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Defining and Examining Reverse Logistics in Manufacturing

This thesis is a result of the numerous hours of lectures, course seminars, variety of courses, group and individual tasks in the field of production and logistics over the past two years at the Innovation, Design and Engineering Department at Mälardalens Högskola. This thesis gives me the opportunity to put together a study on the concept of Reverse Logistics. It also gives me the opportunity to show my skills as a Masters student, and showcase the skills I have learnt over the past two years. This project mainly focuses on the concept of Reverse Logistics and what role it plays in the manufacturing world today.

Aim

The aim of this project is to understand the true definition of Reverse Logistics and its role in the manufacturing industry. It also focuses on learning different aspects of the reverse logistics and how these aspects affect the decisions made by manufacturing firms. The study also tries to look at the environmental aspects of reverse logistics.

Objectives

The main objectives of this thesis can listed as below:

Understanding the definition of reverse logistics as given by various researchers and logistics experts.

Trying to identify the main steps involved in the reverse logistics.

Identify how reverse logistics decisions affect the manufacturing industry economically.

Identify how the manufacturing firms’ decisions affect the environment.

The literature review in this paper gives a clear picture about the concept of reverse logistics. The thesis makes an attempt to cover the works of various leading researchers and logistics experts as much as possible. Further the questionnaire also has been formulated so as to get clear and well defined answers. Through the literature study and interview and survey conducted with logistics and supply chain personnel at a few companies, this thesis tries to understand and analyze the concept of reverse logistics.

Problem Definition

Reverse logistics is a fairly new concept and not until recently have researchers and logistics companies tried to focus on its effects on the managerial decisions. Also in recent years customer satisfaction has been considered a very important aspect in the growth of any company and focus on improving customer satisfaction has increased greatly. Recently researchers have found that reverse logistics can play an important role in improving customer satisfaction.

The main focus of this thesis would be to answer the following questions:

What is the definition of reverse logistics?

What are the principal steps involved in reverse logistics?

What do companies do with the returned products?

How do the returns affect the decisions made in manufacturing firms?

How do environmental issues affect the reverse logistics decisions?

And so on...

Problem Delimitation

Reverse logistics has been found to play an important role in almost any manufacturing firm, regardless of size, product and geographical reach of the firm. The focus initially was to conduct the survey and/interviews in manufacturing firms within Sweden focusing on firms that manufacture FMCG and electronic goods. The reason for choosing FMCG and electronic goods was because FMCGs are consumed more frequently which increases the importance of logistics decisions to deliver them to consumers. And the reason for choosing electronic goods is because of the growth of electronic products in the market over past two decades, and the frequency with which newer products reach the market these days.

Unfortunately after waiting for almost 45 days for the replies to the conducted survey there was no response by even one of the 30 different manufacturing firms in Sweden. After which a quick decision was made to change the target group to the manufacturing firms in India. And by the time this decision was made there was very little time for choosing the companies and conducting survey and/or interviews. Somehow I managed to get 6 people from 5 different companies to respond to the questionnaire. Also some sort of an interview was conducted through telephone calls and chatting over the internet to get a better understanding of the responses given by them.

Methodology

The methodology followed to achieve the set objectives of this thesis is in two parts: survey and interview.

The survey

A thorough literature study on the topic of this paper: Reverse Logistics was conducted for a short period. Several articles were found on the topic over the internet. After getting somewhat of a fair idea about reverse logistics, a preliminary set of questions were formulated for the survey. Most of the questions were either taken directly or inspired by the questionnaire developed by Rogers and Tibben-Lembke (1998), for their paper “Going Backwards: Reverse Logistics Trends and Practices”. And one might even say that to a great extent this thesis has been inspired by the above mentioned paper.

The questionnaire was formulated to achieve the following objectives of the thesis:

Understanding the level of knowledge of the respondents about the concept of reverse logistics

The economical and customer satisfaction impact of returns in the past year.

Return policies, if any.

Decisions made to maintain the company environmental friendly.

As mentioned in the problem delimitation section it was difficult to choose the target group for the survey for this thesis. Initially the survey was targeted at the manufacturing firms in Sweden. But since even after waiting for almost a month and a half there were no response from any of the 30 companies. This led to choosing firms in India as the target group.

The questions were formulated in such a way that it would be easy to understand by the respondents and also it would not take much time to answer. Almost all the questions in the survey are objective type, and all the respondents have to do was choose from the options. Since the target group had to be changed very late in the thesis, this led to a short period for collecting responses from the companies. But fortunately, the responses were collected quickly with the help of a few friends in India. In about one week since the decision to change the target group about 18 companies were contacted by me and my friends over the telephone and through email. And in about 10 days 6 responses were collected from 5 companies. Most of the respondents had filled the survey questions completely.

Interview

After receiving the responses to the survey for this thesis, interviews were conducted with the respondents to better understand their responses and also to get a better idea of their understanding of the concept of reverse logistics. The interviews more like discussions were conducted with the respondents over the phone and through online chats. These discussions were mainly along the lines of the survey questions, since some of them had failed to answer the survey completely. Further the purpose of this thesis was explained to the respondents in brief, so as to give them an idea of the objectives and goals of the thesis. This led to open up the discussion, and give the respondents an opportunity to throw light on their thoughts on supply chain and reverse logistics. Thus the results and analysis sections are based on both the survey and interviews or discussions conducted with the six respondents.

THEORETICAL BACKGROUND

In this section of the paper we will try to summarize the various definitions of the concept of reverse logistics as given by various companies, logistics experts and researchers. We will try to define the primary steps involved in the reverse logistics process. This section will also cover the role of reverse logistics and how developing a reverse logistics model for a specific product or group of products will affect the decisions taken by the companies. We will also summarize how different reverse logistics models affect the environmental liability of these companies. Finally we will try to give an idea of the financial benefits and/or drawbacks involved in the reverse logistics process.

Defining REVERSE LOGISTICS

Reverse logistics, what is it? It sounds interesting, doesn’t it? In simplest words it is the management of the path of the products from its end users back to the manufacturers. Below are a few ways of defining the concept of reverse logistics:

In the paper “Going Backwards: Reverse Logistics Trends and Practices”, August 1998, Dale S. Rogers and Ronald S. Tibben-Lemke use the definition for Logistics given by The Council of Logistics Management to define Reverse Logistics. The definition for Logistics given by The Council of Logistics Management is:

“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 origin to the point of consumption for the purpose of conforming to customer requirements.”

Therefore, reverse logistics according to Rogers and Tibben-Lembke is:

“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 value or proper disposal.”

Rogers and Tibben-Lembke go on to say that remanufacturing and refurbishing also may be included in the definition of reverse logistics. According to them reverse logistics also includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery.

In his paper “Development and Implementation of Reverse Logistics Programs”, 1998, James R. Stock defines reverse logistics as,

“the term most often used to refer to the role of logistics in product returns, source reduction, recycling, materials substitution, reuse of materials, waste disposal, and refurbishing, repair and remanufacturing.”

Stock (1998) says product returns, product recalls, end-of-lease equipment, old/obsolete items being replaced, packaging materials are among the many items that come back and which require reverse logistics processing.

The European Working Group on Reverse Logistics, REVLOG (1998), defines reverse logistics as,

“the process of planning, implementing and controlling backward flows of raw materials, in process inventory, packaging and finished goods, from a manufacturing, distribution or use point, to a point of recovery or point of proper disposal.”

Ronald Kopicki in his book “Reuse and recycling: reverse logistics opportunities”, 1993, gives the definition of reverse logistics based upon the direction of flow as “Reverse Logistics is a broad term referring to the logistics management and disposing of hazardous or non-hazardous waste from packaging and products. It includes reverse distribution...which causes goods and information to flow in the opposite direction of normal logistics activities.”

Pohlen and Farris (1992) define Reverse Logistics in their article “Reverse Logistics in Plastics Recycling” as “the movement of goods from a consumer towards a producer in a channel of distribution.”

DHL, a renowned third party logistics company uses the following definition for reverse logistics taken from the book “Logistiksysteme: Betriebswirtschaftliche Grundlagen”, by Hans-Chritian Pfohl, 2004: “Reverse logistics can be defined as the application of logistics concepts to residues in order to create an economically and environmentally efficient residue streamby using all activities of spatiotemporal transformation, including changes in amounts and types.”

Fundamentals of REVERSE LOGISTICS

Fleischmann and Dekker (2004) give the fundamentals of Reverse Logistics by analyzing the topic from four viewpoints:

Why are things returned? and why do companies get involved in reverse logistics?

How Reverse Logistics works in practice?

What is being returned?

Who is executing reverse logistics activities?

Why do companies get involved in reverse logistics activities?

In general companies get involved in reverse logistics 1) because they can profit from it; or/and 2) because they have to; or/and 3) because they “feel” socially motivated to do it. Furthermore Fleischmann and Dekker categorize these three driving forces as:

Economics ( direct and indirect)

Legislation

Corporate citizenship

Economics

Reverse logistics programs bring both direct and indirect gains.

Direct gains can be:

In the form of raw materials for new products.

Some parts of the returned product maybe recycled to manufacture new products, thus reducing the manufacturing cost.

Value added recovery.

Indirect gains can be:

Anticipating/impeding legislation

Market protection

Green image

Improved customer/ supplier relations

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