A CONCEPTUAL FRAMEWORK FOR THE DEVELOPMENT OF REVERSE LOGISTICS
Ha Van Thi Nguyen1
Abstract The fields of reverse logistics are growing fast and still young, thus it is necessary to structure conceptual framework related to the development of reverse logistics to investigate the changes and adaptability with reverse logistics in different periods. In order to build the conceptual framework for reverse logistics development, the author combined reviewing literature, accumulating knowledge through exchanging with reverse logistics experts, comparing concepts and models of reverse logistics, and exploring the published case study in practice. A conceptual model for the main factors influencing reverse logistics development was proposed. Key words Development, Reverse Logistics (RL), Performance, Capability, Effectiveness
INTRODUCTION
Reverse logistics (RL) has received much noticeable attention because of the value recovery from the used products, the pressures from existing governmental regulations, consumer awareness, and social responsibility towards environments (Chan & Chan, 2008; Fleischmann, Krikke, Dekker, & Flapper, 2000). Because of the rapid concerns of this topic, the concept of RL has not been homogeneously defined (lvarez-Gil, Berrone, Husillos, & Lado, 2007). Definition of RL can be defined in the economic or ecological aspects of returns management or we can utilize both perspectives to explain about the concept of reverse logistics (Dowlatshahi, 2000; Fleischmann et al., 2000; Kroon & Vrijens, 1995; Pfohl, 2008; Sarkis, 1995; Thiery, Salomon, Nunen, & Wassenhove, 1995; Tibben-Lembke & Rogers, 1998). Reverse logistics is defined as the process of planning, implementing and controlling backward flows of raw materials, in-process inventory, finished goods and packaging, from a manufacturing, a distribution or use point, to a point of recovery or point of proper disposal (De Brito & Dekker, 2003). Reverse logistics refers to the role of logistics in recycling, waste disposal, and management of hazardous materials; a broader perspective includes all relating to logistics activities carried out in source reduction, recycling, substitutions, reuse of materials and disposal; which have been seen one of the most important solutions for environmental problems and sustainable development (Stock, 1998). In our research, we apply the more neutral concept of reverse logistics in which we emphasize the role of related stakeholders in returns management, the increasing environmental regulations and the adaptability in the strategic focus of the firms. Reverse logistic is the management of returns process of raw materials, inprocess inventory, finished goods or related packaging materials from a manufacturing, distribution or use point to a point of recovery or point of proper disposal. To date, the management of returns process interprets not only the integrated relationship between firms and other participants in the supply chain but also the closely interdependent relationship among the functions in the firms. Previously, returns management has roots in the marketing and logistics disciplines (Mollenkopf, Russo, & Frankel, 2007). Nowadays, the firms examines the effectiveness of return handling system with the emphasis on the overall coordination of integrated functional approach in which all business functions of marketing, logistics, operations and finance/accounting (Mollenkopf et al., 2007) play the different parts in returns managements. The factors of interdependence integration and strategic alliance have been as central of the success for returns management in the new era. The rapid advancements in manufacturing technology resulted in the subsequent price erosion of product when the new and improved products enter the supply chain at a faster space. Therefore, emphasis on managing returns due to the quicker disposal activities has been considered as an important problem to be solved supply chain management (Stock, 1998). The leading role of customer in reverse supply chain is measured partly by the convenience and accommodation in which customers are able to return unwanted or defective merchandise, especially with the development of e-commerce (Mehrmann, 2008). The changes and adaptabilities of the firms with more liberal returns policy and more effective returns management process position them at a strategic advantage. Moreover, the increasing cost of returns management has stimulated the emphasis on the methods of collecting and transportation as well the product recovery strategy to reduce
1
Ha Van Thi, Nguyen, Technische Universitt Darmstadt, Department of Management and Logistics, Darmstadt, Germany, nguyen@bwl.tu-darmstadt.de
the cost. Planning and consolidating the shipments for return products are identified as the solutions to reduce expenses in return handling with fuel, labor or outsourcing costs. The developments and use of returns avoidance, gatekeeping and disposition guideline are integral components the firms strategy (Mollenkopf et al., 2007). Going through the literature review, there is only a few research works for proposing the conceptual framework of reverse logistics development in the strategic perspective. Therefore, the study applies the theory of development, theory of resource-based and the model of St.Gallen Management to explore the conceptual framework of factors influencing the development of reverse logistics and the theoretical framework for the development of reverse logistic in strategic perspective. The next part illustrates the methodology supporting for proposing the framework and propositions for the development of reverse logistics.
LITERATURE REVIEW AND CONCEPTUAL MODEL
In order to build the conceptual framework for reverse logistics development, the author combined reviewing literature, accumulating knowledge by exchanging with reverse logistics experts, comparing concepts and models of reverse logistics, and exploring the published case study in practice. Building up the framework includes three main steps, as shown in Figure 1.
Research problem Literature Review Comparing models Comparing concepts
A review of the literature dealing with the factors influencing returns management process and strategic viewpoints of returns management; A review of case studies to acknowledge the changes and adaptabilities of the firms to the requirements of returns management; Finally grounding
Comparing case study in practice Framework
Accumulated Knowedge
generating the knowledge and the development of the framework. Figure 1: Model of methodology of framework building
Calter and Ellram (1998) proposed model of the factors affecting a firms reverse logistics practices, including both external and internal factors. The study illustrated four main external factors including input (suppliers), regulatory (governments), output (customers), and competitive (competitors) in the firms business context affecting directly the reverse logistics activities. Some propositions were presented in which the regulatory factor has greater influence on reverse logistics activities than others and the customer impacts the level of reverse logistics to a significantly greater degree than do the input and competitive factors (Carter & Ellram, 1998). Some internal factors influencing reverse logistics performance were proposed in which top management support is necessary to the continued success of reverse logistics and successful reverse logistics require effective policy entrepreneurs. However, the study of Calter and Ellram (1998) has not mentioned the influence of technology, collaboration and globalization on reverse logistics performance. Roger and Tiben Lembke (1999) stated that the presence or absence of the external and internal factors could become drivers or barriers to reverse logistics development. The external factors range from external ones such as public awareness, legislations, and support of supply chain partners to internal considerations including significance of RL to other issues, company policies, strategic planning, top management commitment, resistance to change, information and technological system, financial resources, personnel resources, performance metrics and quality of returned products. Development of information technology and engineering technology has influence on the operations of RL such as the information technology for tracing and tracking, barcode system or RFID; technology or upgraded processes for manufacturing and remanufacturing or recycling; especially with return claim processing system to implement gatekeeping for product returns at the counter of retailer. Technology supports RL operations more effective and satisfies customers flexibly and quickly. Therefore, returns management has become daily business process along with the forward distribution. The company does not have reluctance to cope with returns problem and is willing to 2
release all related problems. Information and engineering technology result in the advanced development level of reverse logistics. Dowlatshahi (2000) presented the strategic factors for successful implementation of reverse logistics from the existing literature and published case studies, which includes strategic costs, overall quality, customer service, environmental concerns, and legislative concerns. The strategic factors should be considered before operational factors. When a firm considered and addressed the important strategic issues, it could focus on operational factors at the tactical level of reverse logistics. The match between strategic and operational factors improves the success of reverse logistics implementation and promotes the development of reverse logistics. However, the author did not mention redistributing of recovered products in operational factors. It is also one of the important factors affecting the firms marketability with recovered ones and illustrates partly the results of reverse logistics performance. Autry et al (2001) mentioned the issues of globalization that exacerbate the problems of returns management such as increasing costs, uncertainty and complex of reverse logistics networks with global markets, global regulations and global returns handling Tan et al. (2002) analyzed the reasons for the increasing concerns of RL because of shortening product life cycle with more upgraded technology. Technology supports for handling with returns more automatically and flexibly but causes for the increases in unsold products, returns, packaging materials and wastes. The development of e-commerce with the support of internet and information technology provides customer with quicker access to products and easier ways to return the products that are not as their expectation. Dowlatshahi (2005) formulated the propositions for strategic factors of implementing successful reverse logistics and investigated the critical strategic factors needed in developing an effective reverse logistics system. RL can have significant impact on the cost of owning an item and it is an important factor in calculating the total cost of ownership (Tibben-Lembke & Rogers, 1998). Full utilization of current equipments, labor and facilities should be the optimal solutions in order to minimize the overall costs of RL system. Therefore, successful of RL system can be described through the effective use of current resources, methods and technologies which represent through the strategic costs for RL. Benefits from reducing strategic costs are the incentives for more effective use of current resources. The service quality addressed the degree of conformance of the specification of the remanufactured products to those of the virgin products (Dowlatshahi, 2005). The service quality factor specifies the marketability of the recovered products and the benefits from remanufacturing and redistributing the returned products. Service quality of reverse logistics also illustrates the role of engineering technology in remanufacturing and recycling. Therefore, the factor of system with infrastructure, information technology and engineering technology is another external factor affecting the development and effectiveness of RL. Reverse logistics is not only about logistics but it is about customer service (Dowlatshahi, 2005). Customer service for RL is as important as customer service for FL, and may be more significant to make customer more loyal with the full and comfortable service in returns handling, credit return, quality and time of rework or repair. Improving customer service in RL will improve customer satisfaction, firms competitiveness and image, which brings economic benefits to firms and makes profitability of returns handling. Regulatory concerns are still typically embedded in almost discussion of RL. However, economic benefits and competitive advantages of effective RL system are also regarded as an important incentive for managing returns. In practice, most companies implemented reverse logistics program during the 1990s with reactive rather than proactive attempts (Doherty, 1996). External Factors Regulations Researcher Stock (1992), Caincross (1992); Pohlen and Farris (1992); Barry and others (1993); Kopicki and others (1993); Livingstone and Sparks (1994); Drumwright (1994), Murphy and others (1995); Calter and Ellram (1998), Roger and Tibben Lembke (1999), Dowlatshahi (2000), Lee et al (2000), Knemeyer et al (2002), Mollenkopf (2006), Jose Alvarez Gil et al. (2006), Nnorom and Osibanjo (2008), Liu et al (2008), Khetriwal et al (2009), Lau et al. (2009) Stock (1992), Pohlen and Farris (1992), Barry and others (1993), Kopicki and other (1993), Livingstone and Sparks (1994), Stock (1998), Calter and Ellram (1998), Roger and Tibben Lembke (1999), Dowlatshahi (2000, 2005), Knemeyer et al (2002), Toffel (2003), Mollenkopf (2006), Jose Alvarez Gil et al. (2006) Lau et al. (2009) Stock (1992), Roger and Tibben Lembke (1999), Dowlatshahi (2000, 2005), Lau
Customer
Economic benefits 3
Technology Corporation Globalization
et al. (2009), Bastiaan et al (2009) Roger and Tibben Lembke (1999), Tan et al (2002), Lau et al. (2009) Roger and Tibben-Lembke (1999), Lau et al. (2009) Autry et al (2001), Mollenkopf (2006) Table 1: Summary of literature review related to external factors
Mollenkopf et al. (2006) addressed the external factors influencing on the way the firm perceives, strategizes or manages the returns process, which derive from customers, the competitive and regulatory factors. The author gave the proposition for future research related to the awareness of these external factors in which the external factors is positively associated with the effectiveness of a firms returns management. The study also emphasized the trend of integration among different functions and the shift to interorganizational integration. The impacts of globalization on returns should be considered and the management processes need to be put in place to manage across the globally extended supply chain (Mollenkopf et al., 2007). The trend of outsourcing and off-shoring production to overseas of many European companies resulted in the problem of quality that has impacts on the returns rate and returns management globally. Global market with global regulations makes pressure on firms in dealing with EoL management, especially with multinational companies. Jose Alvarez Gil et al. (2006) determined that the interaction of external, organizational and individual factors have influence on the implementation of RL because the activities of RL involve multiple relationship between different stakeholders (e.g. customers, governments and shareholders). By implementing the survey with 200 companies in automobile industry in Spain, the study affirmed that the probability of firms implanting RL systems depends on the stakeholder salience, the availability of resources of the firm and progressive strategic posture of the manager. Customer, employees and government have significant influence the final decision of implanting programs of RL with different levels, meanwhile the shareholders impacts negatively. Availability of resources is vital for the development of reverse logistics system. It can enhance the innovative capabilities of firms (RM. & JG., 1963) and their proactive strategies (Chakravarthy, 1982).Moreover, the individual strategic support of top management is also the factor influencing the implementation of RL. [ Internal Factors Researcher Company policy Calter and Ellram (1998), Roger and Tibben Lembke (1999), Jose Alvarez Gil et al. (2006), Lau et al. (2009), Bastiaan et al (2009) Top management Stock (1998), Calter and Ellram (1998), Roger and Tibben Lembke (1999), support Dowlatshahi (2000, 2004), Jose Alvarez Gil et al. (2006), Bastiaan et al (2009) Functional Roger and Tibben Lembke (1999), Dowlatshahi (2000, 2005), Mollenkopf integration (2006) Availability of Roger and Tibben Lembke (1999), Dowlatshahi (2000, 2005), Daughterty et al. resources (2001) Table 2: Summary of literature related to internal factors Lau et al. (2009) presented a holistic approach to consider the various factors in the RL process, in which showed the relationship between external factors and how they collectively influence the implementation of reverse logistics system. The external factors in this model consist of awareness (e.g. public concern and EPR), legislations (regulations and directives), economies (incentives and benefits from reverse logistics), systems (referring to reverse logistics information systems, infrastructure and technology) and collaboration (with supply chain partners and competitors. These factors affect the development of reverse logistics for the whole industry in macro level. Meanwhile, the internal factors include strategic and operational ones determines reverse logistics system or models (e.g self-support system or outsourcing) which the firms involve in. Through analysis of the studies relating to the factor influencing reverse logistics, it can be seen that there are some conditional factors for influencing the establishment and implementation of reverse logistics such as regulatory (laws and directives), customer (awareness and requirements) and economics (incentives and benefits from implementing RL), company policy. These factors are mostly addressed in many previous studies. Meanwhile, some factors are considered as the potential factors for more success and development of reverse logistics including technology factors (IT, engineering technology), cooperation factors (supply chain 4
partners), globalization factors (global market, global regulations, global returns and global recycling), support from top management, functional integration and availability of current resources for RL). Therefore, the study proposes a conceptual model of conditional and potential factors to explore their influence on the development of reverse logistics. The study use the findings from survey and the published case study to investigate what are the key factors influencing the development of reverse logistics in EU.
Regulatory Customer Economics
Technology
Development of reverse logistics
Corporation
Support from top management
Functional integration
Globalization
Company policy
Resources
Figure 2: Conceptual model of factors influencing the development of reverse logistics
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