NBS8222 - INTERNATIONAL LOGISTICS

Assessing Logistics and Supply Chain Management Decisions: Canon
Group Assessment

Amal Ashok Ambade Andrey Nesterov Atiqah Ismail Gao Mingshuai Huiying Shi Jiawen Sun Rajesh Kumar Dhanapal

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Executive Summary
This report evaluates three areas of supply chain and logistics of a manufacturing company in an electronic, digital and optical imaging industry, Canon. The aims of this report are: 1. To identify key factors influencing Canon’s transportation decisions, 2. To identify and discuss the obstacles involved in Canon’s forward and reverse logistics operations, and 3. To identify how Canon understands the capabilities and limitations of its supply chain. Accordingly, this report had been broadly organised into three sections; Topic 1, Topic 2 and Topic 3. Literature review and company and industry analysis were conducted in achieving the aims of this report. Transportation decisions (Topic 1) have been found to be significantly influenced by three interrelated factors: cost, flexibility and environmental factors. These factors appear to coexist and reciprocally shape transportation decisions. Additionally, these factors were also found to contribute towards Canon’s logistical excellence and the creation of its overall sustainable competitive advantage as the industry’s lowest-cost producer. The main differences and obstacles in forward (FL) and reverse logistics (RL) operations (Topic 2) were mainly attributed to forecasting and planning decisions. Primarily, main obstacles relate to RL’s forecasting and planning challenges, associated with the unpredictability of quantity, time and quality of returns. Four out of five areas deemed to attribute to RL obstacles were investigated and discussed. The fifth area was excluded because it is a realm of re-marketing. Analysis of Canon’s production and information operations uncovered that understanding the nature of its industry and its competitive environment contributes to Canon’s appreciation of its supply chain capabilities and limitations (Topic 3). The nature of their business and competitive environments dictate the critical importance of low-cost operation, rapid market delivery, and information flow, which consecutively, influence Canon’s strategic supply chain decisions.

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Table of Contents
Page Topic 1............................................................................................................................. 4 Cost & Flexibility........................................................................................................ 4 Environment: the Major Factor? ................................................................................ 5 Topic 2............................................................................................................................. 7 Product Acquisition..................................................................................................... 7 Reverse Logistics......................................................................................................... 8 Inspection and Disposition........................................................................................... 9 Reconditioning (Remanufacturing).............................................................................. 9 Topic 3............................................................................................................................. 10 Understanding Supply-Chain Capabilities.................................................................. 11 Production Decisions.................................................................................................. 11 Information Decisions................................................................................................. 13

References Appendices

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Topic 1
Companies make transportation decisions based on various factors. A considerable amount of literature has investigated variables affecting the organizations’ transportation decisions (e.g. Hsiao et al., 2010; Stank and Goldsby, 2000; Morlok and Chang, 2004; McGinnis, 1979; Baumol and Vinod, 1970). The factors proposed by different authors are summarised in Appendix 1. This section addresses the most common factors derived from the literature: cost, flexibility and environmental factor.

Cost & Flexibility
Third-party distribution has developed rapidly over the past few years (Rushton, 2004) mainly because of its cost advantages and efficiencies (Lieb, 1992). Reduced transportation cost may result in lower prices for the end customer (Marijnissen, 2009). Therefore, being the lowest price producer is a competitive advantage to the firm (Stock, 1999). Using third-party carriers (3PC) allows companies to reduce the investment in logistics facilities (Rushton, 2004), equipment (Fantasia, 1993; Foster and Muller, 1990), information technology (Fantasia, 1993; Goldberg, 1990), manpower (Richardson, 1995) and to utilise the expertise of independent carriers (Sheehan, 1989; Trunick, 1989); therefore organisations can concentrate on their core activities (Waters, 2003; Africk and Markeset, 1996) and be more flexible to adjust to evolving market requirements (Lieb, 1992). However, in terms of communication, insourcing has its advantage since it can be performed more efficiently between staff members of the same organisation as opposed to inter-organisational communication (Sikula Sr, 2010). Additionally, control and supervision are perhaps simpler and cheaper when transportation system is owned by the company (Sikula Sr, 2010). Reward system and motivation may be controlled, adjusted and executed in-house in an optimal way to enhance working enthusiasm (Hirscheim, 1998). The boost in productivity and operations’ efficiency could result in cost savings (Rushton, 2004). The business environment is becoming more complex and unpredictable (Goetz, 1997). Therefore, logistics operations need to be more flexible. On one hand, large 3PC usually contract with thousands of carriers and have an extensive network. Hence, they can utilize vehicles and warehouses more effectively and be more flexible (Handfield, 2002). On the

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other hand, administration and guidance are easier to accomplish within one organization (Hirscheim, 1998). Since it has direct contact with end customers, the organization can react promptly to customer requirements and adjust its processes accordingly (Reilly, 1996). Moreover, direct contact with the customer could provide an opportunity to develop a better supplier-to-buyer relationship.

Environment: the Major Factor?
In addition, as green transportation is advocated by many large reputable companies, environmental factor can be an important. However, whether it could actually be treated as a fundamental factor in transportation policy or not is a subject to discussion. The interrelationship between costs, flexibility and environment factors will be uncovered using Canon as an example. Since 2002 Canon has been focusing on CO2 emissions generated by its transport operations (Canon Global, 2013). The enterprise decided to outsource physical distribution to experts to undertake its core activities more efficiently. In this way they are assumed to preserve the environment and reduce CO2 emissions. Canon implemented two major changes: reduction of transport routes and shifting transport mode.

Reducing transport routes

Canon works on routes shortening by reviewing logistics base locations and finding more direct routes to reduce the environmental impact of logistics operations. After establishing a distribution center (DC) in North America, Canon set up the west coast DC and is constantly looking for new DCs (Canon global, 2013). Cost and environmental factor appear to be linked since both factors encourage a reduction in transportation distance. Continuous establishment of new DCs triggers significant

investments in equipment, software, facilities and personnel. These investments not only increase Canon’s transport costs (including empty return costs), but also increase management and operational costs. This could result in higher product prices and weaker market competitiveness. However, 3PCs might balance these deficiencies. They have their 5

own planned route which could significantly decrease transport costs and environmental impact. Thus, low transportation costs seem to positively influence green logistics’ development and vice versa.

Shifting transport mode

Canon strives to reduce transport-related CO2 emissions through modal shifts inside and outside Japan, from road and air transportation to a more environmental-friendly combination of ocean and rail freight (Canon global, 2013). For example, the company switched from truck to rail on the route from Oita (Japan) to Korea in 2011 and CO2 emissions were reduced by 33 tons as a result (Canon global, 2013). Railways are often associated with very high costs of track and network construction, and the costs of buying or leasing the trains (Economics online, 2013; Chase et al., 2002). It might stop a company from shifting to rail transport. Nevertheless many reputable 3PCs have invested in railway transport or developed their own. These networks can be used if cargo shipments are outsourced to external carriers that have invested in railway systems. Moreover, flexibility of 3PC is another advantage that allows for modal shifts. Compared to the truck transport, railways are relatively inflexible. Although mixed provision transportation has higher volume and flexibility, an increase in costs (e.g. empty return costs) may result in flexibility being reduced. Therefore, flexibility seems to be closely related to green transportation factor since costs are connected to the environmental factor (as discussed above). To conclude, the environment is an important factor as stated by Canon (Canon Global, 2013). However, it appears to be influenced significantly by cost and flexibility factors, with cost playing a fundamental role in outsourcing decision making process. It seems that factors influencing transportation decisions are interconnected, multidimensional and should be treated as such.

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Topic 2
Companies form reverse supply chains (RSC) for different reasons: customer pressures, government environmental regulations (Guide and Van Wassenhove, 2002) and/or value recovery (profitability) incentives (Meyer, 1999; Ayres et al., 1997). This section will highlight the key differences between forward logistics (FL) and reverse logistics (RL), identify typical obstacles to performing FL and RL operations and analyse obstacles that are the most relevant to Canon. The main focus is on the RSC as certain aspects of forward supply chain and logistics have been analysed in the previous and following topics. Despite certain obvious similarities, reverse logistics is quite different from its counterpart. The fifteen core differences distinguished by Rogers and Tibben-Lembke (2002) are presented in Appendix 2. The differences between FL and RL seem to uncover, to some extent, the main obstacles to executing RSC activities. For instance, FL allows more precise forecasting and planning. RL operations are more reactive and difficult to forecast: decisions are made on the basis of customers’ actions (Rogers and Tibben-Lembke, 2002). This difference points to a problem of uncertainty investigated by Guide et al. (2000): it is hard to predict the quantity, time and quality of returns. Nevertheless, some differences explored by Rogers and Tibben-Lembke (2002) are obstacles per se. For example, unclear disposition options are referred to as a RL problem by Guide et al. (2000). An extensive range of problematic issues is investigated in the academic literature (e.g. Guide and Van Wassenhove, 2002; 2009; Guide et al., 2000; Fleischmann et al., 2001; Rogers and Tibben-Lembke, 2001). The typical RSC obstacles relevant to the majority of industries are summarised in Appendix 3. The obstacles may be roughly attributed to the five major components (Appendix 4) of a RSC distinguished by Guide and Van Wassenhove (2002).

Product Acquisition
Canon deploys multiple acquisition methods including retail outlets, post offices, service centres, stations, business and local authorities’ offices, shopping centres and schools. Collection at schools is combined with consumer education programs on environmental issues (Canon, 2013b). Additionally, the corporation has combined its efforts with other five 7

printer manufacturers to collect ink cartridges. It has established common points of collection in 3600 offices in Japan. The collected cartridges are sent to a common sorting facility and later on distributed to each company separately. This project increased return rates dramatically (Canon, 2013b). Moreover, the company ensures sufficient quantities of returns (discussed by Guide and Van Wassenhove, 2009) through a trade-in collection system (Canon, 2013) which provides an incentive for customers to return products.

Reverse Logistics
Collection of business machines is handled by members of Canon Group, such as Canon Ecology Industry. It performs remanufacturing, repair and high-level recycling. The returns collection is partly outsourced to increase efficiency (Canon, 2013). Outsourcing to 3PC, such as Fedex (Canon, 2013b), might facilitate transportation of smaller quantities and variable product types (Fleischmann et al., 2001). However, it may add to overall RSC complexity (Guide and Van Wassenhove, 2009). When returned products are collected, a barcode is placed on each item for monitoring purposes and process accuracy (Canon, 2013). This measure allows for better management and alignment of the whole RL process which might help reduce operations’ complexity (Guide and Van Wassenhove, 2009) and uncertainty (Gudie et al., 2000). There are no standard readymade information systems (IS). An IS has to be tailored to specific industry and specific company (Rogers and Tibben-Lembke, 2001). Canon deploys an information exchange system with its third party RL contractors. The system allows information sharing on matters of usage of special equipment with partners (Canon, 2013). It might partly reduce the risks of outsourcing (Guide and Van Wassenhove, 2002). Canon’s reverse activities are centralised with a focus on profitability which they attribute to an efficient RL programme (Global logistics and Supply chain strategies, 2008). In other words, the corporation is focused on keeping costs as low as possible which is another typical corner stone of a RSC as stated by Guide and Van Wassenhove (2002).

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Inspection and Disposition
Canon Ecology Industry’s plant performs inspection and recycling of cartridges automatically (Canon, 2013). It is a way of adding speed and efficiency to the process which is crucial for electronics industry (Guide and Van Wassenhove, 2009; Rogers and Tibben-Lembke, 2001). Automatic plant addresses technical disassembly issues (discussed by Guide Wassenhove, 2009; Guide et al., 2000). and Van

Reconditioning (Remanufacturing)
Companies have a set of options to return goods into the market: repair, reuse, recycling or remanufacturing (Ayres et al., 1997). Canon expands the activities aimed at reduction of waste and resource usage through extensive reuse of returned products (Canon, 2013a). To address the problems of value recovery (Guide and Van Wassenhove, 2002), technical remanufacturing issues (Guide and Van Wassenhove, 2009) and disassembly challenges (Guide et al., 2000) Canon developed its own remanufacturing techniques. For instance, the company deploys technologies of deep cleaning of exterior parts of photocopiers to achieve 84% rate of reused parts which in turn decreased CO2 emissions attributed to manufacturing by 80% (Canon, 2013a). Canon designs its products with remanufacturing and recycling in mind. In 1998, the corporation issued The Environmentally-Conscious Design Guidance to promote product planning, development and design that facilitates minimisation of wastes and resource utilization. The guidance is partly consonant with the EU’s Waste Electrical and Electronic Equipment (WEEE) Directive that was issued only in 2005 (Canon, 2013). Essentially, by employing a proactive approach to remanufacturing standards Canon adapts to emerging legal issues in advance, addresses the issues of corporate policies (Rogers and TibbenLembke, 2001) and satisfies the environmental requirements discussed by Guide and Van Wassenhove (2002). To conclude, the focal company is successfully using the concepts of RSC and environmental concern as a means of marketing, image and brand building (Dekker et al., 2004). Since Canon puts extreme efforts into RSC, it is possible that the company’s strategic goal is to

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achieve economies of scale for products and materials that do not deteriorate quickly in value.

Topic 3
A supply-chain consists of a network of organisations. Supply chain theory and practice have realised that supply-chains compete as one unit, rather than as single companies (Handfield, 2002; in Done, 2011; Erturgut, 2012). Thus, it is important for a company to understand the capabilities and limitations of its supply-chain. Companies in any supply chain must make decisions individually and collectively in five major areas outlined in Table 1 (Hugos, 2011).

Table 1: Key supply chain decisions Supply-Chain Decisions Description Decisions relating to the planning, design and management of the entire manufacturing process including the capacity and ability of the company to produce (Beamon, 1998; Hugos, 2011). Decisions relating to the design and management of storage processes, policies and procedures of inventories across the supply chain (Beamon, 1998). Decisions determining transportation modes and how products and inventories are retrieved, transported and distributed from the warehouse to retailers (Beamon, 1998; Hugos, 2011). Decisions relating to the selection of sites where facilities and warehouses are to be established (Melo et al., 2009; Hugos, 2011). Examples of Activities (Beamon, 1998; Hugos, 2011; Islam et al., 2012)
Production planning and control, Unit size, Handling systems

Production decisions

Inventory decisions

What to stock, Where to stock, How much to stock

Transportation decisions

Infrastructure Transport mode options, Modal transfer points, Load planning, Routing and scheduling Location, Number Size, Type Cargo handling

Location decisions

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Table 1: Continued Supply-Chain Decisions Description Decisions relating to the management of information systems that underpins the effectiveness of the four previous factors. Appropriate, timely and accurate information should provide effective supply-chain decisions on what and how much to produce, inventory and facility locations, and the most efficient distribution methods (Hugos, 2011). Examples of Activities (Beamon, 1998; Hugos, 2011; Islam et al., 2012)
Information systems, Control and forecasting.

Information decisions

Understanding Supply-Chain Capabilities
Understanding a company’s own supply chain capabilities (i.e. strengths and limitations) wil l enable itself to determine its operational and supply chain strategies by leveraging its own capabilities and differences with those of other supply chain members. It is very difficult to simultaneously deliver high-level performance in all areas of operations (Hill, 2009). Thus, in dealing with the five major areas of supply-chain decisions, each supply-chain member will maximise its performances and their capabilities in areas that are of greatest strategic value for the firm through a combination of outsourcing, partnering, and in-house expertise (Hugos, 2011). Accordingly, by using an example of Canon, the following will identify how the company understands the capabilities and limitations of its supply-chain by analysing two of the five elements in understanding supply chain capabilities. Due to reasons of parsimony, production and information decisions are chosen as the two subjects of discussion.

Production Decisions
Canon’s production decisions are mainly driven by its dual aim of cost-reduction and product innovation (Canon, 2013e). Canon’s production decisions include make-or-buy decisions, 11

fully-automated production, outsourcing of non-core components and production-facility locations (Fawcett et al., 2007; Canon, 2013d; d). Canon has full ownership and control over its production activities involving in-house production of proprietary key components and devices, functional parts, circuit boards, moulds and manufacturing equipments used to create camera parts (Canon, 2013e). The following outlines how Canon’s production decisions are shaped based on its supply chain capabilities and constraints:

Understanding the Nature of High-tech Industry and Competitive Environment A manufacturer’s capability to constantly innovate is critical in the competitive digital camera manufacturing (DCM) market as products are constantly evolving and emerging (Tseng et al., 2009; BBC, 2006; Tesseras 2011). This forces Canon to operate at low cost to accommodate constant research and development (R&D) in imaging technology (Canon USA, 2012; Tesseras, 2011). Therefore, the need for constant innovation plays a major factor in production decision relating to make-or-buy decisions in the DCM market in terms of time and cost limitations. These limitations contribute to the complementary need for rapid market delivery of high-value products at low-cost.

Make-or-buy decisions: Realising Core Competency and Production Capacity

The competitive need to constantly innovate while minimising cost may have influenced Canon’s make-or-buy decisions. Canon’s recognition of its core competency in digital optical and imaging technologies underlies its production capacity decisions for in-house production and innovation of critical technology and components (Canon, 2013c; d). Accordingly, Canon focuses on the production of high-value critical components and R&D activities while outsourcing other low-value components (Canon, 2013e). For example, as Canon focuses on its core competency in the production of high-value critical components (e.g. lenses and image sensors), it outsources the manufacturing of low-value accessories (e.g. rubber handgrip) to its supply-chain partners with expertise in the production of those components (Canon, 2013d; Canon USA, 2012a).

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Canon’s ability to synchronise these different manufacturing capabilities of supply-chain partners with its own has resulted in a sustainable competitive advantage and supply chain effectiveness (Hayes and Pisano, 1994; Fawcett et al., 2007). Moreover, Canon’s in-house competency to manufacture, develop, and innovate digital imaging technologies has enabled itself to achieve rapid and low-cost production of high quality product through self-designed, fully-automated production and investments in costsaving technology such as computer-aided engineering which enables ‘prototype-less technology’ (Canon UK, 2012; Canon, 2013d). Thus, allowing greater control over its value chain and production operations at minimum cost.

Information Decisions
Similar to production decisions, understanding the nature of high-tech industry and competitive environment shapes and influences Canon’s information decisions. As mentioned previously, low-cost production and operation and speed to market are important competitive requirement to survive in the capital- and technology-intensive industry. Thus, efficiency needs to be assured through accurate and timely information, thereby eliminating wastes (e.g. overproduction, poor design, and new-product run-up) (Taylor and Brunt, 2001). Therefore, the need for accurate and timely information influences Canon’s information decisions.

Understanding the Structure and Nature of Supply Chain: Global Supply Chain Canon is a global company, with operations and supply chain extended over the world (Canon UK, 2013). Understanding the supply-network structure, flows, operations and dynamics enables early identification of potential complexity associated with global supply chain such as lack of ownership arising from outsourcing, and inertia due to general lack of responsiveness (Juttner et al., 2003). Global supply chains are often exposed to inertia, where it is difficult to control suppliers’ flexibility and ability to adapt to changing environments (Juttner et al., 2003). Accordingly, the following further discusses how the need for accurate and timely information influences Canon’s information decisions.

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Information Sharing and Exchange Decisions

Information sharing requires firms to exchange strategic supply chain information and not only transactional data, such as materials or product orders (Prajogo and Olhager, 2012). Canon has implemented Integrated Information System (IIS) through systems like Electronic Data Interchange System (EDIS). EDIS is designed for Canon’s suppliers, in which quotation or order data can be transferred between Canon and suppliers (Canon, 2013f). To facilitate this, Canon also engages in the development of supply-chain partners’ information sharing system (The Times 100, 2013). IIS plays a central role in Canon’s supply chain management in the following aspects; first, it allows firms to increase the volume and complexity of information which needs to be communicated with the inter-trading partners. Second, it allows firms to provide real-time supply-chain information (Prajogo and Olhager, 2012). Increased access to real-time

information enables Canon to synchronise its inventory level, delivery status, and production planning and scheduling which enables firms to manage and control its supply chain activities. Third, it also facilitates the alignment of forecasting and scheduling of operations between Canon and its supply chain partners, allowing better inter-firms coordination. Exchange of information has revolutionized most of Canon’s operation leading to a greater visibility of technology and resources. Thus, benefiting Canon through quality assurance (i.e. conformance to specification by Canon to its partners, in terms of consistency of services provided by its agents globally), synchronized distribution system, and timeliness to market (through reliable production planning, ordering and distribution systems). However, Canon needs to carefully consider which information to disclose and exchange among its supply chain partners. For instance, possible patent conflicts may arise from specific buyer-supplier investments and information-sharing in supply-chain integration or alliances when intellectual properties and technologies are shared among key suppliers or customers within the supply chain.

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Appendix 1
Authors (McGinnis et al., 1995) Factors influencing transportation decisions Price, Competitive responsiveness (flexibility, responsiveness to changes in customers’ needs), External environment, Logistics strategy Lack of own transport, Transportation is not the core activity, Cost reduction, Cost pressure, Lack of skills Notes Price is only considered when the performance requirements are met.

(Hsiao et al., 2010)

(Baumol and Vinod, 1970)

Freight rates (costs), Speed, Reliability (variance in speed), En-route lossage Speed and Reliability, Freight rates (costs), Loss and damage

(McGinnis, 1979)

(Stank and Goldsby, 2000)

(Morlok and Chang, 2004)

Transit time requirements, Product characteristics, Transportation cost constraints The study points out the importance of flexibility as a characteristic of a transportation system.

These are more likely to be looked upon as reasons for outsourcing of transportation. However, the example gives an idea of general motivation for outsourcing with cost being one of the major drivers. This paper, however, states that speed and reliability factors allow for lower inventory of the shipper which decreases overall costs. The research coincides with the findings of Baumol and Vinod (1970). The current paper assumes that reliability is closely related to costs as mentioned above; and speed of delivery is assumed to be greater when outsourcing is chosen since transportation is the core activity of a thirdparty carrier. Hence, speed and reliability are not analyzed in the conducted research and should rather be treated as factors that are included into speed and flexibility factors. These are factors for integrated carrier selection.

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(Ying and Dayong, 2005)

Operations’ time and cost, Customer service level, Integration with business processes

(Knemeyer et al., 2003)

Trust, Commitment, Investment, Dependence, Communication, Shared benefits

It accentuates the possible positive influence of IT and e-commerce deployed by 3PLs on the supply network. The information systems can be viewed as a factor in itself leading to decreased costs, delivery times etc. Behavioral perspective on aspects that influence the relationships between shippers and 3PLs.

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Appendix 2
Forward logistics Factors Reverse logistics Straightforward More difficult Forecasting One to many Many to one Transportation Uniform Not uniform Product quality Uniform Often damaged Product packaging Clear Unclear Destination/routing Standardized Exception driven Channel of distribution Clear Not clear Disposition options Uniform Dependent on many factors Pricing Recognized Often not a priority Importance of speed Visible & closely monitored Less directly visible Visibility of costs Consistent Not consistent Inventory management Manageable More complex Product lifecycle Straightforward Negotiation between parties Has additional considerations Well-known Has complicating factors Marketing methods Real-time tracking available Less transparent Visibility of process Differences in forward and reverse logistics (Rogers and Tibben-Lembke, 2002, p. 276)

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Appendix 3
Author, Year Guide and Van Wassenhove, 2002 Obstacles      Notes Consumer education, Outsourcing decisions, Ways of keeping costs low, New ways of value recovery, Satisfying the environmental requirements Guide and Van Wassenhove,  Lack of access to returns, 2009  Technical remanufacturing issues,  Managerial concern of market cannibalisation,  Excessive complexity due to additional independent actors Guide et al., 2000 Seven obstacles that add  Uncertainty in timing and to uncertainty of RL quantity of returns,  Balancing returns with demands,  Disassembly,  Materials recovery uncertainty,  The requirement for a reverse logistics network,  Material matching restrictions,  Stochastic routings for materials for repair and remanufacturing and highly variable processing times Fleischmann et al., 2001 Smaller quantities and  Transportation of returns variability in product types increase the transportation costs (Rogers and TibbenLembke, 2002) Rogers and Tibben-Lembke,  Importance of reverse logistics Clarification: the first 2001 obstacle refers to the relative to other issues, tendency of RL to be  Company policies, viewed as an issue of  Lack of systems, secondary importance  Competitive issues,  Management inattention,  Personnel resources,  Financial resources,  Legal issues Obstacles involved in RL operations mentioned in academic literature

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Appendix 4
Author, Year Guide and Van Wassenhove, 2009 Components of RSC  Front End: product return management (refers to the 1st and 2nd components highlighted in the section below)  Engine: remanufacturing operational issues (3rd and 4th components)  Back End: remanufactured products market development (5th) 1. Product acquisition 2. Reverse logistics 3. Inspection and disposition 4. Reconditioning (remanufacturing) 5. Distribution and sales Notes It is a generic process flow perspective. Remanufacturing does not necessarily involve remanufacturing per se. It might be reuse, recycling or repair processes just as well. The authors accentuated exactly these three subprocesses because any of them might be a bottleneck for the whole RSC. The three sub-processes include the respective components mentioned below. Within each part costs, options and benefits should be examined. Reverse logistics. The network design is specific to a certain product and industry. The issues to be considered here are transport and storage costs, speed of the product’s value deterioration, the necessity to keep control over the products. The decision to outsource this function might also be considered. Inspection and disposition. In order to increase the speed to market and decrease logistics costs, decisions concerning disposition of returned products should be made as soon as possible. This part might cost time and involve significant labour resources. Reconditioning. Uncertainty is an important issue at this stage. The timing, quantity and quality of returns appear to be difficult to predict. Distribution and sales. It is crucial to establish whether there is demand for remanufactured products. Significant investments into marketing might be undertaken at this stage in order to educate consumers and address the target customers – in particular, when the target group is different from the consumers of the new products.

Guide and Van Wassenhove, 2002

Components of reverse supply chains

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