Organizational Value Applying Reverse Logistics Business Essay

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Reverse Logistics and closed loop supply chain topics have increased in relevance both in practice and the academia. Firms are beginning to acknowledge that, in many cases, reaching the final customer does not automatically represent the end of the journey for a product or service. The business of returns starts when a customer, retailer, dealer or manufacturer finds something wrong with a product (outdated, spoiled, broken or flawed). This single fact should initiate a response that through appropriate automation takes care of blame, return transport, physical processing and eventual redistribution or recycling and finally compensation to the customer. For example, what happens when damaged and/or defective goods reach this final point? What if the final customer has received incorrect items or quantities? What if repairs are needed or piles of unsold merchandise await their destiny in a costly overstock situation? These questions are mainly related to the product side of the process. Straightforward abuse of firms return policies by some customers provides for additional volume of the market related returns (Rogers & Tibben-Lembke, 1999). Additionally, some firms are recognizing reverse logistics as a component of the total logistics management process. "Innovator firms" that develop an expertise in reverse logistics activities and consider them as a set of business processes that add value, can potentially generate revenue, improve customer satisfaction, achieve significant cost savings and deliver a competitive edge in their various markets (Stock, 1998., Hansen Harps, 2002., Carter et al, 1998). In the common basis, supply chain process ends with the customer. Nevertheless in supply chain management exists many concepts related to logistics, procurement, etc... There is one related to the returning process. Therefore, a closed loop supply chain includes traditional forward supply chain activities and the additional activities of the reverse logistics. This dissertation attempts to highlight the importance of reverse logistics and the benefits that this process will lead to companies by analyzing different case studies.

Introduction and Research Methodology

Generally the product life cycle is formed by three main phases: beginning of life (BOL), which consists in the design and production; middle of life (MOL), which includes the logistics (distribution), usage, service, and maintenance; and the end of life (EOL), meaning the reverse logistics (collecting), remanufacturing (disassembly, refurbishment, reassembly, etc.), reuse, recycle, and disposal.

Even though the concept of reverse logistics is not commonly used by many companies is gaining popularity during the last years especially because of the different factors related to protect the environment. Instead of get rid of unused products, the reverse supply chain lead the opportunity of re manufacturing, re using or recycle the returned products. Reverse logistics is growing in importance within various industries. The return movement of goods and services in the supply chain is becoming a necessary business activity regardless of the industry or product/services involved. Overall, the value of returns is estimated to be around $43 billion per year, representing an average of 15% - 20% of all goods sold (Norek, 2003).

In order to highlight the importance of reverse logistics as an example, some statistics from the US include the following:

Average return rate for online retail sales is 5.6%, although it varies by product and time of year.

Ninety-five per cent of consumers would rather return a product purchased over the Internet to a physical location; 43% would always use that option if it were available; 37% of online buyers and 54% of online browsers were deterred from purchasing online because of return and exchange processes that were too difficult.

The cost of processing a return can be two to three times that of an outbound shipment.

Returns will cost catalogue and Web retailers US$3.2 billion in 2001.

Reverse logistics costs are estimated to be approximately 4% of total U.S. logistics costs, or roughly $40 billion annually

Reverse logistics is for sure a very important process within the supply chain, mainly because the costs associated with the process. In 2002 the Reverse Logistics Association in 2002 revealed that over $750 billion annually was being spent on reverse logistics processes in North America alone. All anticipated benefits related to reverse logistics are explaining why an increase number of firms from various sectors are exploring its potential Table 1.

Table 1 Examples Reverse Logistics

Industry / Company


Consumer Goods

Support savings and waste elimination. The creation of awareness.


The product reuse is seen as an economical alternative to reduce continuously rising costs and to fulfill increasing demand while ensuring a high service level.


Practices including green procurement, asset recovery, recall management, product returns processes, refurbishing and depot repair. Maximization of recycling, minimizing waste, ensuring regulatory compliance, and emphasizing green disposal.

Transportation providers (Fedex, UPS)

Provided e-tailer customers with online return labels, saving both customers and companies time and money.

Canon Computers

Reduced open charge backs from US$37 million in 1997 to US$15 million in 2000. Most were due to errors in pricing or missed shipping dates, etc. With the reduction of errors prior to shipping, returns are minimized.

Oxford University Press

Reduced its handling time for product returns from four weeks to four days through better information management and faster processing at their distribution centre.

Literature Review

Key Activities of Reverse Logistics

The key activities of reverse logistics are described below (Guide and Van Wassenhove, 2005):

Product acquisition

Product acquisition involves collecting the products from either an end-user or immediate customers. Collecting a returned product is an important activity since this can help an organization to understand where and why the product is being returned. This also enables the organization to take measures in order to either reduce any undesired returns or deal with any returns effectively.

Reverse Distribution

Reverse distribution mainly involves distributing the returned products to the rightful organization or centers where decision can be made regarding how the product should be dealt with. Good transportation methods and information systems are critical for an effective reverse distribution.

Test, Sort and Disposition

Once the returned products are distributed back to pre-determined collection centers or the original equipment manufacturers (OEMs), they need to be tested and sorted according to their quality and value so that decisions can be made for proper disposal so as to recover maximum value possible from these products. It should be noted that it would be beneficial to test and sort materials and products during earlier stages since this will reduce unnecessary transportation and logistics requirements and will help in making proper disposal decisions.


Refurbishing is a process of transforming a returned product into a reusable product. This may involve activities such as repairing, recycling and remanufacturing. This also involves other activities such as cleaning, replacement and re-assembling (Guide and Wassenhove, 2001 and Fleischmann et al, 1997).

Redistribution and Remarketing

One major way of recovering value from a returned product is to redistribute and remarket the product or a refurbished product and earn revenue from these sales. Products can be remarketed and resold either via an open loop through a secondary market or via a closed loop by reintroducing the refurbished product in the mainstream market. However remarketing a product is not an easy process. Remarketing a product either through a closed loop or an open loop involves challenges which will be listed in the following sections.

According to Anand Subramaniam in 2009 (Manangement Consultant at Consult 101 Pty Ltd) reverse logistics can give an added value to a company as following (Table 2):

Table 2 Organizational Value applying Reverse Logistics


Key Objective

Reverse Logistics Contribution


Maximize profitability

-Controls costs with efficient operations

-Recover value from returns


Grow the business

-Make returns process painless to increase customer satisfaction

-Support growth by making product available to surgically resell


Build the Brand

-Control de gray market


Improve Customer experience

-Feed returns data back upstream to drive process and product design improvements


All of the above + Corporate Social Responsibility

-Ensure environmental protection

-Leverage returns to accelerate giving back to the community

Despite the operational and strategic importance of reverse logistics, a clear definition of what is reverse logistics is still lacking (e.g; see Table 3). In addition, little has been written about key success factors of reverse logistics. Therefore, this research is an initial effort towards bridging the existing knowledge gap in the literature. More specifically, this research draws on prior studies on supply chain management and reverse logistics to answer the following research questions:

What is reverse logistics?

Why is important to consider the implementation of reverse logistics?

What are the critical success factors of the implementation of reverse logistics?

Reverse Logistics Definition

In order to address these research questions, this study will draws on a review of supply chain management, reverse logistics, as well as a Delphi study and a case studies. For the purpose of this paper five definitions are considered (Table 3):

Table 3. Reverse Logistics definitions


Council of Logistics Management (CLM)

"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."

Pohlen and Farris (1992)

"The movement of goods from a consumer towards a producer in a channel of distribution."

Kopicky (1993)

"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."

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 value or proper disposal."

The European Working Group on Reverse Logistics, RevLog (1998)

" The process of planning, implementing and controlling flows of raw materials, in process inventory, and finished goods, from a manufacturing, distribution or use point to a point of recovery or point of proper disposal"

The definition that will be used for this paper would be of the Council of Logistics Management (CLM): "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." Due to the fact, that it encompasses the important key words that must be considered for the understanding of this concept.

Remanufacturing and refurbishing were activities excluded in the definition of reverse logistics at the beginning because companies were more focused in reusing or disposing of the returned product. However, reverse logistics is more than reusing containers and recycling packaging materials.

Figure 1. Is a clear explanation of the reverse logistics flow model:

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Reverse logistics also includes processing returned merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess inventory. Furthermore, it includes recycling programs, hazardous material programs, obsolete equipment disposition, and asset recovery.

Driving forces and Challenges in Reverse Logistics


There are a number of factors driving the adoption of reverse logistics principles including:

- Economics factors

- Legislation factors

- Environmental factors

- Extended responsibility


Reverse logistics has a significant bottom-line impact on a company (Rogers et al, 2001). If it is done right, it can be a source of significant cost savings and can even function as a profit center (Stock et al, 2002). Economics relates to all direct or indirect economic benefits in a company. Even with no clear or immediate expected profit, an organization can get involved with Reverse Logistics because of marketing, competition and/or strategy drivers. On the other hand, a company may visualize certain conditions in the long-run for example the improvement after sales which can give the company a competitive advantage among others. A company may recovery to get a good environmental/friendly image with the customer, getting a better relation with the customer and giving the customer an added value. Having a green line of products can be as well part of a customer relationship strategy, especially due to the increase of environmental consciousness by society as a whole. The process of reverse logistics will help to the conservation of the environment giving products a new use or simply recycle it or destroy it in a non harmful environmental way. This activity promotes companies to work towards a green logistical performance.