Strategic examination of reverse logistics & repair service requirements, needs, market size, and opportunities

Journal of Business Logistics, 1999 by Blumberg, Donald F

INTRODUCTION

The growing concern for the environment, coupled with the rapid increase in the introduction and use of new and advanced technology in the marketplace, has led to increased interest and focus on Reverse Logistics and Repair Services (RLRS), as outlined in Figure 1. This increased focus has created significant and unique problems for some firms, and dramatic and very profitable revenue opportunities for others. Problems occur however, due to a lack of understanding of the full market opportunity and the failure to offer a "seamless" solution to the end user. The situation is worsened by the vendors' inability to fully understand the dimensions of the market and customer requirements and needs.

The article serves two purposes. First, to analyze the size and dimension of the RLRS market. Second, to identify the key elements necessary to offer a successful RLRS service. In particular it focuses on the full integration of RLRS providers (repair firms with logistics and distribution organizations capable of offering a seamless solution to the end user. The objective is to examine the market opportunity from a business and entrepreneurial perspective rather than an academic examination of the basic concepts.

Probably the most important aspect of the full logistics process (both direct and reverse) and repair process relates to the ability of both manufacturers and the transportation and distribution industry to step up and respond to the emerging needs of the market, for improved fully integrated RLRS support. The need to consider both direct and reverse logistics is that often, the direct transportation leg becomes the reverse leg on the return cycle.

Cerplex Group, for example, has built a RLRS business in the computer and electronics industry to meet the needs of that market. Cerplex provides services for the physical return of failed information technology units from the field, refurbishment, repair and modification of parts, subassemblies and whole units with return to the field or final disposal. Cerplex, unfortunately, relied on other firms as subcontractors for the reverse logistics functions, thus reducing their total margin due to high logistics costs.

A variety of other transportation and distribution firms (such as Fedex, UPS, Yellow Freight, etc.) driven by the market need for rapid, integrated return shipment and repair, and concerns over environmental impact have begun to make use of existing and acquired logistics, transportation, and distribution capabilities. These firms want to maintain full control over the post-sale cycle consisting of rapid and efficient shipping to the end-user, recovery, and final disposal. For example, UPS/Sonic Air is in the high technology parts logistics business based on same day, next flight out service. They recently expanded services to include depot repair capability in order to offer seamless RLRS capabilities.

The economic demand for this reverse logistics and repair process service is driven by two, very different factors. First, the economic value of recycling and re-use, especially for valuable parts, subassemblies and circuit boards, and whole units, typically found in the computer and high technology fields. Second, the legal requirements of the "Green Laws," particularly in Europe, requiring manufacturers to be fully responsible for the products produced, over the life cycle.

In order to examine this rapidly increasing requirement and market opportunity, research was conducted using surveys and evaluation to quantify the level of economic activity in reverse logistics and repair services. A comprehensive literature search (see Endnotes) covering environmental management, "green" market structure, non-hazardous and hazardous materials transportation, distribution, and disposal and return regulations and laws, failed to identify any work done on the economic market potential and value of reverse logistics and repair services as a market opportunity. The existing research literature consists of theoretical, anecdotal, and parametric cross sectional studies and research, attempting to explain and model the structural process, rather than to investigate the economic market potential of the process or segmented market demand and forecasts or future requirements. In addition, almost all of the literature focuses on the reverse logistics as opposed to the repair services functions and activities.

STUDY RESEARCH AND METHODOLOGY

Based upon a new market segmentation structure examining both (1) the direct and reverse logistics, and (2) the repair service as part of a single offer covering the full RLRS equation, extensive studies were made by the author. The objective of this research was to examine present and emerging need for reverse logistics and repair services, particularly in high tech markets and determine market expenditures and demands, and evaluate vendor and competitive capabilities.

These studies, based upon in-depth surveys, of senior logistics and purchasing executives in over 400 medium and large, and multi-national manufacturing companies (conducted by telephone using a front basis to get to senior decision makers on a double-blind statistically valid random sample basis). In addition more than 60 logistics, transportation, and distribution and repair service vendors were interviewed. Of the total 460 interviews, 70% were conducted with US based firms, including multinationals, with the remaining in Asia/Pacific (10%) and Europe (20%). The sample was drawn from the customers base records of firms such as UPS and Fedex and from previous studies of high tech service firms conducted by my firm. The survey was 30 minutes in length and was conducted by highly experienced industry-to-industry survey staff. The survey questions focused on demographic structure, size and type of expenditures, unmet requirements and needs, willingness to pay, use of vendors, perceptions of vendors and future plans for RLRS support.