lOMoARcPSD|24880130 OBS 210 Summary Chapter 9 - Reverse logistics Business management (University of Pretoria) Studocu is not sponsored or endorsed by any college or university Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 OBS 210: CHAPTER 9: Reverse logistics Reverse logistics: The management of all the activities involved in the flow of goods, demand information, and money in the opposite direction to the primary logistics flow; a reduction in the generation of waste, and the management of the collection, transport, disposal, and recycling of hazardous as well as nonhazardous waste in a way that maximises the long-term profitability of the business. DRIVERS OF REVERSE LOGISTICS IN THE SUPPLY CHAIN: • Economic drivers: o Economic drivers in reverse logistics involve profits and value recovery activities that result in direct monetary gain. Raw materials Value recovery Disposal costs o Raw materials: ▪ Can be reduced through recycling items that can be re-use during production. o Value recovery: ▪ When returned old or broken items can be repaired, refurbished or re-manufactured and re-sold in secondary market. o Disposal costs: ▪ Can be generated by sending returned products to landfill or incineration centres. ▪ Collection costs E.g.: Transportation costs Handling costs Environmental penalty costs 1 Downloaded by kholeka Ngidi (kngidi36@gmail.com) Family costs lOMoARcPSD|24880130 University of Pretoria 2022 • Legislative drivers: o Involves governmental regulation that compels firms to take products back. o Relevant legislations relate to environmental concerns and consumer protection. o Consumer protection Act. • Environmental drivers: o Associated with economic drivers and legislative drivers and involve concerns with the environmental and sustainable development. o Environmental concerns encourage firms to explore green initiatives like take-back strategies and product recovery activities, which result in green innovation. o Reverse logistics implementation and green innovation productivity, reduce waste and improve the corporate “green” image, and prevent environmental penalties. o Essentially, firms in the supply chain need to develop environmentally sustainable practices through reverse logistics management. • Corporate citizenship and consumer pressures: o Involves a set of values and extended responsibility that drive firms to engage in reverse logistics activities. o Firms can use reverse logistics as a strategy to demonstrate their respect for the environment and society. o Corporate citizenship relates to consumer stability (CSR) in reverse logistics. o Consumers business practices and implement customer-focused reverse logistics policies and practices. o Firms can use reverse logistics to demonstrate CSR with liberal return policies by allowing consumers to return products with fewer return restrictions. 2 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 o Reverse logistics is an integral part of supply chain management, it has economic, legal, environmental, and societal implications as well as benefits. BARRIERS TO REVERSE LOGISTICS IMPLEMENTATION: • Economic barriers: o Financial constraints. • Internal barriers: o Involve managerial problems that hamper efficient reverse logistics implementation. o Barriers include: Lack of managerial commitment. Lack of strategic focus. • Lack of internal coordination. Performance management problems. External barriers: o Lack of: • ▪ support from supply chain members ▪ Collaboration ▪ Information sharing between supply chain parties Operational barriers: Limited forecasting and visibility. Product quality problems. Inadequate information systems. Inadequate infrastructure barriers. 3 Downloaded by kholeka Ngidi (kngidi36@gmail.com) Problems in company policy. lOMoARcPSD|24880130 University of Pretoria 2022 PRODUCT RETURNS IN THE REVERSE LOGISTICS PROCESS: • Manufacturer returns: o Surplus raw materials for production: ▪ Manufacturers purchase to much raw materials for production. ▪ Reason for surplus raw material returns include inaccurate forecasting of material consumption or unpredictable changes in demand. o Quality problems in manufactured products: ▪ When manufactured products do not meet the reworked before entering the next stages of production. o Production leftovers: ▪ The overproduction of products or by-products. ▪ Overproduction occurs because of too many products being manufactured and indicates insufficient production control. 4 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 • Distribution returns: o Returns take place between firms in a supply chain. o Returns take place between manufacturers, distributers, retailers, and other supply chain parties. o Distributions returns include: B2B returns Obsolete stock Product recalls Stock adjustments Functional returns o Business-2-Business returns: ▪ Involve contractual or service agreements between retailers and suppliers. ▪ Reasons for B2B commercial returns include overstocked materials as part of buy-back agreements, wrong deliveries, dead-on-arrival (DOA) stock that includes damages during transportation, expiring shell-life or obsolete stock, and inaccurate rate demand by retailers. o Obsolete stock: ▪ Could be when the retailer overestimates the sale of Christmas decorations and based on a service agreement with the supplier, returns the surplus decorations. o Product recalls: ▪ Initiated by the manufacturer or supplier. ▪ Occur when a range of goods that has already been delivered to customers is found to be detective and the manufacturer decides to recall the products for rework or replacement. ▪ Usually involve health or safety concerns. o Stock adjustments: ▪ Involve redistribution or reallocation of products to different locations in the supply chain. ▪ Movement of seasonal stock is an example of stock adjustment returns. 5 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 o Functional returns: ▪ Involve reusable components that move forward and backward in the supply chain. • Consumer returns: o Start with a consumer of a purchased product deciding to return the product to the seller for a refund or exchange. o Types of consumer returns include: Consumer-2Business End of use (EOU) End of life (EOL) Warranty returns o C2B: o End of use (EOU): ▪ Take place when consumer receives the opportunity to return a purchased product that has been used. o End of life (EOL): ▪ Take place when a consumer returns a product at the end of its useful life. ▪ This means that EOL products are removed from the markets. ▪ EOL products returns usually lead to remanufacturing or recycling activities. ▪ Manufacturers are involved in EOL returns to avoid environmental or commercial damage or to comply with environmental laws. o Warranty returns: ▪ Involve the return of defective products during the warranty period. ▪ Manufacturers, distributors, and retailers can offer warranties on products like automobiles, appliances, electronics, furniture, and equipment. ▪ Give consumers the benefit of returning products that do not meet promised quality standards. 6 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 ▪ In some cases, consumers can benefit from an after-sales repair or maintenance service even after the warranty period has expired. REVERSE LOGISTICS PROCESSES AND STRATEGIC CONSIDERATIONS: • Returns collection: o Pickup collection: ▪ Involves organising a transporter to collect the product from a customer’s location. o Drop-off collection: ▪ Involves the customer transporting the product to the seller’s location. o Postal collection: ▪ Combination of pick-up and drop-off collection methods. 7 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 • Inspection and sorting processes: o Takes place after the returned products have been received at the seller’s location. o These processes take place in the facility and involve determining the actual condition of the product and sorting the product according to its condition. o Depending on the product type, inspection ranges from quick visual inspection to testing and product disassembly activities. o Qualified staff with technical knowledge of the specific product are important knowledge of the specific product are important because they need to examine the condition of the product, perform testing to identify faults and sort the products according to the most appropriate option. o Firms also need to allocate areas within a facility for inspection and sorting activities to avoid cross-contamination of new products within the returned products. o Other considerations that drive inspection and sorting processes in reverse logistics are product returns volume, product types and potential recovery options. • Returns processing: o Takes place before, during or after processing involves refunds, credits, and product exchanges. o Returns processing is mostly based on the type of product return or return reasons and the condition of the returned product. o Involves compensating the customer for the product return. o Firms need to consider stock levels, finance and credit activities, original payment methods and processing times for refunds and exchanges. o Inter-departmental communication and information sharing is also important because returns processing activities can involve customer service, logistics and finance departments. 8 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 • Disposition processes: o The final process in reverse logistics and involves deciding what to do with the product return after inspection, sorting, and processing activities. o Product disposition is a key process in reverse logistics because it involves economic and environmental benefits associated with recovery activities. o Firms need to identify the most appropriate disposition options that are based on product types, product conditions and types of returns. o Product disposition options can be classified according to their recovery levels and include: Product recovery options Reuse option ▪ Material recovery option Waste management options Reuse option: • Simplest option with the highest recovery value. • Reuse is appropriate for new-unused consumerdriven product returns. • However, reuse is also appropriate for distribution returns between firms in the supply chain. • For consumer returns, slight packaging damages or opened but unused products can still be reused. • Reuse requires the least number of activities to obtain economic benefits from product returns. • Retailers can choose to repackage products, return to stock, and resell as new or sell the product in the secondary market. ▪ Product recovery options: • Involve improvements to used, damaged or defective products. 9 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 • Appropriate for: o B2C consumer returns o End-of-use returns (EOU) o End-of-life returns (EOL) o Warranty returns. • Repair: o The simplest form of product recovery because it involves fewer activities to restore products to working order. o The repair option is appropriate for damaged/defective, new, or used products in good condition. o Activities include testing, disassembly, fixing and repackaging activities. o Repaired products can be returned to the original customer, returned to inventory, remarketed, and resold on the primary or secondary markets. o Firms extend the economic life of a product and increase profitability by repairing products. • Refurbishment: o Sometimes called reconditioning and requires more effort and activities to restore products to working order. o The refurbishment option is appropriate for used products in damaged or defective items still in good condition. o In comparison to repair, refurbishment requires more technology and other resources before products are resalable. 10 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 o Includes disassembly, testing, fixing, replacing components, renovating, cleaning, assembly, and packaging. o Refurbished products can be remarketed and sold in primary and secondary markets for a profit. Like the repair option, refurbishment involves extending the product’s economic life. ▪ Material recovery option: • Involves recycling and is appropriate for EOL consumer products returns or material returns. • Obsolete and used products are appropriate for recycling activities. • In recycling, the product loses its identity and materials are extracted for production/manufacturing purposes. • Recycling is also appropriate for waste material collected directly from consumers or commercial firms. ▪ Waste management options: • Appropriate for products/materials that cannot be recovered. • Sort waste close to source. • Transport cost effective. • Waste disposal options include landfill, incineration, compositing, and animal feed options. • Dispose of in viable and sustainable way: o Non-Hazardous waste/General waste: ▪ Will have no effect on the environment and human health if managed properly. 11 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 ▪ Domestic waste, garden refuse and light industrial and commercial products. o Hazardous waste: ▪ Those materials that will have a negative effect on the environment and human health. ▪ Classified as high hazardous (e.g., poisonous substances) or low hazardous waste (e.g., lithium batteries). ▪ At hazardous waste disposal sites some of the more toxic or dangerous waste in encapsulated. • Done by storing the waste in drums and encasing them in a block of concrete. ENVIRONMENTAL MANAGEMENT: ISO 14 000 • The ISO 14 000 series of standards for environmental management are issued by the International Organization for Standardization (ISO). • The standards record the environmental policy, objectives, measurements for management and commitment to management of the environment that each enterprise should comply with. • These standards are used to monitor progress towards compliance with the standards. • External audits by professional auditors are required to verify compliance. • The use of ISO 14 000 is not mandatory. • It is however, an extremely comprehensive means of raising awareness of the importance of environmental management. • The commitment of senior management is critical to its successful implementation. 12 Downloaded by kholeka Ngidi (kngidi36@gmail.com) lOMoARcPSD|24880130 University of Pretoria 2022 • ISO 14 00 stipulates the formal management of the environment and encompasses the following issues: Environmental policy Structures Strategy Review and auditing Plans Objectives 13 Downloaded by kholeka Ngidi (kngidi36@gmail.com) Monitor