Supply Chain Management: An International JournalAn exploration of reverse logistics practices in three companiesXiaoming Li Festus Olorunniwo

Article information:To cite this document:Xiaoming Li Festus Olorunniwo, (2008),"An exploration of reverse logistics practices in three companies", Supply ChainManagement: An International Journal, Vol. 13 Iss 5 pp. 381 - 386Permanent link to this document:http://dx.doi.org/10.1108/13598540810894979

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Case study

An exploration of reverse logistics practices inthree companiesXiaoming Li and Festus Olorunniwo

Tennessee State University, Nashville, Tennessee, USA

AbstractPurpose – This paper seeks to report a case study that focuses on identifying what may be considered a typical or generic RL process flow as well asthe key strategic issues that a firm may use for competitive advantage.Design/methodology/approach – The research involves mainly interviews and plant visits to three companies, all of which manage some RLactivities.Findings – Highlighted are what type of RL process flow can be considered as generic, the type of technology innovation and IT a firm needs in order tooperate an effective RL system and how these are integrated across the supply chain, the resource commitment (personnel, financial, upper-levelmanagement) that a company needs to make to support successful RL efforts, and finally, the values firms derive from RL and the key performanceindicators to measure these values for the RL operations.Originality/value – A typical returns flow process is provided that can guide managers efficiently on their RL activities. Strategic activities are alsopresented that characterize successful practices in the RL industry.

Keywords Working practices, Supply chain management, Product management

Paper type Case study

1. Introduction

Most of the supply chain management (SCM) research

focuses on the forward flow that transforms raw materials to

final products, from suppliers to end customers (Prahinski

and Kocabasoglu, 2006). The reverse material movement

from end customers to suppliers has received much less

attention (Rogers and Tibben-Lembke, 2001; Stock et al.,

2002).According to the Reverse Logistics Executive Council

(Reverse Logistics Executive Council, 2007), reverse logistics

(RL) is “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”. It is now

believed that RL as a field is “unique enough to undergo

specialized research” (Tibben-Lembke and Rogers, 2002,

p. 271).The market for RL in the United States (US) was

approximately $58 billion in 2004, comprising 0.5 percent

of the US Gross Domestic Product (Reverse Logistics

Executive Council, 2007), and the reverse flow is increasing

(Dekker et al., 2004). RL covers a wide range of industries.

For instance, the automobile companies are quite busy

dealing with the recovery of end-of-life auto parts and many

vehicle recalls. Millions of electronics products that contain

various hazardous materials (e.g. lead and mercury) are

scrapped in US every year, and industry leaders (e.g. Apple,

Dell, and Sony) just voluntarily begin take-back programs

(International Association of Electronics Recyclers, 2006). E-

tailers are dissatisfied with higher returns from customers

scattered around the country or even the world. Returns rates

are ranging from 5 percent to 50 percent in many industries

(Rogers and Tibben-Lembke, 1999). The cost of these

returns was averaging twice to thrice the value of the product

itself in 2001 (Guide and Van Wassenhove, 2003; Biederman,

2006). To make situations worse, retailers have to set very

liberal returns policies due to fierce competition in the market

(Rogers and Tibben-Lembke, 1999). US companies are

losing billions of dollars due to ill preparation in RL (Dekker

et al., 2004). RL is also becoming more economically

attractive due to commodity price hikes in recent years (e.g.

oil, steel, copper, etc.).It has also been recommended that, in the modern

workplace, effective RL management should be used as a

competitive advantage, a positive profit center, a tool to cut

costs, and a tool to improve customer satisfaction (Dekker

et al., 2004; Guide and Van Wassenhove, 2003; Richey et al.,

2005).RL also has broad impacts on environment and human

health (Rogers and Tibben-Lembke, 1999). Regarding

environmental laws and government environmental

initiatives, Canada and Western Europe have been more

proactive than US (Murphy and Poist, 2003). Companies in

these countries are also more progressive in managing

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal

13/5 (2008) 381–386

q Emerald Group Publishing Limited [ISSN 1359-8546]

[DOI 10.1108/13598540810894979]

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environmental issues in logistics (Murphy and Poist, 2003).

Landfill capacity in US has become more limited and

expensive, and more restrictions are imposed to protect

human health (Rogers and Tibben-Lembke, 1999; Prahinski

and Kocabasoglu, 2006). However, some companies still

abandon end-of-life products with hazardous materials into

land directly (e.g. International Association of Electronics

Recyclers, 2006).The purpose of this paper is to investigate the RL practices

with a goal to identify what may be considered a typical or

generic RL process flow as well as the key strategic issues that

a firm may use for competitive advantage.Our research questions are:

1 What may be considered a typical or generic RL process

flow in practice?2 What type of technology innovation and IT does the firm

need in order to operate an effective RL system and how

are these integrated across the reverse supply chain?3 What level of resource commitment (personnel, financial,

upper-level management) does a company need to make

in order to support successful RL efforts?4 What values does a firm derive from RL and what are the

key performance indicators to measure these values?

The practices of the three companies reported in this case

study, corroborated where possible by the practices gleaned

from the trade literature, will be used to answer these research

questions in the following sections of this paper.

2. Methods

In this case study, we selected and visited three companies

sites during spring and summer 2006. Company A is a leading

third-party logistics provider (3PL) in RL with several

facilities located throughout US and Canada. The company

provides a complete range of value-added supply chain

solutions, including contract warehousing, RL,

pharmaceutical returns, asset recovery, transportation

management, supply chain analysis, parcel management,

damage research, and government logistics. We selected

Company A because of its widely recognized reputation as a

leader in RL and its extensive service experience in RL to

hundreds of business customers.Company B is a leading 3PL largely providing diverse

forward logistics (FL) solution with some RL elements. It has

emphasized flexibility and scalability for more than fifty years.

This company was selected because it represents the

mainstream of 3PLs that focus on FL with some RL activities.Company C is a manufacturer in consumer electronics with

over twenty years of experience. Company C and its

subsidiaries “engage in the design, development,

manufacture, marketing, sale, and support of various

computer systems and services worldwide”. Its advantages

over industry competitors emerge from integrated IT

solutions that guide and support responsive logistics. It

pioneers the industry with free PC recycle initiatives, so its RL

comprises regular customer returns and also recycle.Overall, the three companies represent a wide range of RL

companies; more importantly, they lead in some RL trends

and initiatives that we believe other companies in their

industries will follow. Each of the three companies employs

thousands of employees.

Working closely with Company A, we discussed our

research purpose and interview topics with its Vice

President (VP) of Operations and VP of Teammate Service,

who helped us streamline interview questions while at the end

also provided their answers. Using these interview topics as

our framework, we visited and then interviewed VP of

Operations at Company B, and a senior manager of

Operations at Company C.We toured the facilities of these companies. While at their

facilities, we conducted the interviews and toured their

processing operations including the returns process. When

available, we asked for and received additional

documentations including their returns process flow.

Although we primarily used a structured interview process,

some of the issues were first presented in a likert scale format,

which we then followed up with structured interview

questions.During these visits, we focused on issues relating to

information on general practice in RL including the

company’s competitive strategies, returns process flow, re-

use options, and factors affecting re-use options. We

investigated the type of IT deployed and how such is shared

within the company, as well as with customers, suppliers, and

secondary markets. We examined which kind of information

the establishment shares, such as planning, demand, supply,

shipping, and transportation. Then, we probed on issues

relating to collaborations in various aspects: relationships with

partners, customers, suppliers, secondary markets, and joint

performance measurements. Finally, we checked a variety of

performance metrics, including profit, cost, returns

percentage, etc.

3. The findings

RL is a complex process encompassing an entire reverse

product life cycle. In order for the customers to be fully

satisfied with the returns outcome, the process has to be

robust and customer-focused. It is therefore pertinent that we

begin to present our findings by first addressing the RL

process as we find it in the three companies and as well as

corroborate our findings from evidence from practices found

in the trade literature.

3.1 The returns process

Obviously, there exists a range of ordered sequencing that

different companies adopt depending on which activities are

engaged in by the firm. During our visits, we found

companies set up their processes based on some knowledge

of materials flows: inbound receiving, sorting, testing, storing,

and outbound shipping. Different products may go through

different routes; same products with different types of

damages also may undergo different operations. Companies

have operational procedures for machine centers; however,

returns flows among machine centers are informal in many

cases or many factors are not considered.Using the information obtained from companies A and B,

corroborated by processes alluded to in the trade literature

(e.g. Coia, 2005; Schwartz, 2000; and Trebilcock, 2002). We

develop a generic returns process flow shown in Figure 1 by

integrating various broad factors: demand, package and

product conditions, test and repair, secondary market,

vendor, charity giving, recycle, and disposal.

An exploration of reverse logistics practices in three companies

Xiaoming Li and Festus Olorunniwo

Supply Chain Management: An International Journal

Volume 13 · Number 5 · 2008 · 381–386

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Figure 1 A typical returns process at a manufacturing facility

An exploration of reverse logistics practices in three companies

Xiaoming Li and Festus Olorunniwo

Supply Chain Management: An International Journal

Volume 13 · Number 5 · 2008 · 381–386

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Note that the returns process begins when the manufacturers

or retailers accept products back from their customers afterissuing a return merchandise authorization or return material

authorization (RMA) based on the returns policy. In other

words, the whole process is buyer-driven. Then, thesereturned products are typically shipped back by a 3PL to a

returns processing facility, where employees perform allnecessary operations in order to salvage most value from

returns. They first check these products into the system.Second, they sort these products into different categories such

as serviceable and unserviceable with some test and repair.They finally put serviceable products back into inventory and

dispose unserviceable ones.One good practice adopted by one of the companies visited

is the use of a pre-paid return label, which goes out with theoriginal shipment as it leaves the warehouse. If the product is

to be returned, all that the customer needs to do is put thereturn label on a package and place it in any U.S. Postal

System (or UPS, FEDEX) drop off point. This practice isused by quite a few other companies as it provides some

competitive advantage (e.g. Morton, 2007, p. 18).

3.2 Use of IT, information sharing and collaboration

RL is a very heavily IT-driven process because of the need to

provide for and improve visibility into the goods in motionthroughout the reverse supply chain. Thus, during our visits

and interviews with the companies, we probed into theirexecution and communication systems including the use of

internet, electronic data interchange (EDI), enterpriseresource planning (ERP), and radio frequency identification

(RFID). EDI is a set of standards for exchanging computer-readable information among organizations; ERP is an

information system integrating all facets of an organization

on a common database; RFID consists of a radio frequencyreader/emitter and an active or passive radio frequency tag

applied to an inventory.Each company builds stand-alone customized solution and

database solution with own decision rules, withcommunications through Internet and/or EDI. Two firms

use customized solution integrating with ERP and RFID. Inthe trade literature, the development and use of customized

IT solution is common but not in all companies (e.g. Coia,2005; Reese, 2005).In addition, each company was asked to evaluate its

information system as it affects its returns processing

operations. All three companies confirmed that their ITsolutions allow effective information sharing with customers/

suppliers, enable RMA to be obtained speedily, and enablemaking correct decisions consistently in real-time. Two of the

three companies also iterated that their IT enables the firm to

efficiently track products, enables information sharing with allfacilities in their reverse supply chains, effectively integrates

with company’s whole supply chain system, and addsflexibility to handle changing customer needs.The companies asserted that the information shared with

their partners is (and should be) accurate. The quality and

effectiveness of following information sharing arrangementswith partners were rated good or very good, indicating the

level of importance placed on this aspect as a strategiccompetitive tool. Included in the consideration are the

amount of data, real-time information, the use of web-enabled inventory data, warehouse information, and

transportation/scheduling data. Mutual access to databases

among partners was considered important for competitive

advantage, but their performance in this regard was rated only

fair.The ability to collaborate with various players in the reverse

chain is as important as in the forward supply chain. In fact,what makes a forward supply chain successful is the visibility

of products in motion as well as collaboration and trustamongst the various entities in the chain. This is also true for

the reverse chain, especially since the RL process is also

heavily demand driven – that is, the downstream customersmake the final decision in orders and returns.The three companies expressed having very good or

excellent trust and having long term-term alliance with

partners. To that end, each rated the quality and effectivenessof following collaboration arrangements with partners as very

good. Strategies involved include joint forecast arrangements,

joint planning arrangements, jointly established performancemeasures, sharing processes and process information, and

reviewing and revising the status of their collaborationperiodically. In order to maintain such achievement, the

companies stated the need to define, a priori, collaborative

objectives, scope, responsibilities, sharing of risk, and reward.

3.3 Management vision, leadership and commitment

As in any firm, management commitment in terms of

leadership support, financial and personnel resources as wellas investment in technology innovations in RL are important

to the success of the firm or any of its initiatives. Companies Aand C provided useful information in this regard.The two companies confirmed an industry-prevalent view

that RL is viewed as a “necessary evil”, but reiterated that intheir companies RL activities are not only for “cost

avoidance”, although they lamented that RL receives muchless attention than FL.Also critical in the companies’ view is that RL activities

should be assigned as a full-time job preferable at an

executive-level with complete responsibility for all returns

operations, and the firm should support continuousimprovement in the RL processes. Part-time efforts usually

bring less than optimal results. Adding the responsibility tomanagers and employees who may have already been heavily

loaded with other activities will only result in high costs,problems, and delays (Stock, 2001).

3.4 Assessing the value and performance of RL process

When effectively managed, RL can deliver benefits including

competitive advantage, increased customer satisfaction, bettervisibility, and more efficient operations through improved

space utilization, labor planning, and inventory controls.Functional areas of business can also boast some values that

are inherent in a well managed RL: for finance – through

operational cost controls and asset recovery, for sales –through increased customer satisfaction, and for quality – by

providing valuable customer data that can lead to productdesign improvement (Biederman, 2006).Therefore, the managers interviewed in each company were

asked to evaluate the financial and other values of the

company’s RL operation or that of the client if the company is

a 3PL. Companies A and C provided information in thisrespect. The companies strongly asserted that effective

returns management and environmentally responsibleactivities enhance brand equity. Also, the companies did not

feel strongly that reclaiming useable parts reduces cost of

An exploration of reverse logistics practices in three companies

Xiaoming Li and Festus Olorunniwo

Supply Chain Management: An International Journal

Volume 13 · Number 5 · 2008 · 381–386

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goods sold (COGS) considerably. As regards disposal

compliance, it was not strongly viewed as having too great

an impact as to substantially reduce operating cost (in fact it

was viewed as adding unwanted costs to their operations).The managers’ reactions were not quite strong as to

whether recycling materials that are un-useable generate

considerable revenues or if channel clearing considerably

reduces obsolete items inventory, and if repaired items yield

reasonable profits in secondary markets. This set of responses

is quite surprising because they are contrary to observations

from the experiences reported in the trade literature (see

Biederman, 2006; Reese, 2005; Chiger, 2007).As regards the key performance indicators used to assess

the effectiveness and efficiency of RL activities, the managers

cited use of on-time ship, dock-to-stock speed, inventory

accuracy, and outbound shipping quality (errors and

customer complaints, cost, and productivity). Although

desirable, their companies do not always have visibility on

return-on-investment or profit from RL. An important reason

is that RL activities twine round FL. It is difficult or may not

be worth it to have separate numbers only for RL. Another

reason is that companies’ commitment and investment is less

than in FL.

3.5 Miscellaneous issues

Companies A and B are 3PLs that provide, between the two,

services in various industries including catalog retailers,

consumer electronics, auto industry, pharmaceuticals, books/

magazine, household chemicals, computers/printers, and

general merchandisers. Asked why their clients outsourced

the RL services to their companies, the two companies

indicated several reasons including the benefits by their clients

in concentrating on core businesses, avoiding huge capital

expenditures in facilities, reaping benefits of excellent

operations and flexibility that 3PLs provide, and relying on

3PL’s expertise, technology, and IS. The clients themselves,

not having strong geographic distribution network, are

attracted by the 3PL’s reputation.All three companies use services such as transportation

from other 3PLs. The most common reasons for their returns

are that customers change minds and companies overstock.

They attributed this to the fact that due to fierce competition

and current marketing practice, companies use liberal returns

policies. They noted that many stores’ returns restrictions are

not enforced for fear of losing customers. Other reasons stated

for customer returns include wrong products ordered and/or

shipped to wrong destination (misinformation), missing parts,

shipping damage, quality complaints, and unclear “use”

information.RL activities the companies utilized include

remanufacturing, remarketing, recycling, and landfilling.

Two companies employ same employees to handle both

forward and RL. One company employs different employees

to handle forward and RL separately. The managers

confirmed that in practice companies sometimes operate

same distribution-center (DC) facilities for both forward and

reverse flows, and sometimes separate DC facilities are used.Most returned products are processed to put back to shelf

without or with a little re-kit, re-package, repair, or refurbish.

This is because more than 75 percent of all returned products

are not defective but are returned because of misinformation

at the time of purchase (Chiger, 2007). Others are to sell to

secondary market, dismantle to harvest components, recycle,

or landfill.

Discussion

The paper reports a case study that focuses on key strategic

issues that a firm may need to consider to be excellent in its

RL efforts. In some instances, we have also corroborated, with

information from the trade literature, the RL practices

reported by the companies we studied as outlined in the

previous sections of this paper. Thus, readers are referred to

the appropriate sections of this paper for those practices and

can choose to adapt these to their RL operations. Having

stated the above, we provide below some general comments

on RL practice.The whole supply chain of returns is sometimes

decentralized in the sense that each supply chain member is

self-serving. A better method can be to construct a centralized

supply chain, in which the objective is to maximize the whole

system business value using some supply chain management

initiatives such as vendor-managed inventory (VMI) and

collaborative planning, forecasting and replenishment. After

the system performance is improved, supply chain partners

can share enhanced profits.Managers’ strategies are to minimize cost while achieving

some desired customer service level consistent with industry

standards, which explains why using 3PLs and outsourcing

some logistics activities are ubiquitous, and why RL needs

adequate management commitment and performance

evaluation. Our findings indicate that companies need to

make more commitment to RL and build a better control

system, particularly in measuring system performance. The

surprise may be that companies have a practice not to

establish performance indicators only for RL.As an alternative, companies in RL can utilize the

differentiation strategy by promoting corporation citizenship,

establishing brand image, building extensive logistics dealer

network, etc. Companies can then enjoy privileged customer

loyalty that will yield higher profit margins and provide extra

entry barriers to their competitors.The limitation of our paper lies in the fact that we looked at

only three companies; so we caution a generalization of our

findings, especially where we do not provide corroborations

from the trade literature. A good future research is to carry

out a large-scale field study or survey across many industries.

The research also has some important extensions:. identify future trends and key factors in RL, such as

consolidation, intermediate elimination, and competitive

differentiators;. build theoretical frameworks in RL, and provide coherent

guidelines and recommendations to industry.

References

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challenge”, Multichannel Merchant, Vol. 24 No. 6, p. 54.Coia, A. (2005), “Smoothing the reverse flow”, Frontline

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Van Wassenhove, L.N. (2004), Reverse Logistics:

An exploration of reverse logistics practices in three companies

Xiaoming Li and Festus Olorunniwo

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Corresponding author

Xiaoming Li can be contacted at: xli1@tnstate.edu

An exploration of reverse logistics practices in three companies

Xiaoming Li and Festus Olorunniwo

Supply Chain Management: An International Journal

Volume 13 · Number 5 · 2008 · 381–386

386

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