Reverse logistics strategies and implementation: a pedagogical survey

Journal of the Academy of Business and Economics, March, 2004 by Usha Subramaniam, Joyendu Bhadury, H. Steve Peng

ABSTRACT

Reverse Logistics and the management of returned or used merchandise is a growing problem among manufacturers today. In this study we begin by presenting the nature and magnitude of the reverse logistics problem in the industry and a literature survey of the previous research in this area. Reverse Logistics deals with the processes associated with the reverse stream from users/owners to re-users. This paper provides content analysis of scientific literature on reverse logistics. Over thirty articles are included. In addition, we give an overview of particular issues, which we rink with strategies, practices and thus directions for future research.

1. INTRODUCTION

Reverse Logistics (RL) may be defined as the management of returned materials from customers, including their restoration, reengineering, recycling, liquidating or disposal of waste in an environmentally friendly manner. The objective is to minimize the handling cost while maximizing the value from the goods, or proper disposal. The key thing is to speed up this cycle. Essentially, reverse logistics is the opposite of logistics management. Goods or materials move in the opposite direction of the supply chain, that is, from the customer back to the supplier. Products are returned to the manufacturer or retailer for any number of reasons. Some of the more common reasons are warranty failures, damaged products, product recalls, incorrect product orders/shipment, exchange of impaired products for functional ones, reusable packaging materials, product upgrading and so on. Whatever the reason, returned goods have to be processed in the best manner possible.

Reverse Logistics has become a fairly serious issue in recent times primarily because retailers have been forced, due to increased competition, to take a liberal stand as far as returns are concerned. Meyer (1999) believes that returns have increased to as much as 30-50% in some cases. He observes that returns can be as high as 50% for goods sold on-line. Meyer (1999) also refers to a study conducted by the Reverse Logistics Executive Council, in that, U.S. firms spend more than an estimated $35 billion annually on handling, transportation, and processing of returned products. This estimate does not include disposition management, administration time, and the cost of converting impaired materials into productive assets. An issue of such dimension should be dignified with appropriate measures to implement reverse logistics.

Although the phenomenon of Reverse Logistics was in existence for a long time, it did not gain recognition until recently. This area has intrigued many people in terms of the impact it has had and continues to have on the business world. People have approached the subject in different ways and given their perspective on the same. The next section briefly mentions some of the study and analysis done in the area of reverse logistics. Reverse logistics is a complicated process that requires detailed planning in terms of continual audit of returns, determining the best disposition of products that is both economically and technically feasible, warehouse and transportation management, recycling programs, and other related areas.

2. LITERATURE REVIEW

During the early nineties, the Council of Logistics Management started publishing studies where reverse logistics was recognized as being relevant both for business and society (Stock, 1992). Other studies followed stressing the opportunities on reuse and recycling (Kopicki et al., 1993) In the late nineties, Kostecki (1998) discussed the marketing aspects of reuse and extended product life. Stock (1998) reported in detail how to set up and to carry out reverse logistics programs. Rogers and Tibben-Lembke (1999) presented a broad collection of reverse logistics business practices, giving special attention to the US experience (see also Lund, 2001). Recent reviews and literature compilation either on models to support reverse logistics or on the business perspective can be found at Fleischmann et al., 1997, Guide et al., 2000, Guide and van Wassenhove, 2003, and Dekker et al., 2003. Former studies have argued that the processes, actors, types of reuse and actors are relevant to characterize reverse logistics (Fleischmann et al., 1997). De Brito and Dekker (2002) provide typologies of the what, whom and how of reverse logistics.

Recently, many articles dedicated to the analysis of the practice of reverse logistics have appeared, including Canon (Meijer, 1998), Philip Morris (Andriesse, 1999), Kodak (Toktay et al., 2000) and Nortel Networks (Linton and Jonhson, 2000). Meyers (1999) writes that in a survey of logistics managers, Rogers and Tibben-Lembke (1999) found that four in ten logistics managers consider reverse logistics relatively unimportant compared to other company issues. In terms of resource recovery, the most often described option was recycling and re-use/redistribution (De Koster et al., 2001). Parker (1996) has consolidated the proceedings of the First Annual International Congress on Reverse Logistics Management held in 1996 that focused on the important contribution of accounting for environmental issues. Epstein of Stanford University observed that ABC costing provided an opportunity to minimize costs and increase profitability. Stinson of the University of Texas, Austin, commented that environmental accounting spread across many accounting areas and standards, including financial, managerial, regulatory, tax, and national accounts.