Reverse Logistics: Overview and Impacts
The emergence of green technologies pursued for sustainable production has resulted in the improvement of the supply chain management practices. In the contemporary times, reverse logistics is one of the practices that have been adopted widely across the world, with manufacturing companies attempting to reduce the costs as well as the social and environmental impacts of their processes through reverse logistics. Technologies that involve recycling or remanufacturing of products from previously processed products assist in reducing the costs of raw materials while also closing the supply chain loop through reverse logistics. Understanding the concept of reverse logistics and its impacts on the supply chain management practices is thus important in any industry where remanufacturing can take place.
Many studies in recent years have focused on the concept of reverse logistics. Most of the studies associate reverse logistics with green manufacturing as well as with closed loop supply chain management practices. The contribution of reverse logistics in each of these areas is clarified as well as the impacts of the same on the supply chain practices. In the ensuing paper, the main objective of study is to enhance the understanding of supply chain management through exploration of the concept of reverse logistics. In particular, the study objectives include:
- To provide an overview of the concept of reverse logistics and what it entails.
- To explore the impacts of reverse logistics on the supply chain in general, with examples in green sourcing supply chain.
The rest of the paper is in four sections. The literature review section explores the presentations of past studies relevant to the present. In the methodology section, the specific choice of study approach is discussed. The discussion section explores the findings from the literature review while the conclusion provides a recap of the concepts discussed in the previous sections.
Reverse Logistics – Overview
Govindan, Soleimani and Kannan (2015) describe reverse logistics as a process which involves planning, implementation and control of efficient practices of raw material flow which are also cost effective. The process extends to in –process materials as well as to finished goods and information. The flow in this case is from the consumption point to the origin contrary to the normal logistics where material flow is from the source of raw material to the consumer. The reverse logistics flow of material thus starts from the end user. A similar definition is given by Mutingi (2014). In addition to describing the flow of materials, Mutingi asserts that reverse logistics starts with the communication of needs from either the end user or the manufacturer of the product. Practices such as product recall and recycle all fall under reverse logistics. According to Mutingi (2014), reverse logistics entails practices that are aimed towards growth of an organization, and the strategies implemented must be those that foster the intended growth.
The application of reverse logistics enhances the establishment of a closed loop supply chain. This is based on the argument that a closed loop system is founded on the determination of gaps existing between the present manufacturing processes and the intended manufacturing strategies. Through the closed loop supply chain, the gaps identified can be filled cost effectively depending on the strategies used. Govindan et al (2015) opine that the main objective of reverse logistics therefore, is to enhance sustainability in manufacturing processes through reduction of raw material consumption and proper inventory management. It is through such practices like green sourcing, that reverse logistics are accomplished and sustainability is achieved. It is also in this way that gaps in the manufacturing processes are filled.
Factors Affecting Reverse Logistics Practices
Various authors have discussed factors that may contribute to effectiveness in the closed loop supply chain as enabled by reverse logistics. The objectives of achieving sustainability and closing the manufacturing gaps can only be accomplished through application of strategies that foster the achievement of certain specific goals of reverse logistics. For instance, Mutingi (2014) highlights various indicators of effective practice of reverse logistics. One of the indicators discussed is the raw material usage. Reverse logistics attempts to reduce consumption of raw materials through recycling or remanufacturing practices. By using already available raw materials, the new raw materials purchased will be lower in volumes, an indication of an efficient reverse logistics practice. Other indicators as described by Mutingi (2014) include the take- back penalty costs, investment costs, operational costs and the total profits per activity period. These indicators can help to determine whether the reverse logistics practiced is resulting in organizational growth or not.
Turrisi, Bruccoleri and canella (2013) also discussed variability as a function of effectiveness in the reverse logistics practice. According to Turrisi et al (2013), the extent of variability in the reverse flow within the closed loop system determines the extent of serviceable inventory. Effectiveness in the design of the reverse logistics chain determines the flexibility of the overall supply chain and subsequently the performance of the entire supply chain. This implies that the role of reverse logistics in the closed loop chain is inescapable. Olorunniwo and Li (2010) also provided an overview into the role played by information technology in reverse logistics. While the objective of the authors was to determine the extent to which IT influenced the performance of reverse logistics, they found out that differential impact of IT in reverse logistics performance was negligible. However, the specific attributes of the It networks and practices in a company can affect the performance of the reverse logistics at the company. It alone cannot improve reverse logistics performance, but the key attributes of the technology, such as data and information can. In particular, Olorunniwo and Li (2010) assert that sharing information and collaboration across functions is mandatory for efficient functioning of the closed loop supply chain. Through collaboration and information sharing, reverse logistics can be practiced through better strategies and practices.
Reverse logistics Issues
The benefits of reverse logistics in terms of enhancing operational sustainability are clear through some of the past studies reviewed. Rubio and Jimenez-Parra (2014) for instance, have provided the rationale for the application of reverse logistics in any manufacturing environment. According to the two authors, the first rationale is that reverse logistics has positive economic impacts on the closed loop supply chain. The economic impacts can be either direct or indirect. The direct impacts include reduced expenditure on raw materials. On the other hand, direct impacts mainly correspond to the link between customers and the organization. Other rationales explained include the legal benefits and the social impacts of the same. While discussing the rationales, Mutingi (2014), claims that the performance of the supply chain management process is affected by the reverse logistics impacts in terms of environmental, legal, social and economic functions. In particular, Mutingi purports that environmental consciousness in itself, and the practice thereof through reverse logistics, is a driver of economic advantage. This implies that companies can boost their economic advantage and/ or market shares through environmental conservation
According to Rubio and Jimenez- Parra (2014), reverse logistics still faces some challenges in marketing in spite of the proven positive impacts of the same. For instance, the first concern is the willingness of the buyers to pay for products after remanufacturing. This is due to potential for complaints from some customers who may consider the remanufactured products to be of lower value than the new products. Rubio and Jimenez- Parra however feel that this willingness to pay depends on the specific product under consideration. There are those in which the remanufactured products attract higher values than the new products. The second concern is the cannibalization of trade in new products. According to Rubio and Jimenez- Parra, some of the concerns raised by companies are that engagement in the production of remanufactured products, particularly where the values and subsequently selling prices are lower than the original products, results in lower sales of the new products. Competition with the original equipment manufacturers can also be an issue with reverse logistics which can impact either negatively or positively on the profitability of the remanufacturing process. Moreover, issues such as consumer perceptions and value propositions have been mentioned to affect the reverse logistics practices in the contemporary times (Rubio & Jimenez- Parra, 2014). This means that any strategies applied in reverse logistics have to be analyzed in details to determine their potential impacts on the supply chain as well as the issues that may affect the operations and how to deal with them.
To achieve the objectives of the study, a secondary study approach was adopted. The secondary study approach is suitable where a study is exploratory in nature and where the required results are theoretical rather than empirical. In particular, the study was designed to use only the available studies from the past to determine the most relevant information for the planned article content. The use of the secondary approach to study required that certain ethical principles be considered for the study to be viable as well as accurate. One of the key ethical principles in the use of secondary resources is that the copyright laws had to be obeyed. This implies that all the articles used for this study were obtained from peer reviewed journals, and were articles availed by the copyright owners for public use. In this way, any copyright violations were avoidable.
A repetitive abstraction approach was used for the selection of materials for the study. In this approach, key search words were used to obtain materials with matching key words online. The materials accessed were then reviewed independently, selecting the most relevant among them. Even after the selection of the materials, the particular content to be included in this research were reviewed and selected based on the research objectives and intentions. In this way, only the most relevant content was used in this study. Moreover, the accuracy of the content was also evaluated based on the level of support to content from other articles. The greater the support obtained from other articles, the more accurate the article was considered to be. In addition to this, only reliable sources were selected for this study. Reliability was determined based on the sources of the materials. Only articles from peer reviewed journals were selected as they were considered to be reliable. Validity was measured based on the level of fit between the article content and the desired research paper contents. This explains the use of the recursive abstraction strategy used in material selection.
Discussion: Reverse logistics concept and Details
Reverse logistics describes the process through which materials flow from the end user to the point of origin. It involves the flow of raw materials, in process materials as well as end products. Based on the provisions of various past literatures, reverse logistics is the key enabler of closed loop supply chain systems. The closed loop system however has in process flows which make it somewhat an integrated rather than a circular flow process. The closed loop system is shown in the diagram below.
Figure 1: Reverse logistics overview (Source: Govindan et al., 2015)
Reverse logistics begins with communication from either the user of the product or the facilitator of the supply chain. The objective of the process is to enhance sustainability in operations. This is achieved through the impacts of the process on the aspects of economics, environmental impacts and social impacts. In line with the assertions of various authors, the economic impact of reverse logistics on the supply chain can be either direct or indirect. It has been shown that engagement in reverse logistics practices results in the reduction of costs in terms of raw material inputs. In particular, the raw materials costs are reduced when the raw material inputs are boosted due to the contribution of recyclable or remanufacturing raw materials from reverse logistics. The recycled materials cost less than the new raw materials hence resulting in lower costs for a unit measure of combined raw materials than the cost of the same mass of new raw materials. Indirectly, reverse logistics enables environmental conservation. Practices such as recycling plastics, which have positive environmental impacts lure environmentally conscious customers who boost company sales and enhance revenue generation. In this way, the overall profitability is improved.
Socially, reverse logistics contributes to organizational growth majorly due to the social changes that are experienced in the contemporary times. Changes in manufacturing technologies, which enhance green production processes, have led to more people recognizing the need for resource conservation. More people are advocating for the utilization of the least resource consuming production technologies. As such, engagement in reverse logistics forms an essential indicator of the willingness of an organization to be part of the change initiative, hence in alignment with the social systems in place. In this way, such companies attract more consumers as they are more easily recognized as potential contributors to course of the people. This also aligns to legal requirements in terms of disposal of wastes, environmental conservation and environmental impact assessment activities. Through recollection of used products, separation of wastes for disposal and recycling of parts of the products that can be re-used, reverse logistics encourages adherence to standards for waste disposal.
The indicators of economic, social and environmental impacts of reverse logistics have been described by Mutingi (2014). The take back penalty costs are defined as the charges of disposing wastes beyond the maximum acceptable limits. For instance, there is a legal limit in every country for the characteristics of wastes to be disposed into the environment. Being capable of reducing the concentration of harmful substances in the wastes through selective recycling can reduce the costs of disposal extensively. Reduction of these costs thus indicates an effective reverse logistics strategy. Similarly, the operational costs for re-manufacturing and the investment costs are also lower where remanufacturing is taking place. Thus, a reduction in operational costs and raw material costs indicate effectiveness in the supply logistics. The total profit in an efficient supply chain also increases with increase in the use of reverse logistics.
Reverse logistics is an essential practice in the modern day closed loop supply chains. This practice enhances productivity through cost reductions, as well as through improved management practices. The use of reverse logistics is thus an important practice in the manufacturing process where the objective is to improve sustainability. The benefits of reverse logistics in the supply chain are expanded and categorized into environmental, legal, social and economic benefits. These impacts can be either direct or indirect depending on how it is viewed. The indicators of these benefits include the expenditures incurred in raw materials, the operational and investment costs, the total profit from the manufacturing process and the take back penalty costs. While reverse logistics has a lot of positive impacts on the supply chain, the practice also faces a lot of issues in supply chain management. Some of these issues as mentioned by Rubio and Jimenez- Parra (2014) include the customers’ willingness to pay specific prices for remanufactured products, cannibalization of new product sales, competition between original equipment manufacturers and the manufacturers of refurbished materials, and other issues such as consumer perceptions about the re-manufactured products.
Govindan, K., Soleimani, H. And Kannan, D. (2015). Reverse logistics and closed loop supply chain: A comprehensive review to explore the future. European Journal of Operational Research, 240: 603- 626. Retrieved from www.ac.els-cdn.com/S0377221714005633/1-s2.0-S0377221714005633-main.pdf?_tid=924f1b88-691e-11e7-898b-00000aacb35e&acdnat=1500096748_0a3b452d0b961e20e4c283fbea7beac2
Mutingi, M. (2014). The impact of reverse logistics in green supply chain management: a system dynamics analysis. International Journal of Industrial and Systems Engineering, 17(2): 186-201. Retrieved from www.researchgate.net/profile/Michael_Mutingi/publication/234044588_The_impact_of_reverse_logistics_in_green_supply_chain_management_A_system_dynamics_analysis/links/5756d53508ae04a1b6b659e1/The-impact-of-reverse-logistics-in-green-supply-chain-management-A-system-dynamics-analysis.pdf
Olorunniwo, F.O. and Li, X. (2010). Information sharing and collaboration practices in reverse logistics. Supply Chain Management: An International Journal, 15(6): 454-462. Retrieved from www.emeraldinsight.com/doi/abs/10.1108/13598541011080437
Rubio, S. and Jimenez-Parra, B. (2014). Reverse logistics: Overview and challenges for supply chain management. International Journal of Engineering Business Management, 6(12): 1-7. Retrieved from www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwiWkoXKxorVAhUW6GMKHQ6BCU0QFggmMAA&url=http%3A%2F%2Fhrcak.srce.hr%2Ffile%2F237064&usg=AFQjCNGXwk_pyCVF9bsuA5MmXneMUyxOtw
Turrisi, M., Bruccoleri, M. and Cannella, S. (2013). Impact of reverse logistics on supply chain performance. International Journal of Physical Distribution & Logistics Management, 43(7): 564-585. Retrieved from www.emeraldinsight.com/doi/abs/10.1108/IJPDLM-04-2012-0132