Reverse logistics. An analysis

Table of Contents

1.0 Introduction

2.0 External drivers of Reverse Logistics
2.1 Legislation
2.2 CSR - Stakeholder expectations and requirements

3.0 Internal motives to establish a Reverse Logistics network

4.0 Forward logistics vs. Reverse Logistics
4.1 Differences
4.2 Cost differences

5.0 Management challenges

6.0 Conclusion

References

1.0 Introduction

In the medium term challenges for global business logistics managers are many. These are driven by external factors as well as internal motives.

This research report will describe, analyse and evaluate an increasingly relevant topic within global business logics, namely Reverse Logistics. Two main external drivers as well as the major internal motives to establish a Reverse Logistics network will be identified and examined.

The following definition of Reverse Logistics by Hawks will be utilized in this report: “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” (Hawks, 2006).

Furthermore the relevance of Reverse Logistics is underlined when considering the research by Tierney (Tierney S., 2004) and the findings by DuPont (Weel, 2010) jointly; Tierney established that the costs related to Reverse Logistics was up to four times higher than delivering the product to the costumer in the first place. This is in particular interesting when the DuPont analysis established that a 2% savings in cost can generate an up to 25% increase in RONA^[1]. In addition it has been shown that the cost of repairs can be reduced by 10% with the implementation of an efficient Reverse Logistics network (Tatham 2011)

A comparison of traditional logistics, i.e. “forward logistics” and reverse logistics will be given to build an understanding of the new and different challenges reverse logistics impose on managers. Lastly the research report will identify, analyse and evaluate the new managerial decisions global logistics managers will face in a future with Reverse Logistics as a well established and significant part of the supply network.

Underneath is a graphic depiction of the Reverse Logistics network.

Abbildung in dieser Leseprobe nicht enthalten

2.0 External drivers of Reverse Logistics

Underneath are discussed two external drivers of the implementation of Reverse Logistics, namely legislation and environmental concerns/CSR. The factors have been identified as the main external drivers of the recent increased focus on Reverse Logistics. (Kokkinaki et al., 2002). A number of other drivers and motivators are borderline external/internal, the most important of these will be discussed under the internal factors.

2.1 Legislation

Climate change is the significant and lasting change in local or global weather conditions brought about by natural and manmade factors (Cuevas, 2011 pp 29-30). During the last years it is increasingly accepted that a large part of the climate change is in fact manmade. Legislators are therefore attempting to regulate and control undesired non sustainable behaviour by firms. New taxes such as the “Australian carbon tax” and the European WEEE (http://ec.europa.eu) directive are examples of such attempts. The WEEE directive is aimed at reducing waste, keeping hazardous material out of landfills and promote the reuse of scarce resources such as ferrous metals, aluminium and copper (Deffree S., 2008). In relation to Reverse Logistics the WEEE directive is highly relevant, as the WEEE directive in practise imposes on Electrical and Electronic Equipment (EEE) manufacturers to create a Reverse Logistics network (Riviin K. et al, 2005). Legislation will continue to be a driver in the future. Legislation such as or similar to the WEEE directive is already being considered in other countries and regions. Latest, Ontario joined other Canadian provinces such as Alberta, Nova Scotia and Saskatchewan when introducing a WEEE directive (Deffree S., 2008).

2.2 CSR - Stakeholder expectations and requirements

Stakeholders, from consumer to shareholder, are increasingly expecting firms to behave in a socially responsible way. This includes expectations and requirements to how a firm manages the impact it has on the environment. Not only when producing and delivering the product or service, but in its entire lifecycle including disposal. (Tibben-Lembke, R.S., 2002, Moellenkopf et al., 2010, Skinner et al. 2008 and Smith, 2005) Also, shareholders are very aware that recent studies reveal that firms with well functioning CSR practices financially outperform other firms (Burke & Logsdon, 1996, Peters & Mullen, 2009, Shen & Chang, 2009 and Gupta & Sharma, 2009). Concurrently consumers are increasingly conscious about the environmental impact, hence pressure firms to take responsibility.

Reverse Logistics is an excellent way of signalling corporate social responsibility to consumers. Because consumers interact with the firm or its representatives, they get a “first row- hands on experience” with the CSR activities of firm. With relation to shareholders, it is obvious that this CSR practices not only meets customer expectations, but also the expectations of shareholders. Shareholders will without doubt think positively about initiatives that improve reputation and financial performance as well as improve resilience.

3.0 Internal motives to establish a Reverse Logistics network

In addition to the external drivers of Reverse Logistics there are several internal motives for global business logistics managers. These, one way or another, all evolve around either creating capabilities and sustainable competitive advantages or diminishing competitor advantages. Rogers and Tibben-Lembke (Tibben-Lembke, R. S & Rogers D.S., 1998) have identified four internal motives for firms to create a Reverse Logistics flow. The table underneath depicts how large a percentage of the respondents replied that the mentioned factor is a driver/motive for their Reverse Logistics network.

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Table 1 Roger and Tibben-Lembke, 1998

- Competition; Meeting and or exceeding customer expectations better or more efficiently than competitors is a competitive advantage. By creating an efficient Reverse Logistics network a firm can differentiate itself from competitors and create a strong relationship with costumers. (Smith, 2005, Skinner et al. 2008) As consumers expectations to the CSR conduct of the company increases, so will the importance of Reverse Logistics as a competitive parameter. Both Moellenkopf and Dutton (Dutton G., 2010 and Moellenkopf et al. 2010) supports the argument that firms can create competitive advantages by differentiating themselves as an ethical and CSR sound firm. Other competitive advantages could be securing supply and reducing costs. Finally it has been established that companies who engage in CSR, which Reverse Logistics to a certain degree is, improves financial performance (Burke & Logsdon, 1996, Peters & Mullen, 2009, Shen & Chang, 2009 and Gupta & Sharma, 2009)
Furthermore, by implementing a successful Reverse Logistics network the cost of repairs can be reduced by up to 10% and cycle times from 17 to 4 days. This will lead to higher profit margins and higher customer satisfaction. (Tatham (2011)
- Clearing channels; 33% of respondents reported that a motive for their Reverse Logistics network is to clear channels. I.e. effectively enabling retailers or distributors to return obsolete products, which again allows the producing firm to more easily push new products forward through the supply chain network — as customers will seek to fill the shelves again.
- Value recapturing and Asset recovery; depending on industry and the lifecycle of the product, value recapturing can also be a means to a competitive advantage. In addition to being a legal requirement in the EEE industry, a successful Reverse Logistics network can also assist the firm in securing supply of scarce resources and depending on the efficiency of the network reduce costs related to acquiring the resources. (Halldorson A., 2008)

Research has furthermore found that up to 39% of products returned can be sold as is, re-packed and sold as is, sold to broker or sold to outlet store (Tatham (2011).

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^[1] Return On Net Assets