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A Model For Reverse Logistics Entry by Third-Party Providers
A Model For Reverse Logistics Entry by Third-Party Providers
www.elsevier.com/locate/dsw
Abstract
Reverse logistics has become an important entity in the US economy. Nonetheless, many companies are not capable of or
are unwilling to enter the reverse logistics market. Such reluctance appears to be attributed to lack of knowledge of reverse
logistics. This paper reviews current industry practices in reverse logistics. Speci0cally, we examine the issues and processes
that an organization has to address to engage in the reverse logistics business. A reverse logistics decision-making model is
developed to guide the process of examining the feasibility of implementing reverse logistics in third-party providers such as
transportation companies. The purpose of this model is to help those companies who would like to pursue reverse logistics as a
new market. A 0eld study was conducted with a larger US transportation company to validate the proposed model.
? 2002 Elsevier Science Ltd. All rights reserved.
Keywords: Supply chain management; Logistics; Reverse logistics; Disposition; Retrieval; Transportation
1. Introduction
The goal of manufacturing companies is to ship goods
through their plants to their customers. This movement of
goods most often means a pro0t to all involved. These same
companies, however, do not want products to be returned for
any reason. They do not plan for the backward movement or
return of goods, known as reverse logistics, as these returns
represent a substantial cost rather than a pro0t. Some CEOs
even perceive returned goods as a failure of their system
[1,2]. Sometimes reverse logistics is regarded as a recycling
process involving aluminum cans, papers, plastic and glass.
Reverse logistics is actually very involved and can be
extremely complex. Many companies with limited resources outsource their reverse logistics operation needs to
third-party providers [3]. As an example, many companies
use NetReturn, an Internet system that Federal Express has
developed for reverse logistics management. NetReturn facilitates returns for merchants once a customer has requested
a return and been provided authorization to return a product. These third-party companies such as FedEx, ASTRA
and GENCO, not only aid the return process of goods by
scheduling the pickup and transportation, they also collect
customer information and track the status of returned items.
Over the last decade, reverse logistics has had a signi0cant economic impact on industry as well as society. This
impact can be seen either as detrimental to a company, and
thus avoided, or as a competitive advantage with potential
for capturing market share. Companies that receive items
back from the customer who try to hide from the signi0cance
of reverse logistics miss pro0t-making opportunities [4,5].
On the other hand, companies that use reverse logistics as
an opportunity for enhanced business will prosper by maintaining customer support, the ultimate issue for pro0tability.
While recognizing the importance of reverse logistics,
companies and especially e-businesses are increasingly
outsourcing their reverse logistics eCorts to third-party
providers [3]. Even some major discount stores such as
K-Mart are choosing to outsource their reverse logistics operations to third-party providers like GENCO Distribution
System [6]. Gooley [7] has developed a process for companies considering the creation of their own reverse logistics
0305-0483/02/$ - see front matter ? 2002 Elsevier Science Ltd. All rights reserved.
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Supplier
Manufacturer
Suppliers
Supplier
Wholesaler/
Distributor
Consumer
Retailer
Legend
Logistics
(Transportation)*
Information Flow
Reverse Logistics
(Transportation)*
repeat business with their customers. The service aspect of the returns process can ultimately determine
the loyalty of customers for additional business and
referrals based on the handling of existing return goods
accounts. Companies must 0rst accept that returns are
a problem for the customer and that it will impact
future sales.
In summary, there seems to be a lack of understanding
of reverse logistics in industry, which certainly could reduce the eCectiveness of supply chain management. The next
section reviews the current practices of reverse logistics,
prior to developing the reverse logistics decision-making
model.
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Table 1
Reverse logistics terms with de0nitions
Term
De0nition
Product recalls
Inventory returns
Warranty returns
Core returns
Reusable containers
Damaged goods
Seasonal items
Hazardous materials
Stock adjustments
Goods the manufacturer has recalled and must be picked up for return.
Goods returned to reduce inventory at an outlet other than the manufacturer.
Goods a store/distributor/wholesaler knows are in need of warranty return.
Reusable goods, those items that can be remanufactured.
Shipping containers that product was shipped in and must be returned to the manufacturer.
Goods damaged in shipment or damaged on site.
Items returned due to the end of a season, which causes the item to have no retail value in the next season (s).
Items considered hazardous and yet must be returned. Also known as HAZMAT.
Goods transported to correct a situation where there is an abundance of items at one location and lacking in
another location.
Retrieval can best be described as the process of collecting and removing goods from a customer. This stage
is aCected by the type of product picked up and who does
the retrieval from the customer. There are several diCerent operations of the retrieval process. These operations
include:
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Consumer
Retailer
On Site
Disposition
Liquidation
Outlets
(Secondary
Market)
Distributor/
Wholesaler
(Brick and / or
Click)
Manufacturer
Off Site
Disposition
Processing
Center
Supplier
Disposal
Landfill
Raw
Materials
Reverse Logistics
Forward Logistics
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(3a) Survey
competitors reverse
logistics practices
(3b) Survey
competitors customer
needs
investigate frequency of use and pro0tability from each customer. All knowledge gained in this stage is used later to
develop the survey for collecting more information from
potential customers.
(2) Survey existing repeat customer needs. Once potential customers are identi0ed, the third-party logistics company should survey their existing and potential needs for
reverse logistics service. Table 2 provides a sample set of
questions for this survey. The sample survey mentioned in
this paper is to be conducted via telephone interview with
appropriate logistics personnel on both ends.
With the understanding of current reverse logistics issues, this survey would obtain information related to existing or potential reverse logistics needs that their customers
may have. This information is invaluable when determining
the companys current position regarding reverse logistics
and establishing direction for the future of the companys
reverse logistics involvement. The company can also use
this information to design a survey for understanding competitors and their customers in the reverse logistics business,
discussed in Step (3). Refer to Table 2 for survey questions
asked of competitors and competitors customers.
(3) Survey competitors and competitors customers.
Viable competitors of the third-party logistics company
should be identi0ed to assess their capabilities in reverse
logistics capabilities. WEB usage and other research prove
to be very eCective in this step. A survey developed to
understand competitors should be conducted to further
understand the strength of competitors. Another source
of information that must be studied is the competitors
customers. The same process that is used to understand
competitors is applied. A customer survey derived from
knowledge gained in Step 1 can assess the needs of the
competitors customers and their perception of the service.
Table 2 provides a list of sample survey questions for this
survey.
(4) Conduct gap analysis. Based on the needs of existing customers and competitors customers, the third-party
logistics company can then perform a gap analysis. The gap
analysis evaluates and compares the company and its competitors current reverse logistics position in the market with
the needs of current and future customers. The analysis will
provide the company with necessary information to make
decisions on its strategic positioning in the reverse logistics
market.
(5) Perform feasibility study. In this stage the third-party
logistics company should utilize all information gained from
previous eCorts to conduct a feasibility study, which involves analysis of its current 0nancial position and the feasibility of entering the reverse logistics market. The company
should compute the costs of obtaining the necessary additional resources to provide the extended service identi0ed
through the gap analysis. The company must also revisit its
existing customers to determine if reverse logistics would
bene0t these customers using existing resources. These bene0ts could be realized through a more planned and eCective
331
Table 2
Sample survey questions for a third-party logistics analysis
Topic
Sample question
Type of survey
Customer
Product
recall
Reusable
containers
On-site
disposition
Reworks
Liquidation
Are you using our company for third-party logistics service for product
recall?
Do you provide third-party logistics service for product recall?
Do you receive third-party logistics services from a vendor for product
recall?
Are you using our company for third-party logistics service for reusable
containers?
Do you provide third-party logistics service for reusable containers?
Do you receive third-party logistics services from a vendor for reusable
containers?
Are you using our company for third-party logistics service for on-site
disposition?
Do you provide third-party logistics service for on-site disposition?
Do you receive third-party logistics services from a vendor for on-site
disposition?
Are you using our company for third-party logistics service for on-site
disposition?
Do you provide third-party logistics service for on-site disposition?
Do you receive third-party logistics services from a vendor for on-site
disposition?
Are you using our company for third-party logistics service for liquidation?
Do you provide third-party logistics service for liquidation?
Do you receive third-party logistics services from a vendor for liquidation?
Competitor
Competitors
customer
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