daunting task of gaining competitive advantage in the market to make profits and survive the market dynamics.

Reverse logistics (RL) and the Related Aspects

Incorporating RL into the operations is not limited to product returns. Practice of RL focuses on all of the aspects of RL - “from collection of used products, their processing and finally to the outputs of processing, namely, recycled materials, spare parts, remanufactured products and waste material disposal”.

“Locating facilities close to the sources of used products, availability of resources for reprocessing, proximity to disposal sites or even customers are some of the strategies suggested by researchers in establishing RL systems. Integration of collection, inspection and consolidation of used products with forward logistics activities.” Realignment of the manufacturing process, information systems, and handling of returns for remanufacturing.

RL Processes Disassembly

• Coordination
• Supply chain
• Inventory
• Repair and after-sales services
• Planning and controlling remanufacturing
• Communicating “to help in quick and early disposition of returned products and also assisting in remanufacturing planning.”
• Scheduling arrivals; capacity planning and material planning for remanufacturing or refurbishing, etc.
• Handling heterogeneous parts (new, remanufactured and substitutable) for production; and handling variety of inventories (used parts, new parts, spare parts, finished goods and work-in-progress).

Conceptual Framework of Decisions in RL

Many companies build their own framework for making decisions. Lambert, Riopel, and Abdul-Kader (2011) proposed building frameworks on the seven important elements and further dividing the framework into three hierarchical levels (strategic, tactical, operational). The seven elements are: the coordinating system, the gatekeeping, the collection, the sorting, the treatment, the information system, and the disposal system. The coordinating system acts a connection between the lower level of RL and higher management while providing the opportunity for continuous improvement. The gatekeeping system consists of the processes where the consumer or customer declares the need to return the company, and at this point, the company can which products are allowed to enter the RL systems and which are not due to their non-functionality. The collection system consists of two stages- pick up and transportation. The sorting systems consists of preliminary sorting of the products, examination for deciding the treatment, and cross-verification with the return organization at the gate keeping. The treatment system consists of treatment activities such repair, reuse, recycle, refurbishing, remanufacturing, upgrade, and repackaging of the products. The information system is responsible for managing “information for every element with regard to stocks and production planning and must be able to provide information for product and customer satisfaction improvements”. It is necessary that this system is connected to the enterprise system for inventory management, items, or the production data.

Per Lambert et al. (2011), the disposal system being the exit of the RL system involves the following decisions: The decision to compensate a customer may occur at various points in the process and depends on company policy. The company may also decide to do nothing about the return. There is also the possibility that the same returned item needs to be shipped back to the customer. This last obligation requires that the information system and all the elements in the RL system track down individual products. If an exchanged product is sent back to the customer, it must be the same model or of equivalent quality, performance, and functionality. In the event that no such product exists, a monetary credit may be issued to the customer. The amount of the credit, however, may be litigious. The last sub-process is concerned with the shipping of the product.

It is very important to consider the economic aspects of every stage and develop a framework that will be cost-effective to the company, besides being effective from the customer satisfaction standpoint. Lambert et al. (2011) point out that there is no single reference model that can used by all the companies to make their supply chains and RL efficient and therefore, the companies will have to find the solutions that best fits the situation.

Components of Decision-making in RL

Cost is the most important component of making valid decision in RL. Hazen et al. (2012) suggest considering the cost ramifications of the decisions and the alternatives while developing and before implementing any decision-making framework. They further advise the business organizations to calculate the profits when making disposition decisions. Market conditions and customer behavior are two variables that are vulnerable to changing economies and other social dynamics, and therefore, should be thoroughly considered by the disposition decision-makers. Hazen et al. (2012) further mention the importance of considering an organization’s current supply chain capabilities before making RL decisions. The organization should consider transportation, warehousing capabilities, information and technology, and other supply chain resources while determining if logistical infrastructure exists to pursue RL activities. In absence of infrastructure, the cost of additional capacity upgrading should be measured against potential profits to examine practicality of the RL activity.

Reverse Logistics and Competitive Advantage of Effective RL Decisions

Reverse logistics (RL) can be used a supply chain measure that suggests “how companies can obtain competitive advantages by quantifying the efficiency and effectiveness of their actions”. Therefore, RL can help the company in gaining not just the market advantage but also new opportunities to build competitive advantages. According to Atkin and Harrison (2013), RL help the organizations to generate tangible and intangible values by accomplishing the following:

1. Extracting value from the used or return goods rather than wasting manpower, and time in procuring new raw materials.
2. Adding value by increasing product lifecycle.
3. Improving customer satisfaction and loyalty by giving attention to defective products and repairs.
4. Obtaining feedback from the customers to improvise the product or product designs.

Besides receiving the product back from the consumer, RL provides the manufacturer the opportunity to collect unsold products and take apart, modify, repair, reassemble or recycle to avoid future losses resulting from the product being defective and infamous. In today’s time of globalizations, emerging economies, and advanced technology, customers expect the best level of service. It is not very easy to influence brand loyalty and a firm can easily lose its customer to the competitor. With the concept of green manufacturing, and purchasing emerging as a result of modernization and the increased awareness of the consumers, “reverse logistics also might enhance customer loyalty, because customers respond positively to environmentally responsible actions by the firm, so goodwill generated by reverse logistics could be a source of firm competitiveness”.