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
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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.
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Corresponding author
Xiaoming Li can be contacted at: [email protected]
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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