Chapter II

LITERATURE REVIEW

In general, the process by which raw materials are transformed into finished products
that are delivered from suppliers to customers (known as forward logistics) is the
focus of most supply chain management studies (Daugherty et al., 1996). However, in
recent years, reverse logistics that deals with returns of end-of-life (EoL) products
from end-users to retailers, manufacturers, and suppliers for refurbishment,
remanufacturing and recycling, has gain a great attention and emphasis (Chan &
Chan, 2008; Li & Olorunniwo, 2008, Rogers & Tibben-Lembke, 2001; and
Srivastava, 2008). The compliance of environmental regulations becomes one of the
important reasons for paying excessive attention on reverse logistics.

Economic benefit from recycling does contribute to the booming reverse logistics in
developed countries like USA on one hand, the high cost of reverse logistics compels
the firms to look at the issue seriously from a long term strategic perspective on the
other hand. Therefore, reverse logistics has become a critical strategic issue for many
firms like the electronics industry. Major manufacturers in many industries in
developed countries have implemented reverse logistics to various extents. The
practice can be explained using transaction cost economics (TCE) theory (Maltz,
1993; Skjøtt-Larsen, 2000) and resource-based view (RBV) of a firm (Halldorsson et
al., 2007; and Rungtusanatham et al., 2003).

2.1 Reverse Logistics Management: An Overview

In a distinction, reverse logistics in developing countries like China, despite having a

global manufacturing base, still appears to be at an infant stage in most industry
sectors. Despite having an extensive domestic researches and a general consensus that
reverse logistics can help maintain sustainable development and generate additional
profits (Yuan, 2006) only a few manufacturers in the electronics industry of China
have implemented reverse logistics while others remain uninterested. It is therefore
necessary to investigate whether the current firm based theories on reverse logistics,
such as TCE and RBV that have successfully explained the practices of companies in
developed countries, are totally applicable in developing countries. In addition,

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external macro environment factors affecting reverse logistics implementation in
developing countries would also need to be examined and compared with those
identified in developed countries.

Knemeyer et al. (2002) proposed conceptual model of factors affecting the reverse
logistics system to recycle and/or refurbish end-of-life computers that are deemed no
longer useful by their owners which examines both the internal and the external
factors responding directly to the need for future research asserted by Carter and
Ellram’s (1998). This conceptual model shows that external environment comprises
of four sectors namely input, regulatory, output and competitive. Internal environment
comprises of strategic factors (strategic costs, overall quality, customer service,
environmental concerns etc.) and the operational factors (cost-benefit analysis,
transportation, warehousing, supply management, packaging as well as refurbishing
and dismantling). The findings of this study indicates that companies are willing to
use recycled or refurbished products but unwilling to accept these products only for
their environmental benefits.

Sharma et al. (2006) acknowledged that bullwhip effect is an old phenomenon

described by Forrester et al (1961) and a new term defined by Lee et al. (1997). The
researchers reported that information distortion and the so-called bullwhip effect has
been discussed by many researchers (Disney & Towill, 2003; Jose & Barajas, 2005;
and Towill & Mccullen, 1999) using analytical model and control theory including.
Sharma et al. (2006) strongly recommended the implementation of a centralized
information sharing strategy irrespective of any demand-inventory policy in the
reverse supply chain in order to reduce the bullwhip effect.

French (2002) provided a structure of reverse logistics literature dividing the entire
range of articles, research papers, research works and discussions into three broad
categories namely general discussion, recovery strategies and reuse options. General
discussion include the literature related with reverse distribution, packaging materials,
overall processes and reverse logistics examples, recovery strategies include literature
related with network design, product acquisition and disassembly while the literature
related with reuse options include discussions on direct reuse, remanufacturing,
repair, recycling and disposal.

27
Brito et al. (2004) have summed up the crux of over sixty case studies and divided
this collected literature into five broad categories namely reverse logistics network
structure, reverse logistics network relationship, inventory management, planning and
control of recovery activities and IT for reverse logistics. In case of reverse logistics
network relationships, researchers listed many tools available in literature like refund
options, buy-back options, fees, take-backs, trade-ins, lease or rent contracts, bring-up
systems, timely and clear information, power, environmental responsibility, social
responsibility and acquisition price. On the basis of their observation, they said that
almost all the case studies described tools for stimulating the acquisition of goods for
recovery with the exception of Farrow and Johnson (2000).

Researchers felt that inventory issues were twofold; first what should happen with the
returned items and second how is the reordering influenced by returns. For service
returns, repair chain is considered as a closed loop often with multiple echelons,
where time is a critical element. They also found that one or more planning and
control issues are very globally described. Their observation reveals that for data on
processes, costs and earnings, IT applications are necessary in all the phases of life
cycle of a product. They maintained that all these case studies provide in one way or
the other an evaluation on the benefits of IT.

While studying the reverse logistics operations of a retailer, Hsu et al. (2009) found
out that the biggest problem that a Central Return Center (CRC) is facing, was the
time required to maximize the amount of merchandise, which was shipped back to the
vendor for full recovery. For information sharing, the researchers have suggested to
make the contract information available to decision makers as real-time as possible, to
streamline the sorting process and create a database of returned products using
technologies liker RFID and voice detection system, to have a two-way real time
communication system between CRC and Jobbers, to deal with the damaged products
at CRC level in contract negotiation in order to reduce uncertainty for both the parties.

Tonanont (2009) studied reverse logistics as a part of Closed Loop Supply Chain
(CLSC). The researcher added that CLSC is composed of five main components
which are supplier, manufacturing plant, distribution center/warehouse,
retailers/customers and recovery facility. Singh et al. (2011) believed into two types
of reverse logistics systems namely open-loop reverse logistics systems and closed

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loop reverse logistics systems. In case of open-loop reverse logistics systems, the
manufactured products do not return to the original manufacturers or suppliers. The
products are taken away by the third party logistics party for the purpose of waste
reduction, resale etc. In case of closed loop supply chains, products get returned to the
original manufacturers or suppliers, by any means, for the purpose of repair,
renovation or reuse. Reuse of glass bottles falls under this category.

Tibben-Lembke and Rogers (2002), while comparing the forward and reverse
logistics in a retail environment, stated that reverse logistics is different from forward
logistics in many ways; more difficult forecasting, many to one transportation,
product quality not uniform, product packaging often damaged, unclear
destination/routing, no standardized channel, unclear disposition, pricing dependent
on many factors so not uniform, speed often not considered on priority basis, reverse
cost less directly visible, inconsistent inventory management, more complex product
lifestyle issues, complicated negotiations due to additional considerations,
complicated marketing due to several factors, and visibility of process less
transparent. Researchers also mentioned that in reverse logistics, transportation costs
are greater, collection costs are much higher, sorting, quality diagnosis costs are much
greater, handling costs are much higher, shrinkage (Theft) costs are much lower,
collection costs are less standardized, refurbishing/repackaging costs are significant.

Tibben-Lembke (2002) highlighted that that a reverse logistics will face many
different challenges in each of the life cycle stages of a product, depending on
whether the product represents a new class of product, a new form of an existing
product class or only a new model of an existing product form. The researchers
observed that reverse logisticians need not only to keep an eye on their own sales
figures but also to watch closely the overall sales figures for the product across
manufacturers.

Bayus (1998) expressed their disagreement with the largely held opinion that product
lifetimes are shrinking by saying that products lifetimes have not changed, instead
companies offer new models more frequently. The findings of this work will help the
reverse logisticians in planning and focusing on their activities at each stage of
product’s life cycle. Lau and Wang (2009) examined a number of reverse logistics
practices in four Chinese electronic companies. Besides asking many other questions,

29
they asked the reasons for implementing reverse logistics and major difficulties faced
by them in its implementing in China.

2.2 Issues related with Reverse Logistics Management

As discussed earlier also, there are several issues related with the supply chains of
every industry sector; be it manufacturing or service. Besides these industry or sector
related issues, there are certain issues related with a particular program which are
considered very critical for the success of the program. The issues related with the
reverse logistics management include the activities to be part of, drivers, facilitators,
barriers, outsource (self vs. others), network and inventory management. In this
section, researcher has reviewed the literature relevant to some selected issues of
reverse logistics namely reverse logistics activities, drivers for the implementation
and the barriers hindering the desired outcomes.

Li and Olorunniwo (2008) tried to investigate the reverse logistics practices with a
goal to identify the reverse logistics process flow that may be considered as generic.
They also tried to identify the key strategic issues that may be used by a firm for its
competitive advantage. Brito and Dekker (2002) explored the fundamentals of reverse
logistics by analyzing the issue from four essential viewpoints; why, what, how and
who. Why the things are returned, what is being returned, how reverse logistics works
in practice and who is executing the reverse logistics activities?

Breen (2006) has put forward specific facilitators influencing effective returns
behavior in B2B and B2C relationships. These facilitators include the contracts,
penalties, incentives, deposit systems, trust, goodwill, legal obligation, corporate
obligation and long term alliance aspects. These many options are given by the
researchers to the practitioners in managing their returns effectively. Fleischmann et
al. (2003) suggested that greater opportunities could emerge if companies used
information for actively managing their returns. Advances in information technology,
including data logging, radio frequency identification, and remote sensing provide
ever more powerful means for pursuing this road.

Dowlatshahi (2000) emphasized upon the strategic and operational factors affecting
the implementation of reverse logistics. These strategic factors include strategic costs,
overall quality, customer service, environmental concern and legislative concerns

30
while the operational factors include cost benefit analysis, transportation,
warehousing, supply management, remanufacturing, recycling and packaging. Factors
affecting reverse supply chains include legislation, customer demand, strategic
cost/benefit, environmental concern, volume and quality, incentive, resource,
integration and coordination (Rahman & Subramanian, 2011).

Recycled volumes, recycling costs, total manufacturing costs, increase of sales

volume for new products, environmental regulations & directives, consumers
environmental awareness, pressures with stakeholders, reverse logistics management
information system, corporate social responsibility, competitive pressures,
advertising promotion of image, good recycling management system and recycling
service are the factors that are to be taken into consideration while implementing
reverse logistics program (Chiou et al., 2012).

Forecast accuracy and demand variability, high on-shelf availability, promotional

activity, legislative factors, trading terms, new product development and product life
cycle, cash flow management practices, customer no faults found, logistics trade-offs,
product & safety stock policy, purchasing policies and liberal return policies are the
factors causing reverse logistics flows (Executive report, The chartered Institute of
logistics and transport UK, 2004). Rogers and Tibben-Lembke (1999) discussed
various reverse logistics challenges. These challenges include retailer-manufacturer
conflicts, return related complexities, the various effects of these complexities and
reactive response of the companies. Environmental issues, costs, communications, top
management support, customer support, having a formalized program and timing of
operations are the key challenges faced by logistics managers while dealing with the
reverse logistics (Huscroft Jr., 2010).

Fleischmann (2001) summed up their entire discussion in three main managerial

issues that distinguish the design of reverse logistics networks from traditional
distribution networks. These managerial issues include centralization of testing and
grading, uncertainty and lack of supply control and integration of forward and reverse
flows (Fleischmann et al., 2003).

Li and Olorunniwo (2007) studied current reverse logistics practices in US using

cases of three companies. The research questions examined current practices with
emphasis on strategies, management commitment, returns processing, information

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technology and information sharing, collaboration mechanisms, and performance
metrics. The researchers also examine what constitutes the major drivers of Reverse
Logistics as well as how companies plan and fulfill Reverse Logistics activities.
Verstrepen et al. (2007) explored the reverse logistics activities in Flanders regarding
the return reasons, recovery options, outsourcing, lifecycle length and the value of
products. In addition, they aimed at examining the underlying causes of the relatively
low reverse logistics performances and pointing out the issues requiring
improvements.

Guo (2009) classified the reverse logistics of an enterprise into rejecting goods
logistics and recovery logistics. Enterprises’ internal reason to rejecting goods
logistics and the supply chain reason to rejecting goods logistics are the two main
reasons for rejecting goods logistics of enterprises. Recovery reverse logistics can be
categorized into four groups namely direct reuse, repair, recycling and
remanufacturing. Returns logistics activities that the companies have include returns
flow, remanufacturing, remarketing, recycling, and land-filling. Most returned
products are processed to put back to stock shelf without or with a little re-kit, re-
package, repair, or refurbish while others are to sell to secondary market, dismantle to
harvest components, recycle, or landfill (Li & Olorunniwo, 2007).

Commercial Returns, Repairable Returns, End-of-use Returns, End-of-life Returns,

and Recalls are the five kinds of returning products (Janzen & Rosier, 2008).
Depending upon the kind of returning product, it may go through all or some of the
five reverse logistics activities namely product acquisition, collection, sorting, testing,
disposition, recovery, redistribution and sales. Erol et al. (2010) discussed the concept
of outsourcing of reverse supply chain activities. Warehousing and packaging,
information system and software used, providing services abroad, technology used,
the number of people employed, facility capacity, service cost, services provided, and
level of expertise are the major criteria which are to be taken into consideration while
selecting a third party services for reverse supply chain activities of an organization.

Ritchie et al. (2000) pointed towards some issues; supplier appraisal, sourcing policies
distribution (In-house/Contracted), storage (Centralized/off-site) and greater use of
IT-options as EDI to speed up and reduce the cost of order processing while stressing
on the need of costs savings through better supply chain management. After

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examining the entire reverse logistics process at Manchester Royal Infirmary
Pharmacy, the researchers suggested to review and improve the reverse logistics
process by collection and analysis of information, redesign the reverse logistics
process to ensure the addressal of identified issues, and the development of a sense of
ownership among staff. The next section provides a review of previous studies related
with the drivers for reverse logistics.

2.2.1 Drivers for Reverse Logistics Management

Brito and Dekker (2002) have developed a general framework of reverse logistics
where they asserted that there might be different reasons as to why the sold items
come back or return for different categories of products like customer’s return,
distributor’s return or the manufacturer’s return. Customer’s return may include B2C
commercial returns (reimbursement guarantees), warranty returns, service returns
(repairs, spare-parts), end-of-use returns and end-of-life returns. Distribution returns
may include product recalls, B2B commercial returns (e.g. unsold products,
wrong/damaged deliveries), stock adjustments and functional returns (distribution
items/carriers/packaging). Manufacturing returns include raw material surplus,
quality-control returns and production leftovers/by-products.

There is a long list of reasons for products’ return. These include repair / Service
Codes (factory repair, service /maintenance, agent order error, customer order error,
entry error, shipping error, incomplete shipment, wrong quantity, duplicate shipment,
duplicate customer order, not ordered and missing part), damaged /defective
(damaged, dead on arrival, defective), contractual agreements (stock excess, stock
adjustment, obsolete) and other (freight claim and miscellaneous) (Zuluaga, 2006).

Actual reasons for returns include customers’ decision, damaged product, ordering
error, warranty guaranty, wrong product, invalid reason, seasonal return, late delivery,
upgrade and service, excess return, ambiguity manual, end of life, end of use and
others (Dissanayake & Singh, 2008). Customer return/dissatisfaction, defective
merchandise, incorrect item received, repairs needed, damaged, unsold units,
reconditioning, recycling, product recall, and others are the most common reasons for
merchandize returns (Daugherty et al., 2001).

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Wu and Cheng (2006) mentioned various reasons for return which unclear product
market positioning, quality problem, design and binding problems, inaccurate
forecasting, unreasonable pricing, slow information flow, lack of marketing support,
weak sales function, bad store presentation, weak logistics support, weak
transportation support, lack of control over return frequency, quantity, and items,
serious back order and late delivery due to the small order quantity, long return
process cycle, returned products in large variety yet in small quantity, a large quantity
of returned products due to the fixed return period, significant increase in returns at
the terminal period of sales for best-sellers, cash flow problem, oversupply of new
book titles to the current market demand, inappropriate selection of a product mix,
discrepancy between the return list and actual items and quantities, long distribution
channel, frequent promotional activities resulting in lots of returns at the end of
promotion, different consumer preference among different geographic regions, high
transportation costs due to difficulty in transportation arrangement in advance, no
rigid discipline in stock-taking and stocking activities and too many distributors
involved.

Handset configuration/settings issue, struggling with functionality/usability of device,

phone having hardware fault, phone having software fault, device mis-sold does not
meet expectations were the major reasons for the returning sold mobile handsets
(Mondragon et al., 2011). Stock adjustments, wrong deliveries, product returned
within contractual take back period for consumers, products returned within warranty
period, products returned after warranty, product recalls, and return after use were the
kinds of returned products which were considered by Janse (2008).

Tonanont (2009) divided the returns into two kinds; unplanned/undesired/traditional

returns and planned/desired returns. The reasons for unplanned product returns
include customers’ change of minds, product defects, customers’ perception of a
product to be defective one, product damaged in transit, a vendor error (such as wrong
item or quantity shipped), and warranty returns or product recalls while trade-in
programs, company take-backs, leased or rented products and service work are the
main reasons for planned returns. The researcher argued that planned returns were
much easier for the firms to predict and design their reverse supply chain because they
know what is coming back and when.

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Brito et al. (2004) acceded with the fact that products, components, materials,
equipment and even complete technical systems may go backwards in the supply
chain. Products may reverse direction in the supply chain for a variety of reasons
which include manufacturing returns, commercial returns (B2B and B2C), product
recalls, warranty returns, service returns, end-of-use returns and end-of-life returns.
Reverse distribution planning, disassembly, production planning (direct reuse,
material recycling and refurbishing) and inventory control are the issues which were
detailed by Kassem (2011). Guarnieri et al. (2006) divided the concept of reverse
logistics into two areas of action namely the post-sale reverse logistics and the post
consumption reverse logistics. For the post-sale reverse logistics, products with or
without use, are returned to distribution chain for several reasons like return by
guarantee problems, transport damage, stocks excess, valid time expired, and other
reasons. For the post-consumption reverse logistics, the used products are returned
with recovery possibility (packages) and the industrial residues.

Inmar report (2009) presented several factors contributing towards these returns.
These include poor information flow, multiple networks that poorly interface with one
another, different numbering schemes for the same replacement parts, data entry order
errors, incorrect shipments, mis-diagnosis, over ordering, and warranty/defective
parts. To present the perspective from the viewpoint of jobbers, they mentioned the
study conducted by Counterman Magazine which indicated that their returns included
cores, wrong part ordered, warranty/defective, wrong part delivered and others.
Verstrepen et al. (2007) provided many return reasons that consisted of transport
damage, unhappy customers, delivery error, quality defect, cancellation of sale, late
delivery, stock adjustments due to bad forecasts, or overstock or unsold stock etc,
return after use, no reason specified.

The reasons stated by Li and Olorunniwo (2007) for customer returns include wrong
products ordered, products shipped to wrong destination, missing parts, shipping
damage, quality complaints, and unclear ‘use’ information. The most common
reasons for returns are that customers change minds and companies overstock.
Subramaniam et al. (2004) listed down the reasons for returning of the two types of
products; for new products and for used products. Change of mind by customer,
defective product, customers’ perceived of the product to be a defective one, damaged
in transit product and vendor error (such as wrong item or quantity sent) are the

35
reasons for the return of new products while warranty issues and product recall are the
two reasons for return of used products.

Coming to the next important point as to what drives the receiver receiving such
returns, Brito and Dekker (2002) cited three important factors namely economics
(direct and indirect gains), legislation and corporate citizenship, leading a company to
implement reverse logistics. Emphasizing the economics they added that reverse
logistics may result into direct gains; input materials, cost reduction, and value added
recovery as well as indirect gains; anticipating/impeding legislation, market
protection, green image and improved customer/supplier relations.

Legislation (environmental legislation, consumer rights), Customer Service

(competitiveness, changes in markets & new markets, product disposal, product recall
and warranty returns), Corporate social responsibility (Customer retention/Loyalty to
market, benefits for society and Savings of resources) and Economic benefits
(reduction in disposal costs, revenues and savings from reuse, recover assets and
value) are the four common drivers for the implementation of reverse logistics (Janse,
2008). Guo (2009) also conceded upon economic and environmental drivers of
reverse logistics.

A report by Cognizant (2011) stressed that the importance of reverse logistics was
increasing for a number of reasons. Companies are focusing at tangible benefits such
as significant reductions in inventories, improvement in cash flow, reduced labor and
improved customer satisfaction. Other reasons include an increase in competitive
pressure, increase in catalog and e-business shopping and liberalization of return
policies.

Product lifecycle compression and an increased emphasis on introducing new and

fresh products has created a need to clear the distribution channel more frequently,
requiring an efficient means to bring back obsolete, outdated or clearance items. Also
the increased regulatory requirements regarding recycling and product disposition —
especially around products having environmental hazards — has increased the need
for precision record keeping and tracking (Cognizant, 2011).

Customer service, strategic issues, retail return policy, competitive reason, customer
protection law, clean channel, recapture value, legal disposal law (Grafton & Howe,

36
2008), protect margin, recover asset and environment protection are the major forcing
driving the companies to execute reverse logistics program (Dissanayake & Singh,
2008). Geethan et al. (2011) listed down four major drivers namely economic factors,
legislation, business strategy and customer service initiatives for the implementation
of reverse logistics program.

Erol et al. (2010) explored six important reasons for companies’ involvement in
products return activities. These include customer’s wish to change the product,
competitor’s strategies, gaining cost advantages, competitive reasons, legislative
liabilities (national as well as international being the strongest reason). Koetz et al.
(2004) revealed that legal issues were the prime source of motivation behind the
adoption of reverse logistics by GKN. The list of management drivers for reverse
logistics for return of commercial products included the customer satisfaction, cost
reduction, legislation, value recovery, stock reduction, speed & flexibility, ethics &
ecology, process quality, execute international strategy, image, and process reliability.

Chan and Chan (2008) examined the major drivers; recapture value and recover
assets, reverse logistics as a strategic weapon, and good corporate citizenship. They
found that majority of returned products instead of yielding profits add extra costs.
They also found that reverse logistics is still in the infant stage, so first mover may
gain the competitive advantage and hence it may be a strategic move. The study also
reveals that though social responsibility could be used to gain publicity, yet firms are
unlikely to incorporate reverse logistics in their business just because of
environmental benefits only.

Ramezani et al. (2013) also acknowledged that besides, due to the implementation of
government legislation, environmental concern, social responsibility and customer
awareness, companies have been forced by customers not only to supply
environmentally amicable products but also to be responsible for the returned
products. Laws and regulations, competition and asymmetric competition are the three
key driving forces behind the implementation of reverse logistics programs (Xu &
Jiang, 2009). Legislation, economy and customer expectations are the three major
drivers for the product recovery process (Kassem, 2011).

Lau and Wang (2009) examined five major driving forces namely the support from
government policies and legislation, the promotion of corporate image, reduction in

37
production cost, fulfillment of obligation for environment protection, and the
improvement of customer service. The fulfillment of obligation for environment
protection and the improvement of customer service were found to be the driving
forces in all the four companies under study. Sahyouni et al. (2007) bifurcated the
entire list of drivers into two groups namely the drivers for Commercial returns (push
returns) and End-of-life returns, trade-in, replacements (pull returns). Product defects,
unfulfilled customer expectations, lack of customers’ awareness about products’
usage, wrong products’ delivery, and relaxed return policies are the drivers for push
returns while short products life cycles and new product introductions resulting in
trade-ins, legislation, marketing campaigns for recycling, and product stewardship
through asset recovery services are the key drivers for pull returns.

Walther and Spengler (2005) gave the examples of Germany who passed very
stringent environmental laws making it mandatory that consumers have the right to
leave packaging materials at retail stores and that store must dispose of them properly.
Salema et al. (2005) mentioned in the very beginning of their research paper that
legislative initiatives by governments, increasing awareness from consumers and
companies' perception on new business opportunities are the forces which acted for
many companies’ adaption of their practices to meet this new reality.

Álvarez-Gil et al. (2007) conceded with the three key drivers for the implementation of
reverse logistics on one hand and raised an additional question of why some
companies implement reverse logistics program proactively while others reactively.
They argued that the interaction of external (varying degrees of pressure by
stakeholders), organizational (availability of resources), and individual factors
(preferences of managers) determine the reverse logistics implementation.
Globalization, technology, consolidation and integration, enlightened consumer and
the government policy and regulation are the key drivers for the implementation of
reverse logistics program (Shaik & Kader, 2012).

Apart from the traditional and established drivers like legislation which act as external
forces, there are many internal drivers that lead to product returns (Bernon & Cullen,
2004). These internal drivers include forecast accuracy and demand variability,
promotional activity, new product introduction, product range and safety stock policy,
product life cycles, logistics trade-offs, purchasing policies, high on-shelf availability,

38
cash flow management, customers “no fault found”, and legislative factors.
Legislation, corporate citizenship, customer service initiatives and economic
initiatives were the four major drivers behind the implementation of reverse logistics
and therefore considered appropriate to know the comparative importance of each of
these drivers (Yellepeddi, 2007).

Dissanayake and Singh (2008) listed down several reasons for companies’
involvement in reverse logistics operations which include mode of conducting
business activities (e-business), strategic marketing and liberal return policies,
commercial and warranty returns, end of life and end of use returns, environmental
protection and legal regulations, economic gains, and customer loyalty and retention
rate.

Cespon et al. (2009) in their study examined several reasons for the adoption of
reverse logistics. These include importance granted to the competition, the
environmental reason, and recapturing value. They also mentioned some underlying
objectives like objective to maximize value added of residuals, objective to decrease
the cost of residuals returns, objective to decrease the production costs, objective to
improve the client service rate, objective to maximize the value added to returns,
objective to minimize the environmental impact of residuals and objective to decrease
the cost of devolution returns.

There are two kinds of drivers for the retuning expired medicines; demand and
inventory related and product related drivers (Healthcare Distribution Management
Association, 2009). Pharmacy stock rotation, alignment of manufacturer and
distributor ship life policies with manufacturer production and inventory management
practices, retail pharmacy practices for short-dated products, drop in demand for
seasonal Rx products, warehouse stock rotation, investment buying/forward buying at
retail and by institutions are the demand and inventory related drivers while new
product failures, unit of dispensing is not standardized, generic product introductions,
national drug code (NDC) conversions and government actions, such as FDA
enforcement actions are the product related return drivers.

2.2.2 Barriers for Reverse Logistics Management

Janzen & Rosier (2008) explored a list of inhibitors which include little recognition of
Reverse Logistics in creating competitive advantage, un-quantified Reverse Logistics

39
costs, lack of reverse chain collaboration, lack of appropriate management systems,
limited forecasting & planning, lack of clear return policies & guidelines, high rates
of non-fault found returns, time of claim and credit processing, dissatisfaction
information technology support, non-recoverable Value Added Tax payment,
administrative and financial burden of tax, customs formalities, permanent
establishment issues, and difficulties in customs tariff application.

Lack of awareness concerning environmental legislations, limited forecasting and

planning of reverse logistics activities, lack of clear return policies, lack of
appropriate performance management system, little collaboration between
departments (e.g. design, manufacturing, marketing and sales), little recognition of
reverse logistics as a factor in creating competitive advantage, differences in Extended
Producer Responsibility (EPR) between countries, accounting issues, few senior
management attention and uncertainty reverse chains associated with product
recovery are the which affects directly or indirectly the implementation of reverse
logistics programs (Janse, 2008). Lack of modern information systems, poor
management of intermediaries, and meeting recovery deadline are barriers to the
implementation of reverse logistics programs (Dissanayake & Singh, 2008).

Barriers to the implementation of reverse logistics may be classified into two groups;
Industry specific (External) barriers and Organization specific (Internal) barriers.
Financial resources, lack of awareness about reverse logistics, problems with
industrial infrastructure, environmental legislations, cooperation of the supply chain
partners and problems with product quality are the major external barriers while
human resource, organizational structure, and management style are the major internal
barriers (Yacob et al., 2012).

Lack of awareness about reverse logistics, management inattention, financial

constraints, personal resources, problems with product quality, lack of appropriate
performance management system, inadequate information and technological systems,
company policies, legal issues, administrative and financial burden of tax and co-
operative behavior of chain members were the barriers studied by Sharma et al.
(2011).

Abdulrahman et al. (2012) have categorized the entire explored barriers into four
major groups namely management barriers, financial barriers, policy barriers, and

40
infrastructural barriers. Management barriers included importance of reverse logistics
relative to other issues, company polices, competitive issues, management
commitment/little senior management attention, personnel resources (Training, poor
level of technical knowledge), difficulties in extended producer responsibility across
countries, lack of appropriate performance management system, lack of shared
understanding of best practices, and lack of strategic planning and structure for
reverse logistics while financial resources/ constraints/ funds for training/ return
monitoring system/ storage and handling preferential tax policies are included among
the financial barriers. Legal issues/lack of supportive policies, loop holes in Chinese
WEEE regulations, lack of enforceable law/lack of waste management practices, all-
inclusive consideration and consultation and lack of inter- ministerial communication,
regulations or directives to motivate manufacturers, lack of awareness in
environmental regulations and customers not informed of take back channels are the
policy barriers while lack of systems/EDI standards, underdevelopment of recycling
technologies, coordination and support/ collaboration/reluctance of support from
members, limited forecasting and planning, lack of In-house facilities are the major
Infrastructural barriers to the implementation of reverse logistics.

Halldorsson and Skjøtt-Larsen (2007) claimed that most logistics systems were not
well-equipped to handle reverse product flows, as the methods of transportation;
storage and handling were often very different from those used in the forward flow,
and as a result had cost implications. They mentioned “large variations in timing,
quality and quantity of product returns”, “lack of formal procedures for product
returns”, “delayed product returns causing reduction in market value particularly for
time-sensitive items such as clothing, books and electronic equipment”, “lack of local
competence in inspection, evaluation and disposition of returns in order to minimize
the costs and vehicles kilometers”, “risk of cannibalization of market for new
products”, and “lack of performance measurement of the efficiency of reverse
logistics” as the major challenges to overcome.

Dissanayake and Singh (2008) identified nine important barriers for the management
of returns in e-business. These include lack of importance, information management,
many options for return, lack of financial resources, company policies, lack of
personnel resources, legal issues, management inattention and poor partnership. Their
study revealed that lack of importance is the major barrier in the way of reverse

41
logistics. People in the industry still concentrate on the forward supply chain. Rogers
and Tibben- Lembke (1999) found that importance of reverse logistics relative to
other issues was the major barrier followed by the company policies, lack of systems,
competitive issues, management inattention, financial resources, personnel resources
and legal issues.

A UPS Supply Chain Solutions White Paper (2005) claimed that there were a number of
barriers to an effective reverse logistics program which include poorly defined
processes and lack of system support causing the lack of visibility of the current costs
associated with reverse logistics, variable nature of returns, impediments to
disposition that a product’s composition can bring, a lack of clear understanding of
financial hurdles and repercussions, lack of training, counter-company policies and
few incentives.

Erol et al. (2010) mentioned eight major obstacles for reverse logistics while
examining the present status of reverse supply chain management initiatives in
Turkish automotive, white goods, electric/electronics goods and furniture industries.
These obstacles consist of company policy, issues with respect to competition,
financial resources, the importance of reverse supply chain management as compared
to the forward supply chain management, system inadequacies, legislative issues, lack
of interest among top management and the human resources. They found out that the
most important hindrance coming into the way is the system inadequacies.

Tan et al. (2003) examined the reverse logistics operations of a US-based computer
maker in the Asia-Pacific region. Researchers reported various challenges faced by
the company which include lack of visibility of spare parts due to the complicated IT
systems, timely return of defective parts for repair compelling the company to
sometimes purchase additional inventory causing unnecessary stockholding,
scrapping inventory due to higher obsolescence, strict legislations by the US
environmental protection agency (APA) concerning the return of hazardous materials
and haphazard and inconsistent return policies across countries.

Verstrepen et al. (2007) pointed out that it is the lack of commitment from the top
management that becomes an important barrier to the successful reverse logistics
management. Lack of return policies and unclear assignments of human resources are
among other barriers responsible for low-level of performance of reverse logistics.

42
Internal neglect, highly complex systems due to the involvement of various types of
uncertainties and the lack of experience in the reverse logistics operations are some of
the barriers which impede the successful implementation of reverse logistics programs
particularly in an e-commerce business environment (Xu & Jiang, 2009).

While studying the reverse logistics in automobile industries, Ravi and Shankar
(2005) explored eleven (11) important barriers of reverse logistics have been
identified by the researchers which include the lack of efficient information and
technological systems, problems with product quality, company policies, resistance to
change for activities related to reverse logistics, lack of appropriate performance
metrics, lack of training related to reverse logistics, financial constraints, lack of
commitment by top management, lack of awareness about reverse logistics, lack of
strategic planning and the reluctance of the support of dealers, distributors and
retailers. Study findings reveal that the lack of awareness of logistics practices and
lack of commitment by the top management were the two strongest barriers.
Researchers considered five barriers namely lack of awareness of reverse logistics,
lack of commitment by the top management, problems with the product quality, lack
of strategic planning and financial constraints as the root cause of remaining barriers.

González-Torre et al. (2010) aimed at identifying the barriers that impede the
implementation of environmentally oriented reverse logistics with a focus on the
Spanish automotive industry. They grouped the available barriers into industry
specific barriers or external barriers and organizational barriers or internal barriers.
The industry specific barriers or external barriers include the high cost of process of
environmental adaptation, uncertainty regarding obtained results, deficient industrial
infrastructure, inappropriate environmental regulations on the part of the government,
reluctance on the part of various social sectors, perception of a poorer quality product,
and lack of awareness concerning reverse logistics while the organizational or internal
barriers include the scant commitment of workers, inappropriate organizational
structure, lack of commitment by the top management, technological competence,
lack of information and technological systems and lack of support from the supply
chain.

Out of seven external and six internal barriers, the researchers only selected five
external and four internal barriers for their study. The results of the analysis show that

43
the barriers have negative influence on EORLP; higher the barriers, lower the
implementation. External barriers have strong correlation with EORLP. Findings of
this study reveal that the reluctance on the part of the government and of social
workers are major perceived external barriers while the lack of know-how in the
organization with respect to EORLP was the major perceived internal barrier. These
findings are not in line with what some researchers (e.g. Ravi & Shankar, 2005).

Chan and Chan (2008) indicated that Hong-Kong mobile phone firms are quite
conservative towards reverse logistics, due importance is not given to the reverse
logistics relative to other issues. Company policies, lack of systems, financial
resources and personnel resources were found to be the second, third, fourth and fifth
significant barriers in the implementation of reverse logistics.

Lau and Wang (2009) examined six major barriers for reverse logistics namely the
lack of laws and legislation, high costs and lack of supportive economic policies,
underdevelopment of recycling technology, lack of publicity and knowledge of
reverse logistics, reluctance to devote managerial and financial resources in reverse
logistics and the unpredictability of supply and demand for recycled products in four
electronics companies of china. High costs and lack of supportive economic policies,
lack of publicity and knowledge of reverse logistics and the unpredictability of supply
and demand for recycled products were found to be the common barriers for all the
four companies under study.

Inderfurth (2005) claimed that uncertainty in returns and demands can be a

considerable obstacle to follow an environmental-benign recovery strategy within a
reverse logistics system. Ravi and Shankar (2006) were of the opinion that financial
constraints and the company policies were the chief barriers along with other barriers
like lack of Information and communication technologies to integrate various reverse
logistics operations.

2.2.3 Reverse Logistics Practices

Erol et al. (2010) examined the various reverse supply chain practices which included
collection/sorting/testing, transportation and distribution, warehousing, repair, reuse,
remanufacturing, reuse, disposal, spare parts management, redistribution/resale and
the information management. This study stressed the level of expertise and service

44
cost as the two important standards along with another important standard the service
capacity for the selection of outsourcing service provider. The decision of Turkish
companies for outsourcing their RSCM activities can be based on its self-assessment
on one common and most important yardstick i.e. tendency to focus on core
competencies. Based on their needs and requirements, companies in different
industries may have different functions/activities to be outsourced. This present study
shows that transportation and distribution is the function outsourced by 41.7% of the
companies.

Resale, redistribution, repair, reuse, recycling, upgrade, remanufacture, refurbish,

retrieval, incineration, hazardous waste management are some of the key recovery
processes (Dissanayake & Singh, 2008).

Return to manufacturer/supplier, repackage and sell as new, destroy, refurbish, resell

as is, recycle, donated, sell at outlet store, sell to broker, send to central processing
facility and others are the most common methods of product disposition (Daugherty et
al., 2001). Return directly to inventory, repackage and return to inventory, repair or
refurbish, destroy or sell as scrap, third-party/secondary market, donate to charity, and
others are the various disposition options available for the processed products (Stock
& Mulki, 2009). Yang and Wang (2007) considered three key reverse logistics
activities; return, repair, recycle. Testing, reuse, repair, disassembly, refurbishing,
remanufacturing, recycling, waste management, call Centre activities, logistics
activities, and financial activities are the various reverse logistics activities considered
by Janse (2008).

Verstrepen et al. (2007) have also outlined the entire process of reverse logistics
which have various activities; administrative activities (complaint handling, finances),
transportation (collection), inspection and testing, sorting, direct recovery (auctioning,
repackaging, redistribution), product recovery (disassembly, refurbishing,
remanufacturing and repair), recycling (material recovery), composting (perishable
processing), proper disposal and writing-off. Therefore, they grouped all disposal
options into four major categories; direct recovery, product recovery, recycling and
proper disposal & writing-off. Here the transportation is the most outsourced activity
of reverse logistics among many followed by the administrative activities.

45
As cited by Meade and Sarkis (2002) and Rogers and Tibben-Lembke (1999)
mentioned that every reverse logistics system must include four functions namely
gatekeeping (determining which products to allow in a reverse logistics system),
collection, sortation and disposal. Langer et al. (2007) found direct impacts of the
technology to improve operational efficiency for reverse logistics operations, and in
turn to enhance financial performance and customer satisfaction. Schultmann et al.
(2003) identified three key reverse logistics activities namely collection, sorting and
recycling for spent batteries.

Gandolfo and Sbrana (2008) say that the objective of the product recovery
management is to recover as much of an item’s ecological and economic value as
possible, and mentioned several recovery options like repair, refurbish, remanufacture
etc. Sahyouni et al. (2007) also provided five reverse logistics activities namely reuse,
refurbishing, remanufacturing, recycling and landfill. Dat et al. (2012) included
collection, disassembly, resource recovery (repairing and/recycling) and disposal
while drawing a flow of returned products in the reverse logistics network.

Lambert et al. (2011) proposed a conceptual framework of reverse logistics which

consisted of seven elements namely gatekeeping, collection, sorting, processing or
treatment, disposal system, information system and coordinating system. The first step
is about deciding which products are allowed to enter the system which is essential in
order to managing the system and controlling costs successfully. Collection means
pick up and transportation that permits the retrieval of products from internal or
external customers. Detailed sorting decides the fate of each returned item; what to do
with the product. Processing involves activities where treatment options such as
repair, reuse, remanufacturing, upgrade, and repackaging of the returned product are
envisaged. The last step involves the choice of disposal, i.e., the destination of the
product. The information system has to manage information for every element with
regard to stocks and production planning, and must be able to provide information for
product and customer satisfaction improvements. The RL manager is responsible for
overseeing the entire RL system by means of the coordinating system.

Product acquisition, reverse logistics, inspection and disposition, remanufacturing or

refurbishing and marketing are the five key processes which are to be carried out by
most returns supply chains (Blackburn et al., 2004). Product acquisition, reverse

46
distribution, testing, sorting, disposition, refurbishing and remarketing are the key
reverse logistics activities about which a company need to decide whether to carry out
these activities in-house or to outsource (Saibani, 2010). Saibani (2010) also asked
their respondents to provide an estimation of how much is resold as is in the primary
market, how much is resold as is in the secondary market, how much is refurbished
and sold/reused in primary market, how much is refurbished and resold/reused in
secondary market, disassembly into parts and good parts are resold/reused for primary
market, disassembly into parts and good parts are resold/reused for secondary market,
materials recycling, scrap and sell to broker, energy recovery, landfill and other.

The information required for product disposition can be classified into six categories
namely product related information, location related information, utilization related
information, legislative information, market information, and process information
(Ferguson & Browne, 2001). Tonanont (2009) provided the various components of
reverse logistics along with mentioning all the reverse logistics activities. Researcher
classified the various reverse logistics activities into two groups; one for products and
other for the packaging. Reverse logistics activities related with the products include
return to supplier, resell, sell via outlet, salvage, recondition, refurbish,
remanufacture, reclaim materials, recycle, donate and landfill while the same for
packaging include reuse, refurbish, reclaim materials, recycle, salvage, and landfill.

Srivastava and Srivatava (2006) aimed at presenting a framework to manage product

returns for reverse logistics by focusing on estimation of returns for selected
categories of products in Indian markets. In their review of literature, they found that
major emerging issues are related to conceptual and contextual clarity about reverse
logistics and the important functional aspects such as collection, inspection, pre-
processing and logistics, estimation of returns, location and configuration of rework
facilities and implication of important exogenous factors such as government policies,
consumer behavior and emergent technologies.

This study shows that the quality, quantity and the timing of returns affect the profits
and the overall RLND significantly, necessitating the estimation of returns. For the
same, researchers used products ownership data, average life cycle of the products,
past sales, forecasted demand and likely impact of environmental policy measures.
Subramaniam et al. (2004) explained the four stages of recycling. These stages included

47
collecting recyclable materials from waste generators, processing recyclables
materials, which are called secondary, as opposed to virgin materials, using these
secondary materials to manufacture new products and returning the products to
commerce.

A typical returns process in catalog clothing involves crediting the customer,

evaluating the returned product condition, and directing the returned product to one of
the five options namely immediate resale, restock, sale to a third party retailer,
donation or disposal (Stuart et al., 2005). Their proposed algorithm focuses on
improving customer service and reducing costs by identifying products and system
characteristics like inventory level, demand pattern, cost and lead-time factors in
addition to those included in the return center disposition algorithm. Researchers
recommended the fashion catalog distributors to examine their returns processing
systems for opportunities to reduce the returns-processing times and costs by
considering service-level, demand pattern, costs and lead-time when selecting a
disposition option for a return.

Lieckens and Vandaele (2007) were concerned with the efficient design of a reverse
logistics network using an extended version of models currently found in the
literature. The traditional basic models were formulated as mixed integer linear
programs (MILP-model) and determine which facilities to open that minimize the
investment, processing, transportation, and disposal and penalty costs while supply,
demand and capacity constraints are satisfied.

Fleischmann et al. (1997) stressed that reverse logistics is not necessarily the
symmetric picture of forward logistics, requiring the modifications and extensions of
the traditional network design models. The researchers concluded with remarking that
reverse logistics as a scientific field is still rather young and confined to rather narrow
and single issues. Kara et al. (2007) presented a simulation model of a reverse
logistics network for collecting EOL appliances. The findings from the simulation
suggest that the model calculates the collection cost in a predictable manner.

Walther and Spengler (2005) presented a linear, activity-based model, optimizing the
allocation of discarded products, disassembly activities and disassembly fractions to
the actors of the treatment system. Guo (2009) mentioned three operating models for
reverse logistics namely self-employed models, pool model and outsourced model.

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Ketzenberg et al (2004) have taken the case of a firm that can satisfy the demand with
either a new product, remanufactured product or a mixed of both types as it assumes
that the quality and reliability of the remanufactured product allows the interchange.
Based on the three sources of uncertainty; demand, return and the yield, the
researchers developed a theoretical model providing complete, though approximate
analysis on the value of information. The model can also be used to determine the
potential gains from information on demand, return and yield.

Ramezani et al. (2013) presented a stochastic multi-objective model for

forward/reverse logistic network design under an uncertain environment including
three echelons in forward direction (i.e., suppliers, plants, and distribution centers)
and two echelons in backward direction (i.e., collection centers and disposal centers).

Alumur et al. (2012) presented a mixed-integer linear programming formulation that

was flexible to incorporate most of the reverse network structures conceivable in
practice. Remanufacturing, refurbishing, recycling, landfill, repackaging, returns
processing, and salvage are the various reverse logistics activities (Rogers & Tibben-
Lembke, 2001). Zhang et al. (2011) proposed an inexact reverse logistics model for
municipal solid waste management systems which could reflect the dynamic and
uncertain characteristics of municipal solid waste management systems and could
facilitate the generation of desired management plans.

Hong and Ke (2011) opined that Advanced recycling fees (ARFs) and government
subsidies might play important roles in encouraging or curtailing the flows of recycled
items. For comparative purposes, they also developed a conceptual model describing
the current practices by which ARFs and the subsidy fees were determined on the
basis of fund balance between revenues and costs along with recycling operations.
Bogataj and Grubbstrom (2011) aimed at demonstrating the versatility obtained from
using material requirement planning theory when combining Input–Output Analysis
and Laplace transforms. This enables an analysis of a supply chain including four sub-
systems, namely manufacturing, distribution, consumption and reverse logistics where
the geographical distance between the activities play an important role.

Common reverse logistics activities can be segregated into two groups namely reverse
logistics activities for products and reverse logistics activities for packaging (Rogers
& Tibben-Lembke, 1999). Product related reverse logistics activities include return to

49
Supplier, resell, sell via outlet, salvage, recondition, refurbish, remanufacture, reclaim
materials, recycle and landfill while Packaging related reverse logistics practices
include Reuse, refurbish, reclaim materials, recycle and salvage.

2.3 Performance of Reverse Logistics Management

Improved customer satisfaction, reduced service costs, increased service profitability,

increased service revenues and improved new part procurement costs are the five
major benefits of successful execution of reverse logistics process (WIPRO
Technologies, 2009). Their study was related to reverse logistics in consumer
packaged goods (CPG) industry.

Janzen and Rosier (2008) explored four major benefits of an agile and efficient
reverse supply chain which may emerge in different forms like revenue growth
through customer satisfaction, cost-reductions through customer-centric lean
processes, sustainability through corporate social responsibility approach (Sarkis et
al., 2010), and change & control through tax incorporation & organizational
alignment. They also claimed that all these four benefits lead to overall increased
profit margins.

Gecker and Vigoroso (2007) studied six industries namely Medical Device
Manufacturing, Telecom/Utilities, Industrial Manufacturing, High Tech, Consumer
and Aerospace & Defense to outline the industry best practices in reverse logistics.
The four realized benefits are reduced service costs, reduced new part procurement
costs, increased service profitability and improved customer satisfaction/retention,
improved customer satisfaction/retention being the most significant benefit realized
by all the studied industries except Telecom/utilities.

Ritchie et al. (2000) claimed that following their recommendations, Manchester Royal
Infirmary was enjoying four major benefits; increased efficiency and effectiveness of
reverse logistics processes, increased awareness of its importance and benefits
especially in terms of controlling expenditures on drugs and pharmacy’s ability to
carry out product recalls, enabled the managers to identify and monitor trends and to
highlight potential problems especially with high cost items, enabled managers to
have an input into the redesign of the process by providing an understanding of how
the data were collected, how the process was mapped and the problem areas

50
identified. The researchers corroborated significant financial and operational
advantages to National Health Service (NHS) and other organizations in developing
an effective reverse logistics process.

After mentioning the tangible benefits like cost-cutting and intangible benefits like
improved corporate image, Gandolfo and Sbrana (2008) showed that the reverse
logistics is not the downside cost of logistics (Shear, Speh & Stock, 2002), but on the
contrary, a new opportunity that businesses may use to create their competitive
advantage, reduce costs and improve customer satisfaction.

Clendenin (1997) provided that managing the returns channel as a distinct business
process provides the opportunity for sustainable competitive advantage as in case of
supply chain integration. Jack et al. (2010) found out that if the back-end resources
and contractual arrangements along with the mediating role of reverse logistics
capabilities are considered systematically and holistically, they provide the foundation
for competitive advantage. When these three elements (resources, contracts, and
capabilities) are in place, retailers can realize higher cost savings through such
elements as lower compliance cost with environmental regulations, improved
competitiveness, and efficiencies in meeting customer needs. They also
acknowledged the empirical evidences that satisfied customers can lead to repeat
purchases, improved customer loyalty, increased market share, and greater financial
returns.

Logistics effectiveness, logistics efficiency and logistics differentiation are the three
dimensions of measuring the performance of logistics operations (Fugate et al., 2010).
While investigating the reverse logistics practices with a goal to identify the reverse
logistics process flow, Li and Olorunniwo (2008) identified the key performance
indicators to assess the efficiency and effectiveness of reverse logistics activities.
Based on the findings of their study, they claimed that most of the managers cited the
use of on-time ship, dock-to-stock speed, inventory accuracy, and outbound shipping
quality (errors and customer complaints, costs and productivity). Findings of this
study reveal that companies need to make commitment to reverse logistics and to
build a better control system particularly in measuring the performance of the system.

Saibani (2010) examined six reverse logistics performance metrics namely cost
efficiency, value recovery, return flows and time related measures, quality, flexibility,

51
environmental/ sustainability. Production acquisition cost, reverse distribution/
transportation cost, cost for testing/ sorting, repair/refurbishment cost, remarketing/
redistribution cost, inventory cost, land filling/ scrapping cost, value erosion cost (
loss of value due to delays), incentive alignment cost and penalty cost (e. g.: repair is
over due date, error occurs after repair) are the various measures of cost-efficiency
while revenue from reselling repaired products, percentage of returns entering
different recovery options (reuse, repair, refurbish, recycle, scrap & landfill, etc.), cost
avoidance by reusing refurbished parts/products in the forward supply chain, cost
avoidance by recycling materials, number of times products are reused and
cannibalization of new product sales from selling refurbished products are the key
value recovery measures.

Return rates by product line/ product category, return rates by return reason, return
rates by channel partners/ region/ location, return rates by return policy (impact of
change on return policies), return rates by quality, return rate variability, total lead
time (time from product being returned until final disposition), lead times for each
processing step, lead time variability, compliance with due dates, inventory levels of
returned products at each stage and inventory at risk (to become obsolete! write-off)
are the various returns flow and time related measures while

quality of incoming returns, traceability of product return (history of

use/service/repair, location, documentation), accuracy of credit issuance, accuracy of
returns acquisition process, accuracy of reverse distribution/ transportation, accuracy
of testing/ sorting/ dispositions, accuracy of repair/ refurbishment operations,
customer satisfaction, customer complaints, customer complaints resolved and
success of customer help lines & support (in avoiding returns) are quality related
measures.

Reusability of parts/ products (product modularity/ durability), reusability of

materials, feasibility in recycling/ repair options and number of outlets (market
segments) for selling returned or refurbished products are various flexibility measures
while level of compliance with environmental regulations/ targets, number of
environmental programs/initiatives involved, level of environmental emission,
volume entering landfill, volume of non-biodegradable/ non-recyclable materials

52
used, fraction of materials reused/ recycled, waste reduction and number of positive
stories in the media are environmental/ sustainability measures.

Critical success factors (CSF) are an explicit representation of the key performance
areas of an organization. CSFs may be defined as those sustaining activities that an
organization must perform well over time to accomplish its mission. They are found
on every level of management, from executive to line management. Janse (2008)
considered five critical success factors namely Industry CSFs, Competitive-position
CSFs, Environmental CSFs, Temporal CSFs, and Management CSFs. Track and trace
capabilities, top management awareness, strategic partnerships with supply chain
partners, strategic partnerships with other producers, reclaiming value from returned
products, strategy focus on avoiding products to be returned, efficient gate keeping,
detailed insight in cost and performance of reverse logistics activities, automating
returns processes, capability to put returned products rapidly back in the market and
visibility of the quality and value of a product throughout its life cycle are the most
important success factors in managing a reverse logistics.

Shaik and Kader (2012) provided an AHP performance measurement model for
reverse logistics enterprise which included six performance perspectives namely
financial, process; internal & external, stakeholder, innovation & growth,
environmental and growth. Financial performance perspectives included four
performance measures namely total reverse logistics costs, total capital input, annual
sales of returned products and revenue recovered while reverse logistics cycle time,
network capacity, transport capacity and recovery efficiency rate were the four
performance measures for internal & external process perspective.

Customer satisfaction, government satisfaction, employee satisfaction, and investor

satisfaction are the four performance measure related with the stakeholders’
perspective while management initiatives & employee competency, information
technology capability, process technology innovation capability and product life cycle
reviews are the four performance measures related with the innovation & growth
perspective. Overall environmental compliance, materials utilization, energy
utilization, and disposing capability are the four performance measure associated with
environmental perspective of performance while corporate image, relationships,

53
safety and security are the other four performance measures associated with the social
performance perspective.

Shaik and Kader (2012) put forth three major dimensions of performance, each
having two respective perspectives. These are efficiency factors (financial and
stakeholder), effectiveness factors (process; internal and external, innovation and
growth) and impact factors (environmental and social). Returning and recycling cost,
management commitment, material features, level of process management, customer
involvement, supplier commitment, recycling efficiency, quality, flexibility of
recycling processes, environmental social concerns, material recovery time, flexibility
of delivery and innovativeness were the key performance areas identified by Olugu et
al. (2010) while studying the performance evaluation of closed loop supply chain.

Lee and Lam (2012) considered qualitative as well as quantitative yardsticks for
measuring reverse logistics performance. Reduction in uncertainty, leading to better
inventory management, better customer service and decreased occurrence of stock
outs and other undesirable situations are the qualitative yardsticks while time saved in
the reverse logistics cycle such as returns lead time, cost savings in the returns
process, contributions to revenue, if applicable, and decrease in inventory holding
costs are the quantitative yardsticks to measure the reverse logistics performance of an
enterprise.

Nukala and Gupta (2007) identified six performance metrics (reputation, innovation
and improvement, public participation, facility potentiality, responsiveness, and
delivery reliability) and various associated enablers while studying the performance
evaluation in closed loop supply chains. On-time delivery ratio, returning customer’s
ratio, the firms ‘green image’ etc. are the enablers which drive the firms’ overall
reputation. The amount of waste disposed is used to measure the green image of the
firm. R&D expenses ratio, the number of new products and processes launched etc.
are the enablers driving the innovation and improvement metrics. Flexibility or the
firm’s ability to handle uncertainties, after sales service efficiency and the markets
targeted are the enablers which drive the public participation and responsiveness.
Facilities’ potentiality can be driven by several enablers such as the location of the
facilities, the increment in the quality of products remanufactured; disassembly time
multiplied by the throughput, throughput divide by the supply of used-products, usage

54
of automated disassembly systems etc. Effectiveness of the firms master production
schedule, the usage of automated disassembly systems, the supply of used-products,
the quality of used-products etc. are the key enablers for the delivery reliability.

Hsu (2005) considered that effective reverse logistics should result into at least some
of the benefits cited by previous researchers like improved customer satisfaction,
environmental regulatory compliance, cost containment, improved profitability,
recovery of products and reduced inventory. The researcher viewed the two types of
reverse logistics performance (Operating/financial performance and service quality) to
be affected by the proactive and reactive capabilities of the firm. Procurement
capability, avoidance and gate-keeping capability and information presentation of web
are the proactive capabilities while formalities of reverse logistics process and
information system support capability are the reactive capabilities. Return Level, cost
and time are the indicators of operating/financial performance while customer
satisfaction is the indicator of service quality.

Huang et al. (2012) discussed the various dimensions of reverse logistics performance
focusing on two major kinds of performances; economic and environmental.
Compliance with environmental regulations, limiting environmental impact beyond
compliance, and enhancing corporate green image are the studied dimensions of
environmental performance while recovery of assets, cost containment, improved
profitability, improved labor productivity, improved customer service and reduction
in inventory investment are the dimensions of economic performance.

Autry et al. (2001) tried to explore how reverse logistics performance and satisfaction
with reverse logistics services are influenced by industry, firm size/sales volume and
internal or external assignment of responsibility for disposition. They addressed three
research questions in their study; are there differences in reverse logistics program
performance or satisfaction by industry, are there differences in reverse logistics
program performance or satisfaction by firm size i.e. sales volume, and are there
differences in reverse logistics program performance or satisfaction by internal vs.
external assignment of responsibility? The researchers included six items namely
environmental and regulatory compliance, improved customer relations, recovery of
assets, cost containment, improved profitability, and reduced inventory investment to
measure the performance of reverse logistics program. For measuring the satisfaction

55
with reverse logistics service, the researchers have taken eight items namely quality of
rework/repair, vendor’s overall compliance with buying agreement, level of returns
allowed, ease of obtaining returns authorization, timeliness of rework/repair, length of
time for credit processing, handling reconciliation of charge backs and use of internet
in processing returns.

The findings of this study reveal that although all the retailers appear to believe that
they are performing reverse logistics tasks fairly well, they rate themselves
moderately effective on key performance measures-they are considerably less
satisfied with reverse logistics service provided by their trading partners. Several
potential explanations may exists; it is possible that the surveyed retailers possess
some internal biases working against manufacturer like having a “us vs. them”
attitude, there may be a gap between the expectations held by the retailers and the
actual performance of their trading partners as far as the service quality is concerned.
The researchers pointed out the complexity of reverse logistics programs particularly
within the catalog industry that makes it difficult for partners to understand exactly
what the retailers want in terms of service. Hence they recommended the use of
improved communications with the dyadic relationship to minimize the gap in the
service quality.

Skinner et al. (2008) empirically examined the impact of different disposition

strategies on the strategic performance in the reverse logistics process. They stated
that return policies are a signal to customer about the convenience and the quality
assurance. The study mentions that under instances of active resource commitment to
reverse logistics programs, operations and supply chain management may expect
superior performance (economic and operational) by choosing destruction, recycling,
refurbishing and/or remanufacturing of the product. Customer satisfaction and the
profitability are the two key indicators of performance measurement (Olorunniwo &
Li, 2010).

Yellepeddi (2007) examined four reverse logistics performance metrics related with
the four major reverse logistics process functions (Gatekeeping, sorting & storing,
asset recovery and transportation) while working out a methodology for evaluating
the performance of reverse supply chain in consumer electronics industry. These four
metrics included nine performance indicators namely the value of returns entering

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reverse supply chain per unit of time, gatekeeping effectiveness, warehousing
effectiveness, carrying cost percentage of returned goods in a CRC per unit time,
recovery efficiency, recovery rate, environmental conformance effectiveness, overall
vehicle effectiveness and average return transit time.

Autry (2005) examined the relationship among the formalization, liberal policies,
related capabilities (ease of obtaining return authorization, handling reconciliation of
chargebacks, length of time for credit processing, quality of repair/rework, and
timeliness of repair/rework) and overall effectiveness of reverse logistics programs for
a sample of firms in the automobile aftermarket parts industry. Genchev (2007)
considered IT, innovation and responsiveness as the key reverse logistics capabilities.
Cost containment, recovery of assets, improved labor productivity, improved
profitability, and reduced inventory investment are the key yardsticks to measure the
reverse logistics program effectiveness. The findings suggest that reverse logistics
capabilities (returns handling capabilities as well as repair/rework capabilities) have a
significant impact on reverse logistics program effectiveness.

Banomyong et al. (2008) defined the concept of leagile as the combination of lean and
agile paradigms within a total supply chain strategy by positioning the decoupling
point so as to best suit the need for responding a volatile demand downstream yet
providing level scheduling upstream from the decoupling point. After deep analysis of
various costs, lead-times, the researchers concluded that with this new leagile concept
in execution, one can reduce the overall transportation costs and space rental costs
more than the increase in the operations costs and inventory holding cost, which will
ultimately lead to the overall cost reduction. Lead-time is also appearing reduced from
6-40 days to only a single day. After its implementation, the responsiveness to
customers demand as well as the overall customer satisfaction level was found higher.

Richey et al. (2005) conducted their study with an aim to establish the relationship
among the three constructs; resource commitment, innovation and reverse logistics
performance. They found the innovation to be a mediator in the resource
commitment-reverse logistics performance relationship. This means that resources
make reverse logistics programs more efficient and more effective, but there is a big
payoff only when the resources are used in such a manner as to develop the
capabilities/approaches to handling returns. The size based analysis of firm shows that

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smaller firms are at disadvantage as they don’t have enough resources to commit to
make a difference.

Meade and Sarkis (2002) used organizational performance criteria which consisted of
traditional strategic organizational metrics such as time, quality, cost and flexibility.
Rogers et al. (2002) provided a performance measurement metrics which contained
number/amount of defective products which is directly attributable to the supplier
relationship management, return rate, disposition cycle time, costs related to returned
products and the value derived from recycling or resale. Customer relations, improved
labor productivity, cost containment, recovery of assets, environmental regulatory
compliance, improved profitability and reduced inventory investment were the seven
key performance indicators (Daugherty et al., 2003).

Soto et al. (2005) identified two potential areas for overall performance improvement
i.e. the causes of returns and reverse logistics process. The causes of returns can be
reduced by improving the forecasting and production planning techniques which will
lead the overall performance to improve. Another area is the reverse logistics
processes which can be improved by improving the information sharing between the
supply chain members and in the standardization of the RL process.

Genchev (2007) considered the service quality and economic criteria as the two
primary reverse logistics performance outcomes. Service quality measures refer to
how easy it is for customers to return a product which once improved results in
improved relationships with customers. Cost containment, improved profitability,
recovery of assets, and reduced inventory investments were the major economic
performance indicators in reverse logistics context (Daugherty et al., 2001). Inclusion
of both economic and service quality performance measures provides a
comprehensive statement of a firm’s competitiveness and performance potential.

2.4 Reverse Logistics in Pharmaceutical Supply Chains

Ritchie et al. (2000) conducted a study to analyze the benefits of reverse logistics in
Manchester Royal Infirmary pharmacy. During their study related visits of twenty
eight (28) of the MRI’s medical units, they found that pharmaceutical waste of any
nature other than the hazardous clinical items was returned to the pharmacy. One of
the best reverse logistics practice researchers observed there were their endeavors to

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reduce the chances of occurrence of such stocks by maintaining the daily records so
that they might avoid the drugs from getting expired by rotating the stocks among
various infirmaries.

Based on their observations, the researchers suggested that their reverse logistics
program must pursue certain predetermined objectives which may include mapping of
existing returns process using appropriate software, to analyze the returning stock
financially under the heads of expired, disposable, and recyclable, to identity the
problems existing in the system and find ways to resolve them, to fix the authority and
accountability of reverse logistics operations, to fix the criteria for segregating the
returned stocks and to increase the level of pharmacy staff about such returns.

They also stressed that their suggestions about reverse logistics operations, if
implemented, might lead Manchester Royal Infirmary enjoying certain benefits like
increased efficiency and effectiveness of reverse logistics processes, increased
awareness of its importance and benefits, enabling the managers to identify and
monitor trends and to highlight potential problems, enabling managers to have an
input into the redesign of the process by providing an understanding of how the data
were collected, how the process was mapped and the problem areas identified. The
researchers remarked that an effective reverse logistics process might result into
potential financial and operational advantages.

Koh et al. (2003) discussed the issue of drug counterfeit at large. Three factors
account for the increase in counterfeit drugs: first, the computer technology available
to forge labels has become more sophisticated. It is now possible to reproduce any
label. Second, there is an abundance of small wholesalers buying and selling
medications. Along with differences in pricing, the increase in small wholesalers
creates an active secondary, or gray market. This increases the opportunity to
introduce counterfeit into the supply chain. Finally, an increased number of expensive
drug therapies provide lucrative potential for forgers to net large profits. In some
cases, organized crime and former illicit drug dealers have entered the counterfeit
ethical drug market because the profit potential is so large.

Katoch (2007) reported ten categories of bio-medical waste as notified by

Government of India as Bio-medical Waste (management & Handling) Rules -1998
viz., Human Anatomical Waste; Animal Waste; Microbiology & Biotechnology

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Waste; Waste Sharps; Discarded Medicines and Cytotoxic Drugs; Solid Waste;
Liquid Waste; Incineration Ash and Chemical Waste. The researcher also mentioned
two technology options for bio-medical waste treatment namely incineration
technology and non-incineration technology. Incineration takes place between 900-
12000C depending upon whether it is Normal Hospital Waste (9500C) and Infectious
Hospital Waste (12000C). Autoclaving, microwave irradiation, chemical methods,
and plasma pyrolysis are the non-incineration technologies which were briefly
discussed. Autoclaving being an efficient wet thermal disinfection processes are used
in hospitals for the sterilization of reusable medical equipment. Plasma pyrolysis is a
state-of-the-art and environment-friendly technology, which is used to dispose of all
types of waste including municipal solid waste, biomedical waste and hazardous
waste in a safe and reliable manner. Medical waste is pyrolysis into CO, H2, and
hydrocarbons when it comes in contact with the plasma-arc. These gases are burnt and
produce a high temperature (around 1200˚C). Researcher reported that infectious
waste is either incinerated or it is sterilized and landfilled.

Rinsing down a sink, storing in the house, returning to a pharmacy, flushing down a
toilet, giving to friends or family, returning to a health care provider were the patients’
practices regarding the disposal of unwanted/no more required medicines which were
examined by Seebusen and Edwards (2006). Kumar et al. (2009) analyzed the
pharmaceutical industry supply chain using DMAIC (Define, Measure, Analyze,
Improve and Control) process for improvement of reverse logistics in a recall to avert
the possibility of harm to a customer. By scrutinizing the pharmaceutical supply
chains, the researchers raised the questions regarding the ways to improve the supply
logistics in the pharmaceutical industry for the purpose of better reverse logistics, the
methods which jointly improve the forward and reverse logistics to help prevent
counterfeit drugs, and possibilities of implementing an improved and secure reverse
logistical chain without a cost prohibitive burden to a company. Use of RFID on a
single system and the same carrier (single wholesaler/distributer) for transportation of
the pharmaceuticals throughout the entire supply chain were recommended to cope up
with the challenge of drug counterfeit by increasing the visibility and traceability. The
researchers have also hinted towards another “on-pill identification” technique for
anti-counterfeit measures. This technology allows for the product identification
numbers, markings, barcodes, logos, patient’s info, dosage info, expiration dates etc.

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Researchers concluded by saying that there is a great need to have a more secure and
traceable supply chain within the pharmaceutical industry.

Al-Naggar and Alareefi (2010) studied the patients’ disposal practices regarding their
unused medications and found that majority of the respondents were throwing their
unused medications into trash. Rest of their respondents were found equally preferring
the burning of such medications and storing them in refrigerators. The researchers
also found that the patients were not informed about the proper way of disposing of
unused medications either by the physicians/pharmacists. Their findings suggest that
the best way to educate the Malaysian patients about the disposal of unused
medication is through school, university and public campaign.

Kreisberg (2007) discussed in his article on greener pharmacy, the pharmaceuticals

and personal care products (PPCPs) and offered insight into how they enter the
environment, how they affect the water supply and aquatic organisms, and, finally,
what we as integrative medical professionals can and must do to limit the impact of
this emerging pollution problem. The researcher suggested certain measures to reduce
the environmental impacts of medications and these measures include cradle-to-
grave-product-stewardship program, manufacturing of eco-sensitive drugs, refining of
drugs expiry dates to be more realistic, putting an environment friendly packaging,
enhance patients’ awareness and organize the take-back programs. Reasons for
customers’ returns include changed treatment, side-effects, unclear instructions,
medical condition improved or resolved death of the patients, excess supply, delivery
of expired medicines and others (Azad et al., 2012).

Kabir (2013) discussed the return process of pharmaceuticals in detail. The researcher
explained that when returns arrive at a distributor, the distributor applies the
manufacturer’s retailer policies and pricing to ensure the pharmacy, hospital, or
wholesaler receives credit for the return. Then, the distributor sends the returns to a
third party returns processor for destruction. Returns arrive at distributor or
manufacturer are validated, policy and pricing policies are applied, accounts are
reconciled, reports are filed online for the manufacturer and the shipper, and the
pharmaceuticals are destroyed with proper documented proof of destruction for
regulatory purpose. Not all returns are credited. But, when manufacturers do credit
returns, reverse logistics have the additional challenge of ensuring that returns are

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authorized, quantities are validated and returns data for lot or batch number and
shipper are matched against the original documentation.

Reverse logistics in the pharmaceutical industry is extremely important from the

economic, environmental as well as regulatory point of view. Some important
considerations are the security of the returned goods, keeping the cost low with the
help of automation, traceability of the goods returned from the customer to the final
stage of disposition (Kabir, 2013). Pharmaceuticals are different from other common
products in that when those products are recalled or returned, they can be repaired,
resold, or donated whereas pharmaceuticals, in contrast, are destroyed. The need for
destruction relates to the inability or difficult constraint of regulated facilities of
manufacturers to ensure pharmaceuticals were handled properly after leaving their
control and to ensure a secure chain of custody (Kabir, 2013).

2.5 Concluding Paragraph

This chapter began with a discussion on reverse logistics from different perspectives.
Thereafter, it provided a detailed account of literature review related to some broad
issues of reverse logistics- drivers, barriers, and activities involved in the execution of
a reverse logistics program. One section of this chapter is solely devoted to review the
literature related to the performance evaluation of reverse logistics programs. Having
discussed the concept of reverse logistics, its major issues, and performance
evaluation in a wide spectrum, the chapter ends with a detailed review of literature on
the subject with special reference to pharmaceutical supply chains.

The following chapter (chapter-3) highlights the need for the study on the basis of the
research gap carved out of this comprehensive literature review and spells out the
objectives to be studied. Chapter 3 also formulates the hypotheses for working on the
set objectives and explains the research methodology.

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