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Chapter 1

INTRODUCTION

This chapter emphasizes the significance and importance of

Reverse Logistics in Industries. A concise literature review concerning to the
current study is introduced in this chapter.

1.1 OUTLINE OF REVERSE LOGISTICS

In today’s business, administering the returns of products, parts and

materials from the consumer to the supplier is a big challenge to
organizations. This has been given more attention for value recovery,
environmental concerns and sustainable development. Customer protection
legislation permits end-users to return goods at no cost, if they are not
fulfilled with their performance (Lee 2002). Reverse logistics is the procedure
of arranging, executing and being in command of the raw materials, returned
goods from the place-of-use to the place-of-origin. Reverse logistics activities
are collection, disassembly, processing, remanufacturing, refurbishing,
cannibalization, repackaging and proper disposal of used parts, products so as
to recapture value from the returned parts.

Reverse logistics as well as can be defined as the procedure of

arranging, executing and being in command of the flow of parts, raw
materials, components and finished goods as well as integrated information
from the place-of-use to the place-of-source for the intent of recalling
investment value or safer discarding (Rogers & Tibben-Lembke 1998).
(Fleischmann 2000) interlinks reverse logistics by means of inferior goods
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that are refused, returned or rejected following a primary sell out. The benefits
of reverse logistics to organizations and their customers are:

• Increase in public perception

• Encourage competition in manufacturing

• Improved customer satisfaction and loyalty

• Reduced risks to the business

• Recovery of capital investments in assets

• Improved company’s image, benevolence and reputation

For the effective treatment of returns, organizations require

information management and communication system to arrange and be in
command of the reverse logistics activities. It is a great challenge for
companies to manage reverse logistic operations because of improbability of
time, place of origin, legal obligation and quality & quantity of returns. From
the above said reasons, it is advisable to implement information and
communication know-how in organizations to manage reverse logistic
operations.

Reverse logistics flow is extremely dissimilar to the onward flow.

In forward logistics, the product is transmitted to a distribution centre (DC),
and afterwards to the retail stores. In this network, forecasting can be utilized
to calculate the requirement and consignments are transmitted in reaction to
the DC or retail stage. At every stage, Advanced Shipping Notices (ASNs)
technique is used which provides detectability of product arriving.

By drawing a distribution, the flow of reverse logistics is more

immediate by means of visibility. Companies usually do not instigate the
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activities of reverse logistics according to arrangement as well as decision

making part of the business, on the contrary in reaction to the actions by
consumers or downstream channel members. Generally, customer returns an
item to a retail store. The collected items from the retail store are sent to a
centralized sorting facility. The information system is used to record
information about the item and its condition at the time of return. It is then
advanced to the returns-processing centre.

1.2 DIFFERENCES BETWEEN REVERSE AND FORWARD

LOGISTICS

Logistics is a division of the supply chain process which involves in

planning, implementing, and controlling the flow, storage of goods, services,
and related information from the point-of-origin to the point-of-consumption
in order to meet customers’ needs. Forward logistics is defined as the
progression of supplying finished goods to customers (Lambert & Cooper
2000). (Tibben-Lembke & Rogers 2002) declares that logistics is an essential
part of the supply chain process which encompasses planning,
implementation, and controls over the flow and storage of goods, services,
and related information from the starting point to the point-of-consumption
for the fulfillment of customers’ requirements.

Reverse Logistics is defined as the progress of products, materials

and information in the opposite direction in order to create or bring back
value and to work out proper disposal options. (Rogers & Tibben-Lembke
2001).

The main differences between forward and reverse logistics are

presented in Table 1.1. From Table 1.1 it is apparent that reverse logistics is
eminent to be considerably different from forward logistics.
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Table 1.1 Differences between forward and reverse logistics

Sl.No Forward logistics Reverse logistics

1 Forecasting is easy
2 One to many delivery points
3 Product quality is standardized
4 Product packaging is consistent
5 Destination/routing is clear
6 Disposition options is quite clear
7 Pricing is stable
8 Importance of speed is recognized
The costs is predictable in the
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forward distribution
10 Inventory management is reliable
11 Product life cycle is well-located Product life cycle is more complex
Marketing techniques are
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well-known
13 Transparency of process is clear
Forecasting is not straight forward
Many to one delivery points
Product quality is not standardized
Product packaging is frequently
damaged
Destination/routing is generally
not clear
Disposition is not clear
Pricing is dependent on many
factors
Speed is not a main concern
The costs is not easily predictable
in the reverse distribution
Inventory management is not
reliable
Marketing is complicated by
numerous factors
Transparency of process is not
clear

1.3 NEED FOR REVERSE LOGISTICS

Many retail companies use centralized return centre (CRCs) to

process the returned products. When the product arrives at the CRC (or DC),
decision will be taken by the employees working in the CRC about where the
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product is to be sent. At the CRC, the condition of each incoming parts is

evaluated and disposition option is decided by the employees in CRC. A wide
range of disposition options are obtainable with the returned products.
Possible destinations are:

• Return to vendor

• Repackage and sell as good as new

• Sell via outlet

• Remanufacturing/refurbishing

• Sell to broker

• Donate to charity work

• Recycling

• Incineration

• Land filling

When the retailer purchase the product from the vendor, an

agreement is worked out about whether the retailer would be allowed to return
the product to the vendor and it is terms and conditions. If return of the
product is not permitted, the retailer should find a way to sell the product
again via an outlet store. In this process, the profit generation is not
remarkable. The product may have to be repackaged or remanufactured before
being resold in the market to trigger profit reduction. Obsolescent can be
donated for charity purpose.

If short of recycling or land filling the product, the company’s last

option is to sell the product to a broker. Brokers function in the ‘secondary
market’ is to buy and sell the product in any condition. As a result, the prices
which brokers pay are typically very low.
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1.4 SUPPLY CHAIN POSITION

The position within the supply chain often influences the size and
scope of the reverse logistics problem that the firm faces. As the retailers deal
with customers directly, they have a large volume of returned products for the
suppliers to deal with.

By collecting the returned parts from the retail stores, the retailer
provides large and periodic shipments of returned goods to the vendors. The
vendor has different conditions to deal with the retailer. The retailer receives
small, unorganized shipments of a variety of products on daily basis. The
vendor however receives large, organized shipments of a number of products
on a weekly or monthly basis.

In addition to customer returns, the vendor may also receive

products from the retailers that have been placed in a retail store. As the
demand for the product was low in the market, it was not sold or never left in
the retailer’s DC.

Although the arrival pattern of goods is different, like the retailer,

the vendor must examine each item and decide the best disposition option for
each item. The disposition options are available to the retailer. However, the
prices that the vendor may recover from each disposition may be different
from those available to the retailer. Brokers prefer to deal with large
quantities of products. As vendors receive products from multiple retailers,
they collect larger volumes of products and the prices at which they can sell
the product to brokers may be considerably higher.

As reselling of the product through primary or secondary channel

is possible, the vendor has an additional advantage over the retailer. If a
product is not sold well in one retailer, the vendor may be able to sell the
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product to its full price to a different retailer who is experiencing higher

demand for the product. However, the amount recovered by the retailer or the
vendor is relatively very small. The revenue increased with the vendor, may
not be considerable in terms of total economic value. This has forced some
vendors to assess the cost-effectiveness of their return processing activities.

The manufacturer would return a product to its supplier, when the

material is faulty. The supplier would replace the product or credit its cost to
the manufacturer. Depending on the vendor’s policies, the manufacturer may
face a set of decisions like; send the material that are usable; selling the
material in a secondary market; recycling the material, or disposing it in a
land filling option.

1.5 BACKGROUND OF THE RESEARCH

Reverse logistics management explores various reasons, such as,

enriching process performance and source of the products (Srivastava &
Srivastava 2006). Reverse logistics management system comprises gainful
returns, warranty returns, end of used returns, end of life expired returns,
strategic marketing, vending policies, legal requirements, ecological issues
and sustainable development. The benefits of reverse logistics are financial
gain, strategic & competitive advantage and customer retention.

Products are returned from the end users due to various reasons like
manufacturing, commercial, service, warranty, legal obligations and
environmental issues. The product return quantities of some models are high.
Organizations require successful reverse logistic management to accomplish
economic, environmental and strategic gains. So, it is vital to find the reasons
for reverse logistics in various industries.
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Redistribution, repair, resale, recycling, upgrade, remanufacture,

refurbishing, cannibalization, reuse, repackaging, retrieval, incineration,
hazardous waste management, landfill, and donation are the value recovery
operations. So it is important to identify value recapturing methods from the
returned products, parts, and materials. Barriers to reverse logistics include
poor management of intermediaries, little recognition of RL as competitive
factor, limited forecasting and planning, lack of clear return policies, lack of
awareness in environmental regulations, uncertainty in the return of goods,
tax issues and lack of information management system of reverse logistics.

Since it is important to have an effective management system in

reverse logistics, the various influencing factors associated with reverse
logistics are to be addressed.

1.6 RESEARCH OBJECTIVES

Generally, it has been found that the closer the firm is to the
consumer, the greater the size and the scope of the reverse logistics issues
arises. Furthermore, the vendor gains advantages, if compared with the
retailer in disposition the product in reverse flow, which allow them to
recapture higher value for a given product.

Another problem which touches the possibilities of selling again the

product is the so called “brand equity”, that is, the particular image of the
product that the vendor tries to create in the minds of consumers. Vendor
could pretend that products do not appear in any sales locations which might
damage the brand equity, and then the retailer or the broker should handle the
return products in accordance with the vendor’s wishes.

It is also evident from literature that there are a number of issues

such as product return operations, value recovery operations, barriers and
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information management associated with the management of reverse logistics

and also reverse logistics is not given the same importance as other business
processes. Most of the literature on reverse logistics is generic and from other
parts of the world. Thus, it is important to identify the issues, influencing
parameters and models for the successful implementation of reverse logistics
in India. On these considerations, the objectives of this research are:

i. To investigate reverse logistics issues in the Indian

Manufacturing, Home Appliances and Process Industries.

ii. To identify the influencing factors for the selection of Reverse

Logistics Service Providers (RLSP) using Decision Making
Trial and Evaluation Laboratory (DEMATEL) method.

iii. To select Reverse Logistics Service Provider using Analytic

Hierarchy Process (AHP) technique.

iv. To develop a model to minimize cost for the selection of

facility locations in reverse logistics.

1.7 OUTLINE OF THESIS

This thesis addresses the following:

• Provides the general introduction, background of the research

(Chapter 1).

• Presents an in-depth study of existing literatures on Reverse

Logistics in various industries, the factors influencing Reverse
Logistics Service Provider (RLSP) and different Returns
handling network in practice (Chapter 2). From literature,
reverse logistics processes & the flow of information are
presented and research gaps are identified.
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• Presents objective, research methodology and scope of the

work (Chapter 3).

• Regression Analysis: Discusses the most influencing factor of

Reverse Logistics Services (RLS) and Return Polices among
Manufacturing, Home Appliances and Process Industries.
Ranking - Friedman test is used to find out the most
influencing sub-factors among Information Technology
Enabled service (ITES), Communication Technology (CT)
also termed as Techniques and Reverse Logistics operations
(RLO) in Manufacturing, Home Appliances and Process
industries handling Reverse Logistics (Chapter 4).

• Reports the relationship that influences the selection of

Service Provider using DEMATEL method and a method to
identify the most preferred supplier (RLSP) using the factors
identified from DEMATEL and selection of reverse logistics
service providers using AHP (Chapter 5).

• Presents a proposed model which can help the companies to

restructure their existing network in-order to achieve cost
minimization (Chapter 6).

• Presents the conclusion of the thesis (Chapter 7).