11

Chapter 2

REVIEW OF LITERATURE

Reverse logistics is the management of returned products. Reverse

logistics is defined as “the process of planning, implementing, and controlling
flow of raw materials, finished goods and related information from the point
of consumption to the point of origin to recapture value or proper disposal”
(Rogers & Tibben-Lembke 1998). Reverse logistics can be featured in
manufacturing organizations to device strategic marketing and to keep
effective customer relationship management (Autry et al. 2001; Krumwiede &
Sheu 2002) environmental protection and sustainable development (De Brito
et al. 2005). Bayles (2001) opines that reverse logistics facilitate the reuse of
discarded products from commercial returns and the management of excess
inventory of products & materials. It involves processing damaged return
products, seasonal & excess inventory, restock, salvage and recall (De Brito et
al. 2005). Recycling programs, hazardous material management programs,
obsolete equipment disposition and asset recovery are the important processes
of Reverse logistics management. The benefits of reverse logistics are to
regain value, achieve a competitive advantage (Autry et al. 2001) and create a
positive impact on the environment (De Brito et al. 2005).

2.1 REVERSE LOGISTICS PROCESSES

Many authors have explained RL processes in various perspectives.

The key processes of RL are identified based on the work carried out by
(Rogers & Tibben-Lembke 1998; Fleischmann et al. 2000) as well as (Guide
& LN Van 2003) and are shown in Figure 2.1. The used or returned products
are collected after their acquisition and are inspected for sorting into different
 12

categories. The next step is to dispose the products for repairing,

remanufacturing, recycling, reusing or final disposal depending on the
decision taken by the technical experts.

Raw Material Manufacturing Distributors Retailers Consumers

Product
Acquisition (Gate
Keepng)
Recycling Remanufacturing Reuse Repair

Collection

Disposition Inspection &

Sorting

Disposal

Reverse Logistics

Forward Logistics

Figure 2.1 Basic flow of forward and RL processes

2.2 PRODUCT ACQUISITION

The product acquisition is defined as the progression of collecting

used products, components or materials from the end users for further
processing. The product acquisition is an important factor for the success of
RL, since product returns are uncertain in terms of time, quantity and quality
(Fleischmann et al. 1997). According to (Guide & LN Van 2003), product
acquisition is a primary step and is a critical process for establishing a
profitable RL.
 13

2.3 COLLECTION

After collection, the products are delivered for inspection, sorting,

and disposition. Collection refers to the activity in which a firm gains the
possession of the products (Fleischmann et al. 2003) discussed. Three
collection methods are defined by (Kumar & Putnam 2008) as manufacturers
directly collect from customers, manufacturers collect via retailers or
manufactures collect through third party logistics. Two alternative take back
methods for collection are considered by (Webster & Mitra 2007) and these
are distinguished by the “degree of control” on product returns. The first
method is collective take back in which the manufacturer has no control over
returns while the second method is individual collection and this gives
complete control to the manufacturer. The cost structure and the collection
quantity decisions (Atasu et al. 2013) are choices influencing collection
methods.

2.4 INSPECTION AND SORTING

In general, product returns may be commercial returns, service

returns, distribution returns or end of life returns. (Rogers & Tibben-Lembke
1998) reported that the products may be returned by a customer due to known
or unknown reasons, and the condition of returned products may differ
greatly. So a separate inspection of each item is required to sort out the
products. Products and components are sorted out based on this evaluation
(De Brito & Dekker 2002).

2.5 DISPOSITION

After the products are inspected, the next step is to take disposition
decision for further processing. Product reuse, product recovery, and waste
management are the three disposition alternatives illustrated by (Thierry et al.
 14

1995). Krikke et al.(2003); Tibben-Lembke & Rogers (2002) categorized

these alternatives as reuse, product upgrade, material recovery, and waste
management. Norek (2003) confirmed that firms have five recovery options
which include sell product as good as new; reselling after repairing or
repackaging; reselling of used products; reselling at lower price to recover
value; and selling by the weight to a salvage house. Five common disposition
alternatives discussed by (Thierry et al. 1995) are reusing, repairing,
remanufacturing, recycling and disposal.

2.6 CURRENT STATUS OF REVERSE LOGISTICS

Product return rates in E-Business sector are higher than the return
rates in retail store businesses. The return rates of all types of products in the
US market are accounted 6 percent (Rogers & Tibben-Lembke 1998). It also
clearly indicates that the rate of returned goods in different industries,
especially Manufacturing, Home Appliances and Process industries is
remarkably high as reported by (Rogers & Tibben-Lembke 1998). However,
the volume of sales via catalogues, internet, telemarketing and television is
growing and in these markets the returned goods accounted up to 35 percent
of the total sales. Marketing techniques programs and good sales strategies
convert potential customers into genuine customers. However, it is difficult to
find customer’s reaction particularly when the product does not accord with
the customer’s perception gained in term of screen design, catalogue or
description. The volume of E-Business returns is expected to increase further
in the upcoming years. In 1997 the cost of returns of US companies were
estimated as US $35 billion, representing 0.5 percent of the US GDP growth
(Rogers & Tibben-Lembke 1998). The reverse logistics cost is estimated to
rise 4 percent of total logistics cost to a company and it is likely to be
increased by 15% in next three years (Delaney 2001). This information
reveals the importance of returns management in reverse logistics.
 15

2.7 REASONS FOR REVERSE LOGISTICS

Reverse logistics play a significant role in supply chain

management (Carter & Ellarm 1998). Reverse logistics management is
essential in organizations for various reasons which can be avoided by
improving process performance and other reasons are due to the origin of the
products (Srivastava & Srivastava 2006). De Brito & Dekker (2002)
categorized these reasons into commercial returns, warranty returns, end-of-
use returns and end-of-life returns. Furthermore, E-Business, strategic
marketing, retailing policies, legal requirements, environmental issues and
sustainable development concerns become predictable parts of an effective
reverse logistics management system. Economic gain, strategic & competitive
advantage and increased customer retention are the benefits of RL and these
are identified as the reasons for opting RL in firms (Srivastava & Srivastava
2006).

2.8 STRATEGIC AND COMPETITIVE ADVANTAGE

The efficient reverse logistics management can bring strategic

value to organizations (Autry et al. 2001). Organizations often experience
higher volumes of returned products which necessitate implementing a better
management system of reverse logistics. (De Brito et al. 2005), (Srivastava &
Srivastava 2006) shared their opinion that organizations can achieve a
competitive advantage in the market through a well-managed reverse logistics
system. With this, the state of art technology can be provided by the
organizations with minimum interruption to customers. This helps the
organizations to have a competitive advantage in the market and to retain
customers (Autry et al. 2001).
 16

2.9 CUSTOMER RETENTION

Supplying high quality of goods/services to customers is the main

objective of every business. So customers will not move to another supplier
(Srivastava & Srivastava 2006). There are many ways to retain the customers.
One is, the supplier should share the information about unsold & defective
products and a timely credit offered with the customer (Rogers & Tibben-
Lembke 1998). Reverse supply chain can be customized by customer service,
which in turn leading to customer satisfaction (Autry et al. 2001). The reverse
logistics issues and customer related problems are emphasized by Jiang &
Rosenbloom (2005). They cited customer loyalty and customer retention rates
are the important considerations for choosing reverse logistics into both E-
business and Manufacturing organizations. An effective Returns management
in a company can achieve customer trust & confidence and promote company
image & goodwill (Boyer et al. 2002; Jiang & Rosenbloom 2005). The
number of other reasons pointed by (Rogers & Tibben-Lembke 1998) that
why firms in the USA manage reverse logistics. These include product
rotation on retailers, maintaining clean logistics channel, protection of profit
margins, upgrading old and obsolete products from the recovery plant. The
information furnished in this section, emphasizes the advantages of reverse
logistics management.

2.10 SELECTION OF REVERSE LOGISTICS SERVICE

PROVIDERS

There are many methodologies and models developed by the

researchers to take outsourcing decisions. (Krumwiede & Sheu 2002)
formulated a decision making framework for outsourcing transportation
services. They conducted a field study for a company in order to take
outsourcing decision. The decision was arrived through the evaluation of
market, customers and competitors.
 17

Selection of third party RL service provider is discussed in various

articles (Ravi & Shankar 2012; Divahar & Sudhahar 2012). The benefits of
outsourcing RL functions and methodologies are dependent on the type of
business and products handled by the firms. The business of a company can
impact through outsourcing RL to a third party.

Analytic Hierarchy Process (AHP) is well-known and widely

applied in decision-making applications for the selection of RL service
provider.

(Satty 1990) defined, AHP is a method of breaking down a

complex, unstructured situation into component parts and arranging the
judgments according to the relative importance of each variable. These
judgments are synthesized to determine the value of the variable. The variable
which has highest priority influences the outcome of the situation. Other
researchers defined that the AHP is a tool, capable of incorporating the
elements and intuitions (Tsinidou et al. 2010). It is a measurement theory,
competent to deal criteria with qualitative and quantitative approach (Henry &
Jan 2006). Decomposition, comparative judgment and combination of
priorities are the three principles of AHP. (Vargas 1990) listed out the process
which begins with determining pertinent factors, and then structuring these
factors into a hierarchy. This hierarchy descends in successive levels from an
overall objective to various dimensions and criteria, with numerical values
assigned to each variable (Satty 1990). The detailed steps involved in the
AHP are explained by (Satty 2008) as follows: define the goal of the problem;
structure the decision hierarchy with the goal of the problem from the top,
through the intermediate levels (criteria and sub-criteria) and to the lowest
level (usually involves a set of alternatives) and construct pair-wise
comparison matrices. Each element in the upper level is used to compare the
elements residing in the immediate lower level. In pair-wise comparison
 18

matrices, a scale of 1–9 is used to explain the dominant element over the other
element with respect to the criterion used for comparison.

2.11 DECISION MAKING TRIAL AND EVALUATION

LABORATORY (DEMATEL)

The Decision Making Trial and Evaluation Laboratory

(DEMATEL) was developed by Battelle Memorial Institute of the Geneva
Research Center (Gabus & Fontela 1973; Fontela & Gabus 1976). Many
articles reveal the application of DEMATEL in various fields that include
race, famine, environmental protection, energy and others. (Liou et al. 2007)
figured out how DEMATEL method has been successfully applied in
different conditions. (Cebi 2013) proposed a method based on Fuzzy set
theory, DEMATEL and generalized choquet integral techniques in order to
evaluate and customize the design quality of online shopping websites. A
model encompasses DEMATEL and ANP was developed by (Tseng 2009) to
evaluate different municipal solid waste management solutions in Metro
Maniter. (Tamura et al. 2002) used the DEMATEL method to extract various
uneasy factors in life. (Hori & Shimizu 1999) employed the DEMATEL
methods to design, develop and evaluate the software functions of displaying
screen structures in a supervisory control system. (Hajime et al. 2005)
incorporated QFD, TRIZ and DEMATEL to settle disputes over new product
designs. (Nanayo & Toshiaki 2002) adopted a modified DEMATEL
technique as an integral part of the medical system. (Kenichi & Yoshihiro
2002) developed DEMATEL to analyze the functions of snow melting
system. Kim (2006) incorporated PCA, AHP and DEMATEL to evaluate the
impact factors on the livestock industry and agricultural information system.
(Wu & Lee 2007) used Fuzzy DEMATEL to evaluate the capability of a
manager. (Lin & Wu 2008) applied Fuzzy DEMATEL in a group decision
problem.
 19

DEMATEL aims at presenting the direct/indirect causation and

degree of influence of quality characteristics. This can be achieved by
comparing their interrelationships in the matrix. The causation and influence
on the matrix can be used as a reference for decision making problems.
DEMATEL can turn a complicated system into clear cause & effect of
criteria. It can compute how one characteristic affects another by identifying
core problems and providing solution for improvements.

2.12 NETWORK DESIGN

Network design is one of the important strategic issues which may

have impact on the performance of RL. Numbers of facilities in the network,
their location, capacity or size and region to be covered are the strategic
decisions for designing RL (De Brito & Dekker 2002). RL network designs
can be applied into different business situations through various modeling
techniques. Secondary markets are also considered while designing the RL
network. The main purpose is to explore the opportunities to incorporate
secondary market in RL Network design. The RL network can be categorized
into repairing, remanufacturing, recycling, and direct reuse.

In many cases, the advanced technological equipment pushes up the

investment cost in recycling. Low recovery value and high investments are
factors which influence the processing volume. That is the reason; a
centralized open loop network structure consisting of small number of levels
is preferred. (Barros et al. 1998) reported a case for multilevel capacitated
warehouse location problem which covers the recycling of sand from
construction waste. The model helped in determining the optimal number,
capacities, locations of the warehouses and cleaning facilities. Design and
development of the network is one of the strategic decisions in a reverse
supply chain. This determines the number and location of facilities. These
facilities include collection centers, disassembly centers, remanufacturing
 20

centers and recycling centers etc. The design problem involved in determining
the flow between different stages of the network is seen to. Additional supply
chain costs are also managed in RL. Different recovery options are
remanufacturing, repairing, recycling and disassembly. Remanufacturing
brings back the quality standards of used products (Thierry et al. 1995).
Organizations find it difficult to dispose the non recyclable or hazardous
materials but it has to be done. In order to analyze product flow and material
levels, it is important to consider the product structure of the returned
products and its bill of materials (BOM). (Gazibey et al. 2015; Coyle et al.
2002) stated that only a few studies have included BOM in the network
design of a reverse supply chain.

2.13 REUSE NETWORK

Direct reusable products require minor inspection, cleaning and

maintenance. They are expected to form a flat network structure comprising a
small number of levels. These products generally go back in a forward supply
chain and a closed loop supply chain network is formed (Fleischmann et al.
2000). This could be the reason for introducing a decentralized network.
Decentralization supports balancing of product flow in direct reuse networks
(Crainic et al. 1993). Guide & Wassenhove (2001) designed a framework to
analyze the profitability of reuse network.

To determine the number of containers, warehouses and their

locations, (Kroon & Vrijens 1995) reported a case study of reusable
transportation packages. A single level decentralized structure is considered
as an important element of uncertainty with timing of returns. Mixed integer
linear programming is used to select best alternatives for designing the RL
system. The impact of logistics and packaging costs on the reuse of containers
is evaluated by a cost model proposed by (Mollenkopf et al. 2005). They
pointed out that most of the models take account of logistics cost and ignore
 21

packaging costs. It may be considerable in some of the cases, which may

result in reducing purchase cost. (Gonzalez-Torre et al. 2004) focused on joint
implementation of environmental practices in association with suppliers and
customers. They analyzed the prevailing differences in the context of relations
between bottling/packaging firms and their suppliers. Silva et al.(2013)
developed a returnable packaging model to reduce waste generation and
environmental impacts. This model resulted in dipping 18% lower material
consumption than the disposable packaging model which eventually reducing
the costs. In a review of case studies (Carrasco-Gallego et al. 2012),
explained the reuse network studies covering returnable glass bottles by (Del
Castillo & Cochraan 1996), chemical railcars by (Young et al. 2002) and
variety of items like pallets, boxes, trays, kegs, trolleys, and bins. They also
found that the literature available for the reuse networks is staggered. (Atasu
et al. 2008) undertook analytical research on the business economics of
product reuse with industrial practices.

2.14 REMANUFACTURING NETWORKS

Remanufacturing network is generally concerned with material

recovery from high value products (Blackburn et al. 2004). In most of the
cases, remanufacturing is carried out by the manufacturers because of their
knowledge about products. Products are remanufactured by utilizing available
facilities that forms a closed loop supply chain network (Fleischmann et al.
2000). Quality, quantity and timing of product returns are critical factors for
the success of remanufacturing network (Rogers & Tibben-Lembke 1998). As
this network works as an intermediary between the collection and
redistribution, a complex multilevel structure is formed (Fleischmann et al.
1997). Kocabasoglu et al.(2007) engaged a survey to assess the inter-relations
between supply chain investments, organizational willingness to take risk and
business uncertainty. It was found that existing investment in the forward
 22

supply chain was directed toward recycling and waste management, but not to
remanufacturing. (Wilcox et al. 2011) stated that the firms must manage
unpredictable cash flow problems. These are accounted due to unpredictable
cash transactions in association with uncertain product returns.

2.15 REPAIRING NETWORK

Repairing network is designed with repairing, servicing and return

of products to the customers. As there is no link between repair and forward
supply chain, an open loop supply chain network is formed (Fleischmann et
al. 2000). In decentralized operations, testing and grading may minimize
transportation costs. But the investment for testing equipment may require
more centralized operations. Trade off between centralized/decentralized
operations and transportation cost is predictable in decision making problem.
Generally a decentralized structure is preferred for this type of network
(Fleischmann et al. 2000). Amini et al.(2005) narrated the competitive value
of service management activities, particularly in repairing and servicing of
this network. A binary integer programming model was developed for the
case study of a center, dealing with medical diagnostics. (Du & Evans 2008)
analyzed RL networks dealing with the returns, involving repair service for
post sales with the objective of reducing overall costs, and minimizing total
tardiness of cycle time. (Lickens et al. 2013) developed a stochastic model for
profit maximization to determine the optimal service delivery for a multi-
product, multi-level network.

2.16 SUMMARY OF LITERATURE REVIEW AND EXISTING

RESEARCH GAP

Successful adoption and implementation of RL in various sectors

have been explored in many countries. Drivers and barriers are important for
decision making of RL adoption and efficient implementation. Previous
 23

research focused on identifying various factors at the sector level. These

factors may vary from sector to sector, company to company and may change
over a period. It is evident from the literature review that reverse logistics as a
business process has a large number of issues to address. The available
literature is relatively generic and it is known that manufacturing, home
appliances and process industries encounter a large amount of returned goods
for variety of reasons. The data suggests that the manufacturing industries
returns are due to damage, seasonal inventory, restock, salvage, recalls,
warranty, service and excess inventory. However, there is a lack of literature
on why home appliances and process industries receive an increased volume
of returns. There was no comparative study found on variation of these factors
across the sectors and demographics. Previous studies had focused mainly on
electronics and in hospital. These studies were carried out in limited sectors,
so there is scope for future study in other sectors like, consumer goods,
shipping and service industries etc.

Outsourcing RL service providers and taking decision for selecting

RL service providers were discussed frequently in the literatures and various
mathematical, analytical, and MCDM were applied for decision making. In
this aspect, finding influencing factors for the selection of RLSP are to be
addressed.

RL networks are designed for strategic decisions including the

number of facilities, locations, regions to be covered, and their capacity or
size. The solution methodologies utilized by the previous researchers include
deterministic and stochastic modelling (linear/non linear, mixed integer, goal
programming, queuing models), heuristic methods (genetic algorithm, HSS
algorithm, Tabu-search, simulated annealing), MCDM (AHP, ANP, TOPSIS,
DEA, ISM). Stochastic modelling is frequently being used to tackle
uncertainties.