The Importance of Reverse Logistics in Supply Chain Management

This paper is aimed at exploring the concept of reverse logistics (RL) process as a robust aspect of the supply chain management and its implications for organizational operations. Ideally, organizations treat logistics as both a practical and theoretical discipline given the strong connections that exists between it and their economic activities. RL is a vital factor in determining the effectiveness of an organization `s competitive position as it forms part of supply chain connected with planning, implementing as well as controlling the flow and storage of products from one point to another to meet customer needs. RL focuses on the management of returns, collections, and recovery of products that customers no longer desire (end-of-use products) or those they can no longer use (end-of-life products) to gain an economic value from the recovered products. Notably, given the dynamics that exist in the supply chain management and the need to avoid the product or material wastes, reverse logistics is a fundamental tool for business organizations when dealing with end-of-use and end-of-life products. Technical solutions that foster recovery of products from waste materials continue to become more available and as such, there is a need for a firm that wants to engage in product recovery activities to carry out adequate planning and analysis of its supply chain management or logistics operations (Beullens, 2004). In this regard, reverse logistics is a matter of strategic importance, a component of SCM that companies take a keen interest in when making decisions that affect the organizational supply chain.

Summary

            An organizations ability to handle the process of products returns is an important factor of business success especially in the area of logistics given existing benefits that characterize the process. Companies have to foster adequate management of reverse logistics to make it an asset rather than a liability since the monetary value of products and materials returns is in the scale of $100 billion for every other year. Besides, the direct and indirect gains associated with RL include value addition due to the process of recovery, reduction in disposal costs and tactical prevention of future legislation.

            Therefore, RL is a vital factor in determining the effectiveness of an organization `s competitive position as it forms part of supply chain connected with planning, implementing as well as controlling the flow and storage of products from one point to another to meet customer needs. Based on the results of this paper, it is evident that with proper planning and best processes, firms can use the reverse channel for financial gains, realize a high level of efficiency, and reduce operational costs. However, in many circumstances, the choice of reverse logistics networks depend on the nature of returns (end-of-life, EoU), the structure of the forward channel and recovery process. Consequently, the design of reverse logistics becomes a strategic problem in the context of supply chain management, as it is not easy to find an SCM without RL. To solve the problem, companies need to implement a number of changes to their supply chain management especially, the reverse process. Such changes include taking a wider view of the existing opportunities that characterize RL, having closer look at possible new legislative and directives that would influence supply chain to management, and incorporating uncertainty in quality of the products/materials among others.

Introduction

            An organizations ability to handle the process of products or materials returns is an important factor of business success especially in the area of logistics as the monetary value involved is enormous and the process has a direct impact on the overall business operations. Particularly, the volume and monetary value of the reverse flow of products in the supply chain turns out to be an issue of increasing concern since it has a significant environmental impact, legal, and customer satisfaction concerns (Bernon, Rossi, & Cullen, 2011).  According to Agrawal, Singh, and Murtaza (2015), the monetary value of products and materials returns is in the scale of $100 billion for every other year. Therefore, companies have to foster adequate management of reverse logistics to make it an asset rather than a liability. For instance, when consumers return or get rid of products, it does not mean they are valueless. Companies or individuals could make use of such products to reap adequate benefits.

              Economically, reverse logistics characterize direct gains to business entities by adding value due to the process of recovery, dwindling on the employment of raw materials as well as by reducing disposal costs (De Brito, 2004). For instance, many of products in the electronics industry have a short life but at end-of-life, they still realize high intrinsic economic value. Besides, even in cases where there are no immediate expected profit, employment of effective reverse logistics can aid in ensuring a company solves its marketing and strategic issues thus getting indirect gains such as taking part in the recovery process as a tactical step to prepare for or prevent future legislation. Besides, reverse logistics through recovery can also be used as part of image building operations such as recycling activities as well as improving customer/supplier relations.

             Companies also engage in reverse logistics as legislative requirements. Legislation herein entails any jurisdiction that requires an organization to take back or recover their products. In many countries, there is an increasing demand for companies to comply with environmental legislation such as packaging regulations, recycling quotas and take-back responsibility (De Brito, 2004). Consequently, companies engage in reverse logistics to foster consumer rights and comply with pro-environmental legislation. When respecting the society based on the principles of ethics and corporate social responsibility becomes among an organization`s values, such a company may also be compelled to act towards engaging in reverse logistics. Accordingly, a thorough research to determine effective practices for monitoring logistics processes, particularly in reverse logistics, is necessary considering that it could be beneficial to both the customers and companies in question.

Background of the Study

              Over the years, the concept of reverse logistics has undergone an evolution passing through different stages before companies consolidate its components. As a result, a number of authors have given different views about the concept with European Working Group on Reserve Logistics asserting that RL entails the process of fostering the planning, implementation, and control of backward flows of finished products or raw materials from use or distribution point to the point disposal or recovery (Rubio & Jiménez-Parra, 2014). The increasing need for companies to effectively manage returns, collections, and recovery as such, reduce unnecessary costs and risks has led to a growing interest in reverse logistics as part of supply chain management. Such a growing need in this area is evident with the increasing number of research reviews that authors continue to publish.

            Moreover, developments attributed to rapid technological advancements and globalization have resulted in increased competition, which requires that business not only embrace innovativeness in the production processes but also in the supply chain management and process (Agrawal, Singh, & Murtaza, 2015). Apparently, modern firms strive to maintain or cope with the increasing competition by embracing practices that translate to increased efficiency in the return and recovery logistical processes (De Brito & Dekker, 2004). Researchers continue to express interest in the exploration of the elements of reverse logistics in an effort to determine and establish the best and effective practices that could guarantee optimal business performance.       While the design of reverse logistics network is key to decisions regarding supply change management, successful implementation of RL call for a series of decisions that relate to various hierarchical levels, which include strategic, operational and tactical (Rubio & Jiménez-Parra, 2014). In many circumstances, the choice of reverse logistics networks depends on the nature of returns (end-of-life, EoU), the structure of the forward channel and recovery process. Consequently, the design of reverse logistics becomes a strategic problem in the context of supply chain management, as it is not easy to find an SCM without RL. Many contributions to the problem have provided a basis for identifying possible solutions based on the intricate description of reverse logistics networks by indicating critical elements of effective implementation (Rubio & Jiménez-Parra, 2014). As such, there is a need to look into the issues of RL to foster effective supply chain management.

Literature Review

            The process of reverse logistics comprises of two primary aspects: returning products and returning the packaging to the manufacturer. A study by Bernon, Rossi, & Cullen (2011) shows that products are returned to the producer or manufacturer for recycling, refurbishment, disposal, or even for recycling. An important aspect of the reverse logistics process is that it is a form of a closed-loop system. However, the product is usually in an altered state or condition during the reverse process. Organizations, thus, must observe best practices in terms of effectiveness and efficiency to minimize involved operational costs.

            Diversity in perspectives from which the concept of reverse logistics arises tends to undermine or complicate the efforts of researchers and scholars seeking to explore the subject of reverse logistics: returns, collection, and recovery. A multi-disciplinary review of existing literature that De Brito & Dekker (2004) endorse shows that reverse logistics largely involves five aspects of management: operations management, information systems, logistics, business management, and environmental economics.

            Besides, according to Kulikova (2016), reverse logistics is among the methods that companies use to achieve efficient production and sustainable growth and development. A company`s economic growth remains one of its key strategic objective which cannot be realized without an environmental and social care in the contemporary business operations. Fostering environmental and social care is important in reverse logistics because the wellbeing and satisfaction of people and environmental aspects are the major ideas of the process. Therefore, companies should strive to implement strategies’ that improve and optimize activities related to reverse logistics.

Findings

            With proper planning and best processes, firms can use the reverse channel for financial gains, realize a high level of efficiency, and reduce operational costs. Appreciably, organizations already take the reverse channel for a value addition center and a differentiator. The differentiation allows firms to gain and maintain their share of the market, add value, and minimize the transportation and inventory expenses. Particularly, this is achievable through continuous close monitoring of the reverse logistics process. Nevertheless, the reverse logistics process continues to receive more attention because businesses have expanded their scope of interest beyond timely delivery (Bernon, Rossi, & Cullen, 2011). For satisfaction, firms must acknowledge that customers may want to return a product for an exchange or substitute.

            Furthermore, the application of product ownership data, past sales, forecasted demand, average life cycle of products as well as possible impact of environmental policies on return flows characterize an integrated framework that aids in fostering effective returns, collections and recovery of products and materials associated with reverse logistics (Srivastava & Srivastava, 2006). Such framework plays a fundamental role in estimating returns for a particular category of products and taking simultaneous decisions on their location, capacity, and disposition of the flows of returned products based on existing strategic, customer service and operational constraints.

Future Research

                The interest of professionals and authors in activities that relate to RL has provided an adequate understanding of the processes as well as implications that the returns, collections, and recovery on EoU products have on business activities. However, some aspects still require the attention of the researcher such as the marketing issues associated with the products that a company has recovered. In this regard, one of the challenges that will characterize RL as part of supply chain management in the coming years is the need to carry out an in-depth study of its relationship with consumers and the market. The previous and current research works have approached this area of study from the perspective of operations, engineering and management science based on the flow of goods or materials from the consumer back to the recovery agent or the producer (returns, collection, and recovery). Nevertheless, there has been a limited study from marketing perspective such as commercialization of the products returned or recovered, acceptance issues, the marketing strategies to employ and how to develop such markets thus the basis for future research.

            Evidently, most of the research work on reverse logistics come from the contributions of European and U.S. researchers an aspect that in itself presents a limitation based on a geographical bias. As a result, future research works should aim at reducing such bias by establishing bridges with scholars from different continents across the globe. Reverse logistics is a global phenomenon and structured and semi-formal collaboration will help in looking into aspects that systematically lag behind with no or limited exploration. Future research should thus look to dwell in such areas.

Recommendations

               Based on the existing practices for RL and business models that many companies employ, participants in both consumer products and high tech products, as well as suppliers of systems technologies and third party logistics vendors, should take a wider view of the existing opportunities that characterize RL (Blumberg, 2004). As such, the executives would uphold adequate appreciation of the economic value of managing reverse logistics.

            The increased focus on reverse logistics as an extension of supply chain management continues to become critical driven by both economic value of returns as well as environmental impacts of ineffective handling, processing and managing returns. Therefore, senior executives and organizational leadership should start having closer look at possible new legislative and directives that would influence supply chain to management issues relating to direct and reverse supply chain.

    For retailers to reduce return uncertainty, they should centralize return authorization and keep routing in-house even in cases where the entity outsource transportation. Such actions aid in reducing return uncertainties.

              The models used in returns, collections, and recovery assume that quality and state of the returned products are known beforehand. However, in reality, products or materials may be returned with different levels of damage, which become known after the goods/materials are brought back to return centers (Nabaee, 2014). Therefore, supply chain managers should incorporate uncertainty in the quality of the products/materials in the absence of historical data or deterministic ratios.

              Supply chain managers should implement effective policies for different products and adequately monitor the effect of product recovery on the profitability of the company.

Conclusion

             Ideally, companies involve themselves in reverse logistics due to a number of reasons including reaping economic benefits (profit), being socially responsible and meeting the needs of business operations. The reverse logistics process is a robust aspect of the supply chain management that cannot be overlooked. Business must determine and embrace the best practices for certainty that the reverse process does not result in unmanageable expenses at the cost of the organizations. For the customers’ satisfaction, organizations must be ready to take back unsatisfactory products. Yet, such organizations must still operate at a profit and maintain their loyal customers. Otherwise, costs may sore up and environmental or even legal concerns arise. Thus, a thorough knowledge and conscience of the key factors driving reverse logistics development and process are paramount if organizations are to implement worth measures needed for the desired level of efficiency. Besides, companies should employ integrated frameworks that aid in fostering effective returns, collections, and recovery of products and materials associated with reverse logistics.

References

Agrawal, S., Singh, R. K., & Murtaza, Q. (2015). A literature review and perspectives in reverse logistics. Resources, Conservation and Recycling, 97, 76-92.

Bernon, M., Rossi, S., & Cullen, J. (2011). Retail reverse logistics: a call and grounding framework for research. International Journal of Physical Distribution & Logistics Management, 41(5), 484-510.

Beullens, P. (2004). Reverse logistics in effective recovery of products from waste materials. Reviews in Environmental Science and Bio/Technology, 3(4), 283-306.

Blumberg, D. F. (2004). Introduction to management of reverse logistics and closed loop supply chain processes. CRC Press.

De Brito, M. (2004). Managing reverse logistics or reversing logistics management? (No. ERIM PhD Series; EPS-2004-035-LIS).

De Brito, M. P., & Dekker, R. (2004). A framework for reverse logistics. In Reverse logistics (pp. 3-27). Springer, Berlin, Heidelberg.

Kulikova, O. (2016). Reverse Logistics. Retrieved from https://www.theseus.fi/bitstream/handle/10024/114817/Kulikova_Olga.pdf;sequence=1

Nabaee, S. (2014). Reverse Logistics Network Design with Centralized Return Center (Doctoral dissertation).

Rubio, S., & Jiménez-Parra, B. (2014). Reverse logistics: Overview and challenges for supply chain management. International Journal of Engineering Business Management, 6, 12.

Srivastava, S. K., & Srivastava, R. K. (2006). Managing product returns for reverse logistics. International Journal of Physical Distribution & Logistics Management, 36(7), 524-546.