Study of existing Reverse Logistics framework Retail industry

Study of existing come up Logistics fabric Retail industryAbstractReverse Logistics is a real complex and specialized bea of solely hang on twine and it involves handling individual incoming parcels, opening and inspecting harvestings, communicating with internal departments, customers and vendors and then tell products into disposition channels which will provide the highest lever. economical Reverse Logistics system rear transform an increasingly costly and complex repays management process into a competitive favour. Integration of come up logistics in peculiar(prenominal) retail sectors is critical for sustainability. The aim of this project work is to identify and examine the annul logistics management in the retail industry in order to register the existing covering of wrench logistics and then propose relevant passports to improve qualification in invalidate logistics management. After critical analysis of the existing bump logistics management in the se lected retail sectors, potential ways to improve the efficiency of gust logistics activities would be recommended in the selected retail sectors.Chapter 1 IntroductionTwenty-long time ago, issue bondage were busy fine-tuning the logistics of products from raw material to the end customer. Products argon obviously still streaming in the direction of the end customer but an increasing settle of products is coming back. This is run intoing for a whole range of industries, covering electronic goods, pharmaceuticals, beverages and so on. For instance distant sellers like e-tailers have to handle high return rank and many an(prenominal) times at no cost for the customer. It is not surprising that the Reverse Logistics Executive Council has announced that US firms have been losing billions of dollars on cover of being ill-prepared to deal with remove gear flows (Rogers and Tibben-Lembke, 1999). While some actors in the chain have been forced to take products back, others have pro -actively done so, attracted by the judge in intentiond products. wiz way or the other, Reverse Logistics has become a key competence in modern supply chains. Many companies that, previously, did not institutionalize much time or energy to the management and understanding of reverse logistics have begun to pay attention.Definition of reverse logisticsIn 1998 Stock defined reverse logistics as the role of logistics in product returns, source reduction, recycle, materials substitution, re go for of materials, waste disposal and refurbishing, repair, and remanu situationuring (1998, p. 20). In a 1998 paper in the Journal of Business Logistics Carter and Ellram take a similar definition, calling it the process whereby companies can become more(prenominal) environmentally efficient through recycling, reusing, and reducing the amount of materials used (p. 85). If the focus of logistics is the exertion of material from the draw of origin toward the point of consumption (Council of Logistics Management 1999), then the focus of reverse logistics should be the movement of material from the point of consumption toward the point of origin. Rogers and Tibben-Lembke in their 1999 article emphasized a clear definition of reverse logistics drawn in essence from the Council of Logistics Managements definition given as follows, The process of planning, implementing, and authoritative the efficient, cost effective flow of raw materials, in-process inventory, finished goods, and link study from the point of consumption to the point of origin for the purpose of recapturing or creating value or proper disposal (Rogers and Tibben-Lembke 1999, p. 2)This dissertation focuses on the reverse logistics activities in the retail industry with an analysis framework concerning the cost-benefit, visibility-information flow and efficiency. A reverse logistics flow is more reactive with much less visibility. The figure 1 depicts a common reverse logistics information flow for the r etail channel. For instance, when a consumer returns an item to a retail store, the store collects he items to be sent to a centralized sorting facility. At the time, information about the item and its condition may be entered into retailers information system and forwarded to the processing centre.Figure Reverse logistics in Retail an epitome of information flowDe accountation of reverse logistics definitionSince Reverse Logistics is a comparatively saucy search and empirical area, there are other belles-lettres terms, like reversed logistics, return logistics and retro logistics or reverse distribution, sometimes referring good-nigh to the same. In fact, the diversity of definitions with respect to come upy practices is a well-recognized source of misunderstandings some(prenominal) in research as in practice (Melissen and De Ron, 1999)In this dissertation I would like to remark that Reverse Logistics is different from waste management as the latter mainly refers to collecti ng and processing waste (products for which there is no sunrise(prenominal) use) efficiently and effectively. The crux in this matter is the definition of waste. This is a major issue, as the term has severe legal consequences, for instance, it is often forbidden to import waste. Reverse Logistics concentrates on those streams where there is some value to be recovered and the outcome enters a (new) supply chain. Reverse Logistics too differs from kelvin logistics as that considers environmental grammatical constructions to all logistics activities and it has been focused specifically on forward logistic, i.e. from producer to customer (Rodrigue et al., 2001). The prominent environmental issues in logistics are consumption of non-renewable natural resources, air emissions, congestion and passageway usage, noise pollution, and both hazardous and non-hazardous waste disposal (see Camm, 2001). Finally, reverse logistics can be seen as part of sustainable development. The latter ha s been defined by Brundland (1998) in a report to the European Union as to meet the selects of the present without compromising the ability of future generations to meet their own needs. In fact one could regard reverse logistics as the implementation at the company level by making sure that society uses and re-uses both efficiently and effectively all the value which has been put option into the products.The border between forward logistics (from raw materials to end user) and reverse logistics (from end user to convalescence or to a new user) is not strictly defined as one can wonder about what raw materials are, or who the end user is, in modern supply chains. For instance, used/recovered glass is a substantial input for new production of glass. A holistic view on supply chains combining both forward and reverse logistics is embraced by the closed-loop supply chain concept (Guide and van Wassenhove, 2003). Recovery practices are framed within the supply chain, and the encircli ng aspect of the process as a whole is therefore stressed having either 1) a physical (closed-loop) to the pilot user (see Fleischmann et al., 1997) or 2) a functional (closed-loop) to the original functionality. Thinking in term of closed-loop supply chains emphasizes the grandness of coordinating the forward with the reverse streams. Actually, whenever both forward and reverse flows are involved, co-ordination has to be object (see Debo et al., 2003). This happens, either in closed- or open-loops (the latter refers to when neither the original user nor original functionality are in the reverse logistics process).Aim and intentions of the projectReverse Logistics is a very complex and specialized area of any supply chain and it involves handling individual incoming parcels, opening and inspecting products, communicating with internal departments, customers and vendors and then directing products into disposition channels which will provide the highest value. Efficient Reverse Log istics system can transform an increasingly costly and complex returns management process into a competitive advantage. Integration of reverse logistics in specific retail sectors is critical for sustainability.The aim of this project work is to identify and examine the reverse logistics management in the retail industry in order to understand the existing application of reverse logistics and then propose relevant recommendations to improve efficiency in reverse logistics management. In order to achieve this objective the project work would involveIdentifying the key retail sectors in which reverse logistics has and will have potential importanceExamine the conglomerate reverse logistics activities in the selected retail sectorsAnalyze the effectiveness of reverse logistics management from the perspective of efficiency, profitability and environmental aspectsPropose recommendations to improve the efficiency of reverse logistics managementReport organizationThe dissertation consists of five main chapters which is organized as followsChapter 1 introduces the research topics as well as the main objective of this study. Moreover, this chapter provides some of the background information about reverse logistics. It also provides a brief detail of the research methodology and the organization of the dissertation.Chapter 2 provides the introductory knowledge of reverse logistics process together with key success factors and barriers of effective reverse logistics management are introduced. The previous papers are discussed in the literature come off section.Chapter 3 discusses the information about research figure of speech and data collection method. The section elucidates the research approach and the relevant frameworks to be included in the research conduct. This section discusses about the methodology of how the reverse logistics management is analyzed to cover the research questions.Chapter 4 discusses the analysis related to the reverse logistics trends an d the effectiveness of reverse logistics management from the holistic perspective of cost, efficiency and environmental aspects. The key drivers and persistent barriers for reverse logistics management for the selected retail companies are discussed.Lastly, chapter 5 concludes the pass of the finding and the analysis. The recommendation and the discussion about the future research are discussed.Chapter 2 Literature canvassBackgroundRetailers constantly focus on strategies to gain competitive advantage and to improve financial performance. In doing so, emphasis is more frequently being placed on logistics, including tactical initiatives such as automatic replenishment programs, real time information sharing, and advanced demand management techniques designed to improve internal efficiencies (Li 2002 Daugherty, Myers, Autry 1998 Seideman 2002).However, retailers also compete on the basis of effectiveness, striving for increased customer satisfaction. One competitive tactic used to enhance customer satisfaction includes the implementation of liberalized product returns policies. By taking a more consumer friendly approach in their return policies, retailers communicate a higher level of service to patrons, and thereby increase customer satisfaction with ultimate goals of higher sales and profitability (Coopersmith 1990 Krapfel 1988).As a result of return policy liberalization, acceptance of product returns is now commonplace returns are reported to be as high as 10-15 per centum of sales in some retail industries (Rogers Tibben-Lembke 1999), and are thought to be even higher in catalog and internet retailing, with typical return rates of up to 40 percent (Rogers, Lambert, Croxton, Garcia-Dastague 2002). However, the acceptance of returns places stress on the retailers logistics function. Whereas typical logistics activities are engineered to optimize flows from producer to consumer, reverse logistics activities move product, information, and currency in the contrary direction. While satisfying efforts have been expended in streamlining and optimizing retail logistics activities, the accomplishments associated with these activities do not always directly apply to the reverse logistics process. The forward movement of goods through the supply chain generally results in large receipts of goods at clearly defined intervals (such as when inventory levels reach critical safe and soundty levels, or at pre-specified and scheduled times), with the ultimate sale executed in smaller quantities to end-users. On the other hand, reversed supply chain flows are less predictable, occurring at various times and for various reasons, and thus, the be of returns handling can be high (Rogers et al. 2002 Stock 1998).One area of concern related to reverse logistics that has been largely cut by academic research and practicing retailers is the financial implications of reverse logistics activities, especially as related to firm liquidity. When products r everse directions in a supply chain, it can happen quickly and without notice. While effective reverse logistics activities generally result in value reclamation and increased cash inflows, there can be periods where significant unexpected cash outflows occur. This is often due to the time lag between the moment the firm recovers the value from the returned product and the assumption of costs incurred in the reverse logistics process. in that locationfore, financial management of the reverse logistics process becomes salient, and needs to be a retailer focus on an ongoing basis.Reverse logistics processA typical reverse chain process is shown in Figure 2. But a distinction should be do between different categories of returnsCommercial ReturnsReturns for which there is an adjacent demand at another market location or segment. Possible causes customer dissatisfaction, catalogue sales, overstocks etc. Commercial returns occur in the sales flesh or shortly after.Repairable ReturnsDe fects and suspect components (modules/parts) from field (exchange) repair activities or products under warranty. Customer is entitled to a replacement product.End-of-use ReturnsReturned products/components which are not of longer use to the original owner, but for which new customers can be found. Reasons end-of-season, end-of-lease, trade-in, product replacements etc.End-of-life ReturnsItems of no remaining use, which are processed due to contractual or legislative obligations. These returns are often collected and processed according to legislative obligations.RecallsProducts recalled by the manufacturer due to a condition or defect that could affect its safe function. Work on a recall is completed at no cost to the product owner. new(prenominal) types of returns, such as refillable units and reusable carriers, are not included in this study.Figure Reverse logistics processReturned goods often go through the following activities depending on the return typeProduct Acquisitionrec overy of the product back from the market. The timing, quantity, quality and composition of returned product need to be managed in close cooperation with other supply chain parties.CollectionLogistical activities (such as headation, consolidation, tran chargement and storage) to obtain the products back from the market and transport them to facilities involved in the other stages.Sorting, Testing DispositionThe classification (according to quality and composition) of returns and determination stage of the route the product will take in the reverse chain. Market and strategic conditions are taken into figure in the disposition decision.RecoveryThe process of recovering value from the returned product by re-use, repair, refurbishment, recycling or other types of recovery.Redistribution SalesBasically, no value recovery has materialised until the recovered products, component or materials are brought back into a forward supply chain.Review of Past research worksFinancial aspects of RLRaimer (1997) indicated that returns are, and always have been, a fundamental part of retailing. His estimate was that reverse logistics account for between 5 and 6% of total logistics costs in the retail and manufacturing sectors. Daugherty et al. (2001), in a survey of US catalogue companies, reported reverse logistics costs on average to be 9.49% of total logistics costs. Rogers and Tibben-Lembke (1998) place returns for different industries, with figures being recorded of 50% (magazine publishing), 20-30% (book publishers), 18-35% (catalogue retailers) and 10-12% (electronic distributors). Returns of merchandise bought over the Internet are expected to deepen as online sales grow. Consequently, companies in many sectors are facing a change of customer interface possibilities and subsequent supply chain dynamics (Rowley 2000). Returns are high because customers purchase online items on trial until they can handle them physically. Moreover, in mail order, especially ladies fa shion, return rates of 60% are common (Wheatley 2002). given this level of returns, it is outstanding to recognise that reverse logistics can have a significant bottom line impact on a company, and the ability to hitress opportunities may depend ultimately on management perceptions of reverse logistics (Stock 1998, Mason 2002). Autry (2005) argued that managers need to realise that effective handling of reverse logistics transactions can result in economic and strategic benefits. In practice, some companies seem to ignore the significance of reverse logistics to their supply chain, some companies have gradually recognized its importance, whilst others review reverse logistics as a strategic variable. It has been suggested that innovator firms that develop an expertise in reverse logistics activities and recognize them as a set of business processes that add value can potentially generate revenue, improve customer satisfaction, achieve significant cost savings and deliver a competi tive edge in their various markets (Stock 1998, Carter and Ellram 1998). Given such potential benefits from developing reverse logistics processes, it is important to recognize the existence of barriers that may hinder the implementation of reverse logistics processes. Ravi and Shankar (2005), in a study of the automobile industry, identified 11 barriers to the application of reverse logistics. These include resistance to change, lack of appropriate performance measures, lack of training related to reverse logistics, lack of commitment by top management and lack of strategic planning.Dowlatshahi, S. (2008) in his cost-benefit analysis for reverse logistics management considered and analysed the relevant literature in RL and identified the present state of theory in RL regarding cost-benefit. The research methodology used is exploratory case study approach. The cost-benefit is analysed and evaluated in terms of specific sub-factors associated with it by use of two in-depth case studi es. Two companies from different industries engaged in RL operations are considered. The analysis of these case studies resulted in propositions and insights regarding RL operations. Based on these insights, the cost-benefit sub-factors, propositions, and a framework for effective design and implementation of RL operations are provided. This framework determines the appropriate sub-factors and how the return process of products/parts with respect to cost-benefit works. In conclusion, the managerial implications and future research directions were provided.There are several parties involved in the management of the reverse logistics process and the way in which such interfaces are managed is crucial in both environmental and economic terms. As returns management becomes increasingly recognised as an area of supply chain importance, retailers are either developing in-house capabilities or outsourcing the operation to third-party logistics (3PL) providers (Krumwiede and Sheu 2002, Mead e and Sarkis 2002, Hughes 2003). These supply chain interfaces occur in a number of different ways. For example, interfaces occur between retailers and manufacturers, between retailers and 3PLs and between end customers and retailers. There are many tensions occurring between these different players in the process. Currently, some companies prefer to build a separate infrastructure in order to facilitate the operation of the reverse logistics process. Other companies want to optimize the utility of their physical network by combining the reverse operation with the forward operation. In addition, centralized returns are a related possibility when companies are considering the construction of their physical network.Environmental aspects of RLEnvironmentally friendly practices and the need to maintain sustainable development are important aspects in the consult surrounding reverse logistics. By not embracing sustainability, organizations face consequences in terms of increased economi c and social liability (Savits 2002). Sustainable development embraces the trey bottom line philosophy of not compromising the future needs of society, the economy and the environment. In many reports on corporate social responsibility, sustainable transport is a significant feature with attempts to cut harmful emissions whilst maintaining economic operations. A driving force behind the search for improvements in sustainable distribution was the written document published by the Department of Transport (1998) entitled A new deal for transport correct for everyone. Efficient integration of forward and reverse logistics has a significant part to play in this process. In this drive for sustainable distribution, it is important to recognize that accounting has a role to play. Mention has already been made of Corporate Social Responsibility Reports. There is a danger that traditional models of accounting and finance are actively carrying and encouraging unsustainable organizations and institutions (Gray 2002). Accountants need to be engaged in debates about environmental strategy, the institutional framework (government incentives) needs to support environmentally sound behaviour, and the change agents (such as environmental accounting) need to be embedded within the organization (Larrinaga-Gonzalez and Bebbington 2001).Reverse logistics managementMany tools exist to support the management of the reverse logistics process. The literature identifies mathematical models to support supply and transit decisions (Du and Hall 1997). Also, the management of inventory can be supported through a range of mathematical models and enterprise resource planning (ERP) information systems (Boykin 2001, Teunter 2002). Hu et al. (2002) put forward a cost-minimisation model for minimising the total operating costs of a multi-time-step, multi-type hazardous waste reverse logistics system. Keeping with the theme of green supply chain management, Sheu et al. (2005) presented an inte grated logistics operational model to co-ordinate the cross-functional product logistic flows and used-product reverse logistics flows in a green supply chain. Information communication technology (ICT) plays a significantly growing role in supporting reverse logistics operations and Daugherty et al. (2005) called for resources to be focused on developing information technology. In recent years there have been a number of developments and improvements in dedicated reverse logistics software (De Brito et al. 2002). Developments in satellite tracking systems have also enabled vehicles to navigate better their way through congestion and to monitor and improve fuel consumption. The continuing development of ICT offers opportunities for significant economic and environmental benefits in the reverse logistics process.Drivers of reverse logisticsThere are a number of drivers of reverse logistics and many of these actually occur as a result of product and service decisions taken at the desi gn and planning stage of product and service provision. Interestingly, Sciarrotta (2003) illustrates how Philips Consumer Electronics place great emphasis on trying to prevent returns rather than dealing with them later. In the retail sector, however, strategic decisions concerning on-shelf availability together with a liberal returns policy amongst retailers are significant factors in the level of returns. Legislative factors (e.g. WEEE Directive to be implemented June 2006) are also becoming increasingly important, with new legislation focusing on the need to dispose of and recycle products in an environmentally friendly manner.In summary, the literature review has provided an overview of the issues that need to be considered when reflecting upon the management of reverse logistics processes. The significance of reverse logistics processes, in terms of both bottom line performance and environmental impact, has been highlighted in the literature. Also, the need to recognise the dri vers of reverse logistics is highlighted together with the requirement to manage the interfaces between different members of the supply chain. Finally, the literature has identified numerous tools that can be used to support the reverse logistics process, and opened up the possibilities for using accounting information in this context to facilitate improved economic performance, supply chain efficiency and sustainability.Determinants of reverse logistics (Ravi et.al, 2005)Economic factors both directly and indirectly (de Brito Dekker, 2003), legislation (de Brito Dekker, 2003), corporate citizenship (de Brito Dekker, 2003 Rogers Tibben-Lembke, 1998) and environmental and green issues (Rogers Tibben-Lembke, 1998) are the four determinants of reverse logistics taken into account in this research. These are briefly described below.Economic factorsEconomics is seen as the driving force to reverse logistics relating to all the recovery options, where the company receives both direct as well as indirect economic benefits. It is seen that companies continually strive for achieving cost savings in their production processes. If a firm does reverse logistics well, it will make capital (Stock, 1998). The recovery of the products for remanufacturing, repair, reconfiguration, and recycling can black market to profitable business opportunities (Andel, 1997). Reverse logistics is now perceived by the organizations as an investment recovery as remote to simply minimizing the cost of waste management (Saccomano, 1997). A reverse logistics program can bring cost benefits to the companies by emphasizing on resource reduction, adding value from the recovery of products or from reducing the disposal costs. Guide and Wassenhove (2003) give an example of the US firm named ReCellular, which by refurbishing the cell phones, had gained economic advantage. Thus, the economic drivers of reverse logistics lead to direct gains in input materials, cost reduction, value added recove ry and also in indirect gains by impeding legislation, market protection by companies, green image for companies and for improvement in customer/supplier relations.LegislationAnother important driver for the reverse logistics is legislation. Legislation refers to any jurisdiction that makes it mandatory for the companies to recover its products or accept these back after the end of life of the product. These may include collection and reuse of products at the end of the product life cycle, substitution waste management costs to producers, reduce volume of waste generated, and the use of increased recycled materials. For example, the Waste Electrical Electronics Equipment directive encourages a set of criteria for collection, treatment and recovery of waste electrical and electronic equipment and makes producers responsible for financing these activities (WEEE, 2003). There has also been a restriction on the use of hazardous substances in the production processes, which facilitates the dismantling, and recycling of waste electronics. A reverse logistics decision for the EOL computers should ensure that the end-of-life products are retired in a way that is compliant with existing legislation.Corporate citizenshipAnother driver for the reverse logistics is the corporate citizenship that concerns a set of values or principles that impels a company or an organization to become responsibly engaged with reverse logistics activities. Reverse logistics activities can lead to increase of corporate image (Carter Ellram, 1998). A good example in this context would be of Paul Farrow, the founder of Walden Paddlers, Inc., whose concern of the velocity at which consumer products travel through the market to the landfill, pushed him to an innovative project of a 100-percent-recyclable kayak (Farrow, Johnson, Larson, 2000). In 1996, Hanna Andersson, a million direct retailer of infants and toddlers clothes developed a program called Hannadowns in which they distributed the childrens gently worn returned clothes to schools, homeless shelters, and other charities (Spence, 1998). Nike, the shoe manufacturer encourages consumers to bring their used shoes to the store where they had purchased them after their usage. They ship these back to Nike plant where these are shredded and made into basketball courts and running tracks. Nike also donates the material to the basketball courts and donates fund for building and maintaining these courts, thus enhancing the value of cross out (Rogers Tibben-Lembke, 1998). It is seen from the last two examples that few firms are acting as good corporate citizens by contributing to the good of the community and assisting the people who are in all probability less fortunate than their typical customers.Environment and green issuesConcern for the environment and green issues is also one of the drivers of reverse logistics. The reverse logistics lead to benefits of environment (Byrne Deeb, 1993 Carter Ellram, 1998 Wu Du nn, 1995). stag (1997) proposes that the principle of the ecological footprint indicates the relevance of greening initiatives for countries. Reverse logistics has led to competitive advantage to companies which proactively incorporate environmental goals into their business practices and strategic plans (Newman Hanna, 1996). Managers are bad increasing importance to the environmental issues (McIntyre, Smith, Henham, Pretlove, 1998). The environmental management has gained increasing interest in the field of supply chain management. Handfield and Nichols (1999) mention greening as a critical future avenue in this area. Murphy, Poist, and Braunschweig (1995) have found that 60% in a group of 133 managers surveyed considered the issue of the environment to be a very important factor and 82% of them expected that the importance would increase in the years to come. A green image of producing environmentally friendly products has become an important marketing element, which has stimul ated a number of companies to explore options for take-back and recovery of their products (Thierry, 1997). A reverse logistics operations for EOL computers should ensure that the environmental and green issues are taken into account. abbreviation of literature reviewThis brief overview of the literature provides a framework for addressing the research questions identified in the study. The literature covers the definition of reverse logistics, the scale of the problem, the bottom line impact and potential barriers, the drivers of reverse logistics, supply chain interfaces, methods suggested in improving the reverse logistics process management and importance of sustainability issues.Chapter 3 MethodologyResearch objectiveThe aim of this project work is to identify and examine the reverse logistics management in the retail industry in order to understand the existing application of reverse logistics and then propose relevant recommendations to improve efficiency