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In the course of this paper, the author discusses about the practices of Reverse Logistics in Enterprise with Apple Inc being the case study of this discussion. This course work will be focusing on the key characteristics, benefits, implementation issues, barriers to implementation and risks of the practice.
All the practices of reverse logistics would be correlated with the case study so a clear understanding is achieved on how reverse logistics really works, also a brief history of the case study is discussed herein.
In previous years Reverse Logistics has been side lined and never given a serious thought, companies/organizations did not welcome the idea until recently, this was due to the fact that its introduction and implementation was perceived as a cumbersome, mainly because of its broad impact on environmental and human health (Rogers and Tibben Lembke, 1999).
However today this is not the case as consumer electronics firms such as Apple, Samsung, Panasonic, Philips, Sony, etc. are now in stiff competition with each because they all practice a well organised reverse logistics scheme, this is so because such companies have come to a realisation that reverse logistics really does work boost profits, profits being the ultimate goal for every company.
Furthermore firms that have not embraced and accepted the importance of an effective RL program are at very high risk of harming their organisation's reputation and customers.
However before one can understand the term Reverse Logistics we must first know and understand what Logistics is and what it is really all about.
1.2 LITERATURE REVIEW
Logistics is the planning and management of the flow of resources between the initial point of manufacture to the final point of sale or destination. These resources can be from manufacture, production, packaging, inventory, transportation, warehousing, information flow etc. (Council of logistics management, 2004)
Logistics simply emphasizes the movement of products from one stage to the other (manufactures to customers), it has a number of fields but in the course of this work we will look at just one which is Reverse Logistics.
Reverse Logistics is very similar to Logistics, as all the afore mentioned processes are carried out the only difference being that the activities or processes take place in the reverse or opposite direction.
Reverse logistics according to Aviral Gupta 2009 can be explained in two simple steps:
1. Removal of new or used products from their original point in a supply chain and this includes, returns from consumers, over stocked inventory, or redundant merchandise.
2. Redistributing products using product return management procedure that will result in maximized value at the end of the products' original useful life.
Reverse Logistics is the process of removing original or used products from consumers back to the manufacturer; it is the process of moving goods from their typical final destination for the purpose of re-capturing value, recycling or proper disposal. It is the process of removing new, old, unwanted or used products from one point to another, for the purpose of revalue or proper disposal. (REVLOG, 2004)
Reverse Logistics is basically the process of returning a faulty, defective or no longer in use products from the customer to the manufacturer in order to recapture value, for example if one was to recycle a bottle or a piece of paper that is taking part in the reverse logistics process.
1.3 PRM and SPM
The two important points within any reverse logistics process come under the areas of products return management (PRM) and service parts management (SPM). PRM is based on the receiving, processing, and nature of product that come back from the customer to the manufacturer, while the service part management focuses on having the right inventory and management at the appropriate location to support service repair operations with spare parts. An effective PRM programme offers the possibility for value improvement and cost reduction. (Michael, 2012)
CHARACTERISTICS OF REVERSE LOGISTICS
Some of the characteristics of a good reverse logistics process are:
A reverse logistics operation must have suitable collection and service support points to receive the used goods from the customer.
Packaging and storage systems must ensure that the remaining value in the used good is not lost due to careless or poor handling.
The transportation mode must be compatible with existing forward logistic system.
Disposition includes returning goods to storage warehouses, returning goods to the original manufacturer, selling goods in secondary markets, recycling, to get maximum value realization.
Landfill has to do with disposal of products or parts that cannot be used. (Aviral,2009)
Below is a cycle of the process of reverse logistics.
Testing & Disassembling
Service & Support
The cycle explains that the product comes from the customer and goes back to the manufacturer. The customer returns the product, the product goes either to the distributor or the service and support department this then goes to the test and disassembling department when it is tested and when the problem has been diagnosed it goes to the remanufacturing department it is either the product is refurbished and re-sold or recycled and most times when the products cannot be recycled it has to be disposed of (Landfill). Regardless of the issues all products need to be collected and sorted before transporting to the next phase.
People return goods for various reasons and these reasons are stated below:
Commercial Returns- customers' dissatisfaction or due to catalogue sales.
Repairable Returns- if the product has defective components.
End-of-Use Returns- when the components are no longer useful to the original owner but can be useful to another person. E.g. trade-in
End-of-Life Returns- Recalled by the manufacturer
LeBlanc, H.M in his PhD thesis stated that there are 5 stages in the processing of returned goods, which are: Product Acquisition - Collection - sorting, testing & Disposition Recovering - Redistribution & sales. This also agrees with the process in fig 1.1
BENEFITS OF REVERSE LOGISTICS
Reverse Logistics is beneficial to both customers and manufacturers, below are some benefits of reserve logistics. (Liz et al, 2000)
Increase in accuracy of accounts receivable reconciliation
Improved customer service
Labour saving and expertise
Increased flexibility and agility through management by exception
Improved partner retention and satisfaction.
More key benefits are improved inventory management and high revenue by offering new products in place of the old one. (Aviral, 2009).Reverse logistics is a tool to cut cost and improve customer satisfaction; it is also a competitive strategy.
5dimensions of RL
HOW ARE THE PRODUCTS RECOVERED?
WHO IS DOING THE RECOVERY? (CUSTOMER SERVICE /SUPPORT TEAM OF A COMPANY)
WHAT IS BEING RETURNED?
Source: (De Brito, 2004) FIGURE 1.2
DIRECT GAINS: Input Materials, Cost reduction, Value added
INDIRECT GAINS: Improved Customers, Market Protection
CERTAIN VALUES AND PRINCIPLES THAT PUSH A COMPANY
The drivers of reverse logistics can act as both benefits/incentive and as barriers depending on the company.
BARRIERS TO REVERSE LOGISTICS
There are several reasons and explanations why companies in the past did not accept and introduce reverse logistics but today a change in the perception and understanding of RL has been noticed as several companies have not only embraced but also implemented this idea. Change for the better they say is always met with obstacles and barriers, little wonder that such a great idea that would frontier a major positive change production and manufacture has been faced with barrier and implementation issues, it is important to differentiate between these two issues, the main difference being Barriers are legal related whilst implementation issues pertains to issues relating to the company and organization. (Rogers & Tibben-Lembke,1999).
Some of these barriers are as follows:
The government has strict rules and regulations about recycling sites and also companies do not want to have to carry the extra burden of paying tax for recycling sites.
The major proof of environmental problems comes from the rapid need of waste disposal. Previously the majority of the public wastes disposal was land filled, and this however poses an unacceptable environmental risk because of location of the landfill, which in hindsight have posed hazardous risks to human health through ground water contamination and toxic air emissions. (Gungor, A., & Gupta, S. M., 1999)
Landfill sites have become a major issue as it pertains to the environment and human health because it has played out that the cons of having a landfill far outweighs its pros, strains on the natural environment as well as sickness from contamination became the order of the day. Hence the government, environmental bodies and individual are very sceptical about Landfill sites.
4.1 ISSUES OF IMPLEMENTATION AND RISKS
Lack of publicity and knowledge of Reverse Logistics
Under-development of recycling technology
Lack of management attention and company policy
Companies with little or no knowledge of reverse logistics think that reverse logistics has a high cost of operation and most of these companies have low financial resources. (Kwok, H U. & Yiming, W., 2009)
Many companies are of the opinion that returns compared to sales generate little or no money but with the introduction and initiative of the internet, sales returns of goods &products by customers have improved. (Anindya R, 2003)
Forward logistics systems are not designed for reverse logistics system, some companies do not understand this fact and it leads to poor services and eventually to failure. (Laura M. & Joseph S, 2002)
Poor inventory deployment is also a factor because if the inventory is not managed and organised properly then companies would not know what is in their inventory and what parts they need to ask their suppliers for, when there is lack of knowledge of reverse logistics then there is bound to be risks of failure. But these issues of implementation to reverse logistics were a traditional way of thinking because these days' companies have embraced the practice of reverse logistics.
Financial risks are also involved when a company does not have the means and financial status to run a reverse logistics practice, practicing a good and organised forward logistics does not necessarily mean that the same company can manage a successful reverse logistics scheme without adequate knowledge and top management planning.
Another issue of implementing reverse logistics is the decision to carry out the operation in-house or to outsource, this decision can be based on a number of factors;
Volume: if returned goods are low in number then the need to outsource isn't necessary.
Cost-control: if the subcontract can perform the tasks more cost effective then the enterprise in question then the need to outsource can be considered.
Complexity of Task: if there are varieties of tasks like inspection, testing, repair, repackaging, recycling, refurbishing etc, all these are time consuming for an enterprise that isn't well into the reverse operation then the enterprise can decide to outsource.
Other factors of outsourcing may include: accuracy and data control, security etc. (Jade, 2002)
REVERSE LOGISTICS: IMPACT ON THE PERMONANCE OF SUPPLY CHAIN
The performance of reverse logistics can directly influence the entire supply chain system (Blumberg, 2005).
Source: 3 stages of SCM (Christopher, 1998)
Reverse logistics is better in information sharing between customer, supplier and manufacturers (Curran & Ladd, 2000).It improves the flexibility, reliability of the supply chain system (Chopra & Meindl, 2001). It helps in product development, shortened product life and development cycles can help companies to improve on their products and services.
Reverse logistics helps in operational excellence and expertise, the management of products beyond manufacturing and into the final sale and bring cost and efficiency benefits of reverse logistics to the supply chain.
The result of reverse logistics improves services to customers and better financial performance for the supply chain as a whole and its members individually, it reduces cost, increases revenue and customer services and help to obtain market advantage. (James, 2007)
CASE STUDY: APPLE INC.
6.1 A Brief History:
Apple Inc is an American worldwide enterprise it was established on April 1, 1976 and founded by Steve Jobs, Steve Wozniak and Ronald Wayne with headquarters in California. According to statistics it is the world's third largest mobile phone maker after Samsung and Nokia (Linzmayer, 1999).
Apple sells a variety of electronics computers (Mac), phones (iphones), iPods, ipads, application software printers, storage devices, speakers, headphones etc. It is a highly competitive market. Apple's brand is driven by 3 elements: confidence, competence and customers, it sells worldwide through its online stores and retail stores, third-party, resellers etc. Apple sold more than 45 million units of iPod according to their annual sales report in 2007, on May 19, 2001 apple opened its first official Apple retail store in Virginia and California.
6.2 Reverse Logistics Operations:
Previously their take-back (reverse logistics) program comprises of 2 methods:
Direct shipment to their centralized return centre
When customers drop off the products at the service centres the products are merged before being shipped to the centralized return centre and customers do not have to pay for shipping and handling. In recent times Apple has added an online return system, in which a customer fills the return form and once the application is completed successfully Apple Inc sends a packaging box for the customer to ship the product back to them.
A case was published in an SC Digest about a customer who requested for his defective iPod to be returned online at the Apple website. He keyed in relevant information asked and within 12hours he got a mail from Apple confirming that the product was still under warranty and approving the return. Within 2days Apple delivered via express parcel service a box for shipping the product back to one of its source centres.( SC digest, 2009)
Basically even if a customer goes to a service and support centre of one of the retail centres and asks for a take back or replace, the product is checked and if it is still under warranty or has a defect it is taken and shipped to the testing and disassembling centre for testing, remanufacturing, recycling or disposal if necessary and the customer does not have to pay for shipment. A personal case happened that a customer went to an Apple retail shop with a defective product for a trade-in, the product was tested and within 1week a new phone was sent to the customer.
6.3 Environmental issues and means of improving
For many years Apple has been working on means to minimize the impact their products have on the environment. Their first policy was developed in 1990, since then they have been designing new means of energy efficiency, reducing environmental impact via digital consumption. In 2010 Apple introduced the Apple Battery charger for recharging batteries, instead of the disposal alkaline batteries and this reduces waste by 78%. (Apple Inc, 2012).
In recent times Apple faced an enormous number of concerns about toxic pollution and industrial unit accidents at an overseas suppliers' factory in China, environmental examinations would be separate from an independent investigate of working conditions at the overseas factory of the supplier. Apple Inc reviewed this problem and hopes to make public the results of the review. (Kathy, 2012)
Greenpeace international campaigned against Apple on various environmental issues regarding a particular chemical called polyvinyl chloride (PVC) and brominated flame retardants BFRs toxins in their products, on the 2nd of May 2007 Steve Jobs released a statement announcing the policy to eliminate the toxins by the end of 2008 (Apple Inc, 2008), the enterprise has since eliminated the toxins from their products becoming the first laptop maker to do so. (ABC News, 2007)
Because of the issues about landfill sites Apple has devised a means to meet the energy requirements of their landfill site in Carolina using renewable resources. The energy efficient design element of Apple's facility will include a construction process that utilizes 14% recycled materials diverted 93% of construction waste from landfill and sourced 41% of purchased materials within 500 miles of the site (Apple,2012). Apple is devoted to protecting and shielding the environment, health and safety of employees, customers; in fact the whole planet from environmental hazards and this is stated in their environment health and safety policy statement.
Apple Inc has a life cycle assessment process that evaluates the effect a product has on the environment throughout its life cycle and the objective of the assessment does is to improve resource efficiency while trying at the same time to reduce the impact the product has on the environment during the activities of recycling, manufacturing, re-manufacturing, distribution, usage and disposal.
Apple is market driven, has strong leadership, strong direction, and great software support, has a good financial analysis report so the basic implementation issues like financial issues, lack of knowledge of reverse logistics, misconception etc are not factors for Apple as compared to some other companies.
6.4 Success/benefits of implementation.
Apple has mastered the act of reverse logistics and they have success stories in the following fields: impact on supply chain management, relative price performance, product quality, reliability, design innovation, marketing and distribution capacity, service and support, corporate reputation, constant development etc (John, 2010)
Another challenge is the consumer mindset but the public have a better opinion about Apple products in recent years because of the extent on how Apple has gone to tackle and improve the environmental issues they had in the past. Reverse logistics has helped to improve expertise and also helped to satisfy customers.
According to the table below Apple has a 45% inventory return.
In the course of this paper, the author attempted to analyze reverse logistics activities in the manufacturing/ consumer company. There are several issues in the recycling, reuse, refurbishing, or appropriate disposal of products. The primary barrier to the practice of reverse logistics programs in some organisations is lack of knowledge and misconception.
Though initial studies indicate that reverse logistics practises once implemented, yield cost-savings, these examples are far and few between as has been seen with the case of Apple Inc.
The reasons to implement reverse logistics are very basic; to reuse products and salvage & redistributing unsold products. (Aviral,2009)
Information Technology plays a vital role in reverse logistics because its applications are used to trace and track the goods and products on their return trip from the customer to the initial point of manufacture. Apple has grasped this fact and it has enabled them operate in the reverse supply chain channels efficiently.
Gen.3:19 "In the sweat of thy face shalt thou eat bread, till thou return unto the ground; for out of it wast thou taken: for dust thou art, and unto dust shalt thou return."