Evolution of closed-loop supply chains:

Integrating Forward and Reverse supply chains to maximise

sustainable return on supply chain investment
REVERSE SUPPLY CHAIN
Dr Goutam Sengupta
Abstract
While coporations world-wide have given adequate focus on forward supply chains, however, very little
attention was given on reverse supply chains due to lack of knowledge on the impact it may create on
overall supply chain sustainability. Globally not much researches have been conducted on this vital area
of supply chain management, although recently the subject is gaining momentum. Reverse chains are
more difficult to manage because of uncertainties in quantity and timing. Further, one may not have the
necessary economies of scale in collection and transportation. Most firms have not been able to
integrate their forward and return supply chains. In India, reverse supply chain is still at a nascent stage.
However, as observed in developed markets, reverse supply chain will become an important issue of
concern for most firms in the coming decade.
Companies are now realizing that they need to modify their forward supply chains by effectively
integrating with Reverse Supply chain in order to maximize sustainable returns on supply chain
investment. This article shall attempt to deliberate on these vital issues.

Reverse Supply Chain

A reverse supply chain deals with the reverse flow of material, where the product moves back from the
end customer to the manufacturer. It can deal with either the entire product or a part of product (e.g.,
packaging material like the bottles in which Cake is sold). A firm has to manage this process during
different phases of the product life cycle. The most common instances of reverse supply chain are as
follows:

New product purchase return: In developed markets, firms have been offering liberal return
policies whre customers may return the product for any reason within few months of purchase.
This category of products is usually re-packaged or re-branded for existing or new markets after
minor repair opreations.
Initial product introduction return: Many firms accept return of new product introduced at the
initial phase either due to initial technical snags or customers non acceptance of the product
features.
End-of-life-cycle product return: Because of tough environmental regulations, firms in
developed markets have to take responsibility for their products at the end of the product life
and must provide for collection and product re-manufacturing or proper disposal. Many
progressive firms have been promoting the idea of a green supply chain by ensuring that they
re-use most of the components of the returned product and, consequently, achieve their goal of
sustainable development.
Product re-call due to Quality & Safety: There can also arise situations of product return at an
intermediate stage of the product life cycle, as was observed in the case of Nokia Mobile phones

and color television sets of a leading consumer electronics major in India, where the company
recalled its product because of unforeseen problems related to a quality safety. Products in this
category are collected from market place, grouped in Grouping Centers and frozen till solutions
are found to re-design and re-manufacture, as the case may be, and re-tested before putting
back to the market or partially or fully disposing off according to the situations.
If the firm does not have a well-defined and integrated reverse supply chain policy, it may land
into serious complications affecting its forward supply chain and thereby its forward goods flow
to the market.

Sustainability
Corporations strive to have services, products and processes that have the characteristic of
sustainability. Firms can move closer to that goal by addressing the following environmental
concerns:

Environmental protection - firms should monitor their own processes and those of their suppliers
to improve waste elimination methods, to reduce the pollution and to increase efforts at
ecological stewardship for the protection of flora and fauna.
Productivity improvement firms should examine processes up and down the supply chain to
increase material conservation, to increase energy efficiency, and to look for ways to convert
waste into useful by-product.
Risk minimization as the supply chain grows, particularly on a global scale, firms should take
care to ensure that the materials that go into their services, products or processes do not pose
health or safety hazards to customers.
Innovation as new services, products or technologies are developed, firms should strive to
make sure that they support the environment while serving the needs of customers.

Firms who do not take into account sustainability factor into the design of their supply chains shall not
be able to sustain under global competition and those supply chains may collapse in the long run.

Closed-loop supply chain

A supply chain that integrates forward logistics with reverse logistics is called a closed-loop supply chain
as it focuses on the complete chain of operations from the birth to the death of a product. Figure shows
how a product starts its journey at the new service/product development process, makes its way to the
customer and then enters the reverse supply chain that attempts to maximize the value of the item at
the end of its useful life.

Characteristicss of Reverse Supply Chain

It is clear that the reverse logistics opeations are considerably different from the forward
logistics flows. A firm must establish convenient collection points to receive the used goods
from the final customer and transport the goods to a returns processor, which is a facility
owned by the manufacturer or outsourced to a supplier and that is proficient at disassembling
products and gleaning any remaining value from them. If the item is inoperable, it could be
repaired and returned to the customer. Another option is that it could be cleaned and
refurbished for direct use and returned either to the distribution channel or back to customers.
The product could be re-manufactured by tearing it down, rebuilding it with new parts as
needed, and returning it to the distribution channel. The product could also be completely
disassembled and the usable parts and materials cleaned tested and returned to the production
process. There are two important by-products of the reverse logistic process: waste, which
must be properly disposed of, and product information, which is transmitted to the new service
/ product development process so that improvements can be made to future generations of the
product.
Reverse logistics processes can be particularly important in the electronics industry. Old TVs
and computers contain electronics components with materials that can be recycled. However,
they also have toxins that leach into the soil if these components are left unprocessed: lead in
circuit boards, lead oxide and barium in computer monitors and cathode-ray tubes (CRT), etc.
Firms can integrate their supply chains (forward and reverse) and the advantages shall accrue
to them. A powerful motivation for integrating supply chains is to mitigate the debilitating
effects of supply chain dynamics such as the bullwhip effect so as to develop an efficient flow of
information and materials up and down the supply chain.

Reverse Supply Chain are different from forward supply chains and the fact remiains that quite
a few of the existing forward supply chains are not designed to handle reverse supply chains.
It is important because it also includes processing of retunred merchaandise due to damage,
seasonal inventory, restock, salvage, recalls, and excess inventory. It also includes recycling
programs, hazardous material programs, obsolete equipment disposition and asset recovery,
etc.
The computer and electronics industry is known for short product lifecycles. In automobile
sector, reverse supply chains play an important role. A big market has emerged for used PCs
both in developing and developed countries. The Automobile Industry is one of the biggest
industries in the world and deals with the most expensive products. Therefore, it is not
surprising that reverse logistics is an important subject for this industry. The three primary
areas in which reverse logistics plays a significant role are 1. Salvage of Parts and materials from
end-of-life vehicles, 2. Remanufacturing of used parts, and 3. Stock-balancing of returns of new
parts from dealers. The big three automakers in the U.S. have joned together to form the
Vehicle Recycling Drive.
The estimated cost of reverse logistics in the Indian auto and auto components industry is
around 0.5% to 1% of total sales. The reverse logistics segment has been ever growing. In the
pharmaceutical business its pressing problem of reverse supply chains with the expired
medicine and the firms must design appropriate reverse supply chain networks connecting
consumers, retail shops, distributors, grouping centers and finally with the manufacturer.
The expired or unused pharma products need to be disposed off; they need to be reclaimed so
that it can be incinerated or otherwise disposed off safely.
Supply Chain visibility is essential for any pharmaceutical supply chain including reverse
logistics, as counterfeiting and lost or stolen products continue to be a major concern for this
industry. Reverse logistics in pharma business should involve the use of barcode tracking and
identification, as well as easy product identification. The reverse logistics of medicines need to
be addressed on war footing to avoid any environmental issues and concerns of medicine
disposal.

Conclusion: From the preceding deliberation it is clear that reverse supply chain is an important
aspect of doing business and thus use of reverse supply chain shall grow in future days
particularly keeping in view the sustainability issues. The basic question, therefore, arises as
how do we maximize return on supply chain investment while we design a closed-loop supply
chain for the firms. The design should be such which integrates forward and reverse supply
chains to maximize sustainable return on supply chain investment. Reverse supply chain in an
integrated supply chain loop can make good use of forward chain conduit to operate the
reverse flow of goods. In a multi-network factory and distribution system, it can use the
grouping centers for the reverse flow of goods. The service centers of a firm can be linked with
the closed-loop supply chain and can play an important role in enhancing efficiency of the
integrated supply chain. If designed properly, this integrated supply chain can be extremely
lean and agile. While efficiency and cost are two important deliverables of a closed-loop supply
chain, however, the biggest gain in going for closed-loop supply chain integrating forward and
reverse supply chain is in terms of long term sustainability of the supply chain and the firm as
otherwise these integrated supply chains shall fall into parts and collapse in long term being
unable to compete with the global competition. A systematic design of a reverse supply chain
has helped the firms in understanding the reasons of customer returns which give vital clue for
the firms to design futuristic products. Global companies are, therefore, paying more attention
to this vital area of integrating forward and reverse supply chain which is emerging as an
important area of research in the coming decade.

Reference:
Supply Chain Management Text and Cases; Janat Shah