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OBS 210 Summary Chapter 9 - Reverse logistics
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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
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•
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.
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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.
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Problems in
company
policy.
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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.
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•
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.
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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.
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▪
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.
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•
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.
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•
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.
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•
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.
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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.
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▪
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.
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•
ISO 14 00 stipulates the formal management of the environment and
encompasses the following issues:
Environmental
policy
Structures
Strategy
Review and
auditing
Plans
Objectives
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Monitor