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The Importance of Reverse Logistics

Discuss about the European Journal of Operational Research.

The reverse logistics or RL have, in the recent times, resulted in the gaining of the attention of the environmentalists to be an effective solution in the addressal of the various sustainability issues. The various industries in the global market take note for the improvement of the cost base through the process of recovery of products. The End-Of-Life product recovery results in the elimination of the waste thereby making the companies more efficient in the resources in the processes that are related to the establishment of the consumer image that are responsible for the environmental issues. According to Pokharel and Mutha (2009) as well as Ilgin and Gupta (2010), the study of the reverse logistics has posed to be an area of significant importance for the researchers in the field. Thiary et al. (1995), De Brito and Dekker (2004) and Ravi et al. (2005) have opined that the major reasons behind the growth for this interest are the economic, the legal and the social reasons. Porter and van der Linde (1995) opine that the legal factors that are enforced through the various regulations of the government might play a vital role in the matters pertaining to the development of the innovative recovery plans and the overall reverse logistic systems. Dowlatshai (2005) and Rubio and Corominas (2008) further opine that the economic factors are the major reasons that are related to the motivating factors for the SC managers. Xanthopoulos and Iakovou (2009) argue that the positivity in the fiscal gains that have resulted from the retrieval of the returned EOL or the used electric as well as electronic items help in the reinforcement of the increasing interest in the matters that deal with the studies related to product recovery along with their interest in the matters that pertain to the improvement of the profitability of the original equipment manufacturer (OEM) items in  the automobile industries, as put forth by Hammond et al. (1998). The benefits of the reverse logistics in the matters of environmental and economic indices are quite apparent. However, the successful strategic SC planning integrating the various matters that pertain to the collection, the recovery, the re-manufacturing and the redistribution of recovered products poses to be a real challenge. Subramoniam et al. (2009) suggests that the literature in the matters that pertain to the strategic decision making in the discussed field is very limited. A successful methodology for the collection of returnable (EOL, used or broken or failed products or components) that could be defined as a procedure for generic planning that might be pursued by SC managers for addressing the reverse logistics in their business has not yet been established in the literature. A similar argument might also be applicable to the recovery process and the remarketing of the recovered products.

Strategic Planning for Reverse Logistics

As put forth by Krumwiede and Sheu (2002), the SCs should consider reverse logistics to be a complex business process in a critical manner in the condition when, according to Horvath et al. (2005) the recovered products might occupy a certain portion of the demands that are placed for the new products so as to obtain the business advantages related to the reverse logistics or comply with the environmental or the regulatory requirements. Thus, it might be inferred that the RL influences overall demand for product, the input requirements, the manufacturing and the marketing process of a total SC through collection of returnable, recovery of the components and the marketing of the recovered products. Thus, reverse logistics might be considered to be a strategic planning issue. A successful strategic planning approach that integrates RL in the overall SC process must address the key factors inclusive of the strategies for the collection and the recovery of the components or the products, estimation of the returnable and the recovered quantities, re-manufacturing and the re-marketing of the recovered items, the supply management and manufacturing of new products as well as the distribution of new and recovered products to the market.

Savaskan et al. (2004), Schultmann et al. (2006), Wojanowski et al. (2007), Cruz-Rivera and Ertel (2009) state that there are various studies that relate to the exploration of the strategies that are employed in the collection of the returnable. The strategies might include collection of returnable by the manufacturer, the third-party (3-P) logistics and the retail outlets. A 3-P collection strategy might be considered to be suitable only when it is driven by a reasonable profit amount. Schultmann et al. (2006) argue that in order to consider the ecological factors and the regulatory requirements, the SC managers might often need to facilitate an integration of reverse logistics in situations wherein each and every returnable might not be driven by profit. Savaskan et al. (2004), however considered 3-P logistics, the retailers and original manufacturers for collecting of the returnable, thereby concluding that the collection through the retailers was actually the best option. Guide et al. (2003) opines that the SC management further needs to address the customer motivation in the return of the products by offering various incentives while considering collections of returnable.


The other factor that might be considered is the recovery process that needs to be handled by the original manufacturers of the products or the 3–P RSPs. The feasibility of the SC to operate a recovery facility might be low due to the difficulty in the matters that arise in predetermination of the quality and the quantity of the returnable. Thierry et al. (1995) opines that the recovery processes vary from product to product thereby involving differences in the needed amounts of expertise. Contractual arrangements with a network of RSPs might seem to be the most suitable option for the employment of a successful recovery process taking into consideration the economic factors and the capability requirements. On the basis of the discussed factors, the SCs would greatly benefit from the implementation of a reverse logistics integrated strategic planning model that involves the retailers for the collection of the returnable – using the appropriate incentives and thereby managing the recovery through a network of RSPs – in addition to the addressal of the manufacturing, the re-manufacturing and the distribution of the products to the customers. The effective implementation of this model can be made by creating the contractual arrangements with the retailers and the RSPs that might have potential to establish the long-term partnering for mutual benefits. This type of RL planning might help the SCs in the addressal of the complexities related to being environmentally responsible by the collection of the entire set of the recyclable items, making the collection process customer friendly by including the use of retailers (one area for the buying and the selling) as well as economic since several manufacturers might have the option to collaborate by employing the same retailer for all their products. The employment of the retailers in the matters that pertain to the proposed two-way channel (the collection and the marketing) would lead to the improvement of SC performance in the terms of the cost, customer responsiveness as well as environmental image. The employment of a network of RSPs for the recovery would be complementary to this process through their joint capacity as well as capability. This research proposes an MIP model for the strategic-level SC planning that might integrate the reverse logistics by involving the retailers in an agreement for collecting the returnable by implementing the incentives in order to motivate the consumers, the pooling of the capabilities of a network of RSPs for the process of recovery and marketing of the new products, and the re-marketing of the recovered products – as a manner of improving the overall performance of the SC in terms of the profit and the environmental requirements. This model attempts to resolve the strategic-level planning in two steps in order to facilitate the reduction of complexity in computation. In the initial step, the concerned model addresses collection of returnable and the recovery of the products or the components. In this step, a stochastic process based on scenario estimates the returnable, thereby relating them to the various incentive plans that are pursued by retailers. In the devising of the incentive plan, the SC managers would be able to resolve the various economically prohibitive environmental issues (like the collection of recyclable non-profit items), implementing the option of the trade-offs while agreeing to the contractual arrangements with the retailers. In the following step, the model integrates the recovered components into the overall SC planning to optimize the profit.

Collection Strategies


The novel contributions of this research are enlisted below.

  • Integrating the RL planning at the various strategic levels so as to optimize the overall cost of the product;
  • Developing a plan that addresses marketing, collecting returnable and remarketing recovered products with the help of retailers as a two-way channel;
  • Planned recovery of the products and the components implementing a pool of the RSPs; and
  • Developing a total SC view that aims at the addressal of suppliers, the manufacturers, the DCs, the retailers and the RSPs, along with the appointment of the suppliers for specific supplies, the allocation of production to the manufacturers and the assignment of factories to the DCs.

The remaining part of the paper is organized in the following way. Section 2 reviews the literature on the subject. Section 3 builds the conceptual flow diagram, describing the problem statement and thereafter developing mathematical models. Section 4 illustrates a numerical example inclusive of a sensitivity analysis of the model output due to the changes in the recovered product quantity. Section 5 provides concluding remarks.

The study of RL, in the recent years, has attracted significant amount of attention from the researchers and the SC managers due to apparent long-term benefit potential, enactment of the local laws and special importance to the environment demonstrated by customers at large. The successful designing of an effective recovery plan that attracts the interest of the customers in the returning of their EOL or the used or even the unusable products tend to pose a significant challenge. As proposed by Xanthopoulos and Iakovou (2009), there exists a two-stage model for recovery of the EOL electric as well as the electronic products. During the primary phase, the concerned study made use of a goal-programming approach in order to identify components that are suitable for the disassembly and the recovery. During the second phase, the model dealt with the production of a tactical MIP model which helped in the decision of the optimal lead times and the re-manufacturing of the parameters of operation. The study also used a production management approach based on lean to address the cost and the resource issues in the process of remanufacturing decision. On the other hand, Gou et al. (2008) focused on an open-loop, RL system and thereby developed a stochastic inventory model in order to determine the economic batch size for a single, centralised return centre, and economic inventory level of various local collection points for the minimising of overall cost of SC.

The literature on remanufacturing (reman) and RL for the automotive industry was reviewed by Subramonium et al. (2009) and the review covered a number of topics inclusive of reman cost benefit analysis, the supply management of used products, reman skills and competencies, life cycle strategies of the product, reverse logistics and reman network design, the environmental considerations, the regulations as well as impact of reverse logistics–based emerging economies. The results of the study put forth recommendations that the OEM should attempt a development of their products keeping in mind the reman requirements, as adopted by the World Commission on Environment and Development (WECD). This change would help in ensuring that the products could be designed in order to refurbish EOL product. The authors also recommended future research in areas that are enlisted below.

  • Development of strategic SC planning process for addressing reman;
  • Integrating reman design with upstream OE process as a way of facilitating more reman parts that are available for the service; and
  • Developing and integrating a sustainable framework within mainstream business process.

Recovery Processes

Francas and Minner (2009) used a two-stage stochastic programming model for the investigation of the use of capacity planning and choices of network configuration for recovery of products. The model proposed by them considered remanufactured products, with the assumption of such recovered products to be as good as new. Wadhwa et al. (2009) took into consideration the uncertainties in the timing, the quantity and the quality of the EOL products that were returned by the clients, and availability of the various reprocessing alternatives when the authors modelled the RL system, by making use of the fuzzy decision-making in order to select the recovery option that might prove to be the best for the concerned product.

The comprehensive RL study by Cruz-Rivera and Ertel (2009) addressed various issues that are related to the location of the collection centres, the demand and the recovery framework for the EOL automotive vehicles in the state of Mexico. The study put forth a model for strategic network design for the collection of EOL vehicles in the model of the fixed charge facility location model as proposed by Daskin (2003). Schultmann et al. (2006), in a similar study on automotive RL, modelled the RL problems on the specific case of EOL vehicles in Germany in a closed-loop SC. The study considered the 3-P collection centres and evaluated the network design concepts for separating and reprocessing the plastic components of EOL vehicles. Schultmann et al. further recommended the establishment of the collaborative approach to recovery networks when recovery takes place free of charge so as to fulfil the legal requirements. The reverse logistics system based on RFID, as proposed by Lee and Chan (2009) aims to optimize the transportation costs and thereby keep track of the collection quantities at the various collection points. The study utilised a heuristic based on GA for the selection of the optimal locations for collecting the returned products from the clientele. De Figueiredo and Mayerle (2008) put forth the analytical model for the networks of designing collection wherein the manufacturers – majorly defined as the recyclers – were regulated in order to use a decided percentage of the recovered products or the components. The model took into consideration the incentives that were paid to the client or the collection agents for the returned items, the number and the location of collection centres while designing collection networks.


A mixed-integer nonlinear programming (MINP) model was proposed by Lieckens and Vandaele (2007) for the addressal RL in an SC problem. In order to address the inventory, the production lead time and uncertainty of RL-related parameters, the authors took into consideration a queuing model that extended the formulation of the MINP. The complex model that was formed seemed to be interesting in a merely theoretical manner. A recent study by Kara and Onut (2010) proposed a stochastic model of revenue maximisation for the paper company which aimed to consider the processes of recycling and recovering paper. This model attempted the decision of the best locations needed for the recycling centres by the estimation of the flow of the product from clients to recycling centres and again back to customers of the product.

Reverse Logistics Integrated Strategic Planning Model

A model for the closed-loop SC network as proposed by Yang et al. (2009) that included cost and the objectives of business of the suppliers of raw material, the manufacturers, retailers, clients as well as the recovery centres. The model utilised the variational inequality approach in the stochastic-based model for the achievement of the optimality conditions and thereby maintaining equilibrium of members of the network. Chouinard et al. (2008) attempted a study on quality level of the products that were returned in an approach to stochastic modelling. The authors took into consideration the product quality levels in the five states in order to decide the recovery processing alternatives such as: s ¼ 0, unknown; s ¼ 1, new; s ¼ 2, good condition; s ¼ 3, deteriorated; and s ¼ 4, unusable. Thierry et al. (1995) put forth the definition of five product recovery systems: the re-manufacturing, the repairing, the refurbishing, the cannibalisation and the recycling. The study included the comprehensive discussion of the approach of product design towards recovery, inclusive of importance of the reduction in the disposal waste, the benefits of preparing clients for the green products and the issues of environmental legislation that might be present in the systems of recovery.

The existing literature depicts that the existent research has not provided due importance to the majority of the important factors of strategic RL that has been identified in Section 1 of the paper. The study attempts to address the RL planning factors that are existent on a strategic level for the collection of the returnable, inclusive of the retailers in an effective manner using the incentive plan that is suitable, the fulfillment of environmental requirements, product recovery through the RSP network and the overall improvement of SC performance.

References

Chouinard, M., D’Amours, S., & Ait-Kadi, D., 2008. A stochastic programming approach for designing supply loops. International Journal of Production Economics, vol. 113, no. 2, pp. 657–677.

Cruz-Rivera, R. & Ertel, J., 2009. Reverse logistics network design for the collection of end-of-life vehicles in Mexico. European Journal of Operational Research, vol. 196, no. 3, pp. 930–939.

Daskin, M.S., 2003. Facility location in supply chain design. Working Paper No. 03-010, Department of Industrial Engineering and Management Sciences, Northwestern University, Illinois.

De Brito, M. & Dekker, R., 2004. A framework for reverse-logistics. In: R. Dekker, et al., eds. Reverse-logistics, quantitative models for closed-loop supply chains. Berlin: Springer, 3–27.

De Figueiredo, J.N. & Mayerle, S.F., 2008. Designing minimum-cost collection recycling networks with required throughput. Transportation Research, Part E, vol. 44, no. 5, pp. 731–752.

Proposed MIP Model

Dowlatshai, S., 2005. A strategic framework for the design and implementation of remanufacturing operations in reverse-logistics. International Journal of Production Research, vol. 43, no. 16, pp. 3455–3480.

Francas, D. & Minner, S., 2009. Manufacturing network configuration in supply chains in product recovery. Omega, vol. 37, no. 4, pp. 757–769.

Gou, Q., et al., 2008. A joint inventory model for an open-loop reverse supply chain. International Journal of Production Economics, vol. 116, no. 1, pp. 28–42.

Guide, V.D.R., Teunter, R., & van Wassenhove, L.N., 2003. Matching demand and supply to maximize profits from remanufacturing. Manufacturing and Service Operations Management, vol. 5, no. 4, pp. 303–316.

Hammond, R., Amezquita, T., & Bras, B., 1998. Issues in the automotive parts remanufacturing industry – a discussion of results from surveys performed among remanufacturers. International Journal of Engineering Design and Automation, vol. 4, no. 1, pp. 27–46.

Horvath, P., Autry, C., & Wilcox, W., 2005. Liquidity implications of reverse logistics for retailers: a Markov chain approach. Journal of Retailing, vol. 81, no. 2, pp. 191–203.

Ilgin, M.A. & Gupta, S.M., 2010. Environmentally conscious manufacturing and product recovery (ECMPRO): a review of the state of the art. Journal of Environmental Management, vol. 91, no. 3, pp. 563–591.

Kara, S.S. & Onut, S., 2010. A two step stochastic and robust programming approach to strategic level planning of a reverse supply network: the case of paper recycling. Expert Systems with Applications, vol. 37, no. 9, pp. 6129–6137.

Krumwiede, D.W. & Sheu, C., 2002. A model for reverse logistics entry by third-party providers. Omega, 30 (5), 325–333. Lee, C.K.M. and Chan, T.M., 2009. Development of RFID based reverse logistics systems. Expert Systems with Applications, vol. 36, no. 5, pp. 9299–9307.

Lieckens, K. & Vandaele, N., 2007. Reverse logistics network design with stochastic lead times. Computers and Operations Research, vol. 34, no. 2, pp. 395–416.

Pokharel, S. & Mutha, A., 2009. Perspectives in reverse logistics: a review. Resources, Conservation and Recycling, vol. 53, no. 4, pp. 175–182.

Porter, M.E. & van der Linde, C., 1995. Toward a new conception of the environment–competitiveness relationship. Journal of Economic Perspectives, vol. 9, no. 4, pp. 97–118.

Ravi, V., Shankar, R., & Tiwari, M.K., 2005. Analyzing alternatives in reverse logistics for the end-of-life computers: ANP and balanced score card approach. Computers and Industrial Engineering, vol. 48, no. 2, pp. 327–356.

Rubio, S. & Corominas, A., 2008. Optimal manufacturing-remanufacturing policies in a lean environment. Computers and Industrial Engineering, vol. 55, no. 1, pp. 234–242.

Savaskan, R.C., Bhattacharya, S., & Van Wassenhove, L.N., 2004. Closed-loop supply chain models with product remanufacturing. Management Science, vol. 50, no. 2, pp. 239–252.

Schultmann, F., Zumkeller, M., & Rentz, O., 2006. Modeling reverse logistics tasks within closed-loop supply chains: an example from the automobile industry. European Journal of Operational Research, vol. 171, no. 3, pp. 1033–1050.

Subramonium, R., Huisingh, D., & Chinnam, R.B., 2009. Remanufacturing for the automotive aftermarket – strategic factors: literature review and further research needs. Journal of Cleaner Production, vol. 17, no. 13, pp. 1163–1174.

Thierry, M., et al., 1995. Strategic issues in product recovery management. California Management Review, vol. 37, no. 2, pp. 114–135.

Wadhwa, S., Madaan, J., & Chan, F.T.S., 2009. Flexible decision modeling of reverse logistics system: a value adding MCDM approach for alternative selection. Robotics and Computer-Integrated Manufacturing, vol. 25, no. 2, pp. 460–469.

Wojanowski, R., Verter, V., & Boyaci, T., 2007. Retail-collection network design under deposit-refund. Computers and Operations Research, vol. 34, no. 2, pp. 324–345.

Xanthopoulos, A. & Iakovou, E., 2009. On the optimal design of the disassembly and recovery processes. Waste Management, vol. 29, no. 5, pp. 1702–1711.

Yang, G.-f., Wang, Z.-p., & Li, X.-q., 2009. The optimization of the closed-loop supply chains network. Transportation Research, Part E, vol. 45, no. 1, pp. 16–28.

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