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«Managing Reverse Logistics or Reversing Logistics Management? Managing Reverse Logistics or Reversing Logistics Management? Marisa P. de Brito ERIM ...»

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M A R I S A P. D E B R I T O

Managing Reverse

Logistics or Reversing

Logistics Management?

Managing Reverse Logistics


Reversing Logistics Management?

Marisa P. de Brito

ERIM PhD Series Research in Management, 35

Erasmus Research Institute of Management (ERIM)

Erasmus University Rotterdam

Internet: http://www.erim.eur.nl

Cover photo: ‘Reverse’


originally from

pantransit.reptiles.org/images/nsorted/photo/animal/ ISBN 90-5892-058-6 c 2003, Marisa P. de Brito All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or material, including photocopying, recording, or by any information storage and retrieval system, without permission from the author.

Managing Reverse Logistics or Reversing Logistics Management?

Beheersing van retourlogistiek of omgekeerde beheersing van logistiek?

Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by command of the Rector Magnificus Prof.dr. S.W.J. Lamberts and according to the decision of the Doctorate Board The public defense shall be held on Thursday 12 February, 2004 at 16.00 hrs.

by Marisa Paula de Brito Pereira Maduro born at Luanda, Angola Promoters: Prof.dr.ir. R. Dekker Prof.dr. M. B. M. de Koster Other members: Prof.dr.ir. J.A.E.E. van Nunen Prof.dr.ir. L.N. van Wassenhove Prof.dr. T. Spengler Acknowledgements Finishing a PhD dissertation is certainly a moment to cheer. My PhD trajectory was full of many other happy moments because along the way I had the privilege to work with highly skilled colleagues, to enjoy the friendship of many and the love of the ones most close to me. I will not mention you all, neither I will acknowledge you enough, but I can assure you that my true acknowledgements are ampler than these few pages.

First of all, I would like to thank my promoters. I want to thank Rommert Dekker for giving me enough freedom in carrying out my research and for welcoming my initiatives. I thank Ren´ de Koster for all his enthusiasm and e for making me feel we really worked as a team.

I also would like to acknowledge the contribution of the co-authors of my papers, Beril Toktay, Dan Guide, Erwin van der Laan, Luk van Wassenhove and Simme Douwe Flapper: I have learned much with all of you! Others

have also directly contributed to my research in various forms, as follows:

Dr. Krever provided me with the CERN data and Lehel Nagy helped me to get the data from the database; Eric Porras Musalem assisted me in organizing the data of the refinery; Julien Mostard was a helpful contact with the mail-order-company; Marcin Paweska gave me a hand with information about European legislation and Ruud Teunter and Pelin Bayindir co-monitored the NGT study.

During the past years of research I was affiliated with the Econometric Institute (EI) from Rotterdam School of Economics, and I belonged as a PhD candidate to the Erasmus Research Institute of Management (ERIM).

Both Institutes were very supportive during my PhD track, either at the professional or at the social level (leuke uitjes, hoor! ).

My research project was also very much embedded in the European Working Group for Reverse Logistics (RevLog), which was financially supported by the European Commission. I want to thank all RevLoggers for sharing with me their expertise, for the more and less formal conversations, and for the great time we had in every single workshop (I will never forget the Pedipaper in Costa da Caparica!).

Belonging to RevLog gave me the opportunity to visit INSEAD and to work on a research project with Luk van Wassenhove, who I would like to thank for his prompt hospitality. During my time there I could experience the professionalism of the staff and the warmness of the PhD students. My warm thanks go especially to Evrim.

During my PhD’s ups and downs, I always had a special source of enjoyment and support: “the girls” and “the boys.” Anna, Daina, Fernanda, Gabi, Helga, Julia, Laura, Lenny, Viara,... : cheers for all the lunches, dinners, cocktails, parties, laughs, for the serious and less-serious conversations, and especially for all the non-sense that made us wiser. Dennis, Julien, Eric, Gerard, Guillermo, Manolo, Paolo, Ruud, Willem, Wybe,... : urra for all the barbecues, picnics, movies, sportive events, and so forth.

I mainly met those mentioned above during my PhD trajectory. Yet, I would like to mention, what I believe was the conception of a potential PhD in the Netherlands: my exchange period as an undergraduate student in the academic year 1996/97, at the Econometric Institute of the Erasmus University Rotterdam. Then, I wrote my thesis on inventory control with Hans Frenk and closely watched by Marcel Kleijn. The proof of the success is that this is one of the areas I deal with in this PhD dissertation. I would like to thank once again the Department of Statistics and Operations Research (DEIO), Faculty of Sciences, University of Lisbon, for facilitating the exchange. In particular, I would like to thank the support and encouragement of my Professors Joaquim Gromicho, Ivette Gomes, Ant´nia Turkman and Ant´nio Rodrigues.

o o I also want to acknowledge the precious financial support of the Portuguese Foundation for the Development of Science and Technology, Funda¸˜o Para ca a Ciˆncia e a Tecnologia (FCT).

e I want to express my gratitude to my family, above all my parents: por tudo, obrigada! In particular, I want to mention what I have learned from

my close family, which has proved most relevant for my research work. Thus:

Pai, obrigada for impregnating me with the “what-if” state of mind, which makes so natural the act of thinking beyond current reality. M˜e, obrigada for a your multi-functional way of carrying life, (a precious inherited talent, which helped me a lot in writing this thesis!). Obrigada mano Z´ for influencing me e on “always knowing exactly how things are/ work/ etc,” which started in my early youth with looking up words in the dictionary and their whereabouts in the encyclopedia. Obrigada mano Rui for teaching me to give my max while working in a team because, after all, every single thing is about people.

Finally, I would like to acknowledge who was much supportive during my PhD as a friend, as a partner, as a colleague, and even as a co-author: Erwin. We had so many moments related with my PhD that I deeply cherish.

To mention only a few: going to conferences together, participating in group discussions, making presentations together and most especially our disagreements about the Quans vs. the Quals in Science. Even the latter were very much enjoyable!

For all of you: ’brigada, dank, dziekuje, gracias, grazie, kiitt, ksznet, tank, tesekkr !


–  –  –

7.9 Performance of Method A both under perfect correlation and zero correlation (Geometric time-to-return distribution, p = 0.5, q = 0.6, µD = 30, cvD = 0.2, L = 4, h = 1, b = 50)....... 228

–  –  –

3.1 Key words used for the search of case studies.......... 81

3.2 United Nations classifications for Industry (see http://esa.un.org) 83

3.3 United Nations classifications for Product (see http://esa.un.org) 83

3.4 Case Studies on Reverse Logistics Networks........... 85

3.5 Case Studies on Relationships................... 90

3.6 Case studies: return-reason vs. incentive............. 94

3.7 Case Studies on Inventory Management............. 96

3.8 Case Studies on Production, Planning and Control....... 101

3.9 Case Studies on IT......................... 107

3.10 Case studies: IT tools, requirements and benefits for reverse logistics............................... 109

3.11 The cases: return reasons vs. recovery options.......... 112

3.12 The cases: drivers vs. return reasons............... 113

3.13 The kind of elements to be considered in more detail...... 115

–  –  –

5.4 The return process at the nine retailers.............. 160 Manpower (in FTE) and space (m2 ) at the retailers with stores.161 5.5

5.6 Simple estimation of the costs for mail order companies, with and without returns in euros (see Figure 5.3)........... 163

5.7 Material flow per manpower (in FTE): forward vs. return flow. 166

5.8 Material flow per area (in m2 ): forward vs. reverse flow..... 167

5.9 Decision on whether to combine (C) vs. to separate (S) the forward and the reverse flows.................... 168

5.10 To combine (C) vs. to separate (S) the forward and the reverse flows: critical factors and implications............... 171

–  –  –

Twenty years ago, supply chains were diligently fine-tuning the logistics from raw materials to the end customer. Today an increasing flow of products is going back in the chain.

Thus, companies have to manage reverse logistics as well. Yet, logistic managers typically think “forward,” putting the emphasis on moving the goods to the clients. The issue is, whether or not, companies can go on, and manage reverse logistics, with a purely forward-based thinking. Or, perhaps, there is a need for a considerable share in focus with respect to reverse flows.

The question is then: is it a matter of simply managing reverse logistics or of reversing logistics management?

Reverse logistics practices are in the position of being an asset rather than a liability. When a consumer gets rid of a product, this does not mean that the product is valueless. For instance, computers might contain precious metals such as gold, palladium, platinum, and silver, and these materials are still intact when the computer reaches obsolescence. Actually, one metric ton of electronic scrap from personal computers (PC’s) has more gold than that extracted from a 17 ton of gold ore. Taking into account that millions of PC’s become obsolete every year, it is not surprising that many consider obsolete computers a “Gold Mine” (USGS, 2001). Global Investment Recovery, Inc. is one of the many companies providing services in this area. Global Investment Recovery, Inc. was funded in 1992 and it processes millions of circuit boards every year (see Global Investment Recovery, 2003).

18 Chapter 1. Introduction

Many other examples can be given, as the role of reverse logistics is increasing in the whole range of industries, covering electronic goods, pharmaceutical products, beverages and so on. For more than a decade, Kodak sells remanufactured single-use photo cameras and ReCellular has a mobile phone remanufacturing business; all sorts of companies handle many of their products in reusable packaging, like Coca-cola (refillable bottles), Philip Morris (pallets), and Est´e Lauder’s Aveda (merchandize displays), see Kodak, 2003;

e Recellular, 2003; Coca-cola, 2003; Andriesse, 1999.

Companies are also investing on information technology dedicated to reverse logistics, like Est´e Lauder’s, which recovered the investment in one e year. Other companies, like L’Oreal push high quantities of products to the retailers, because what is not sold can always be brought back (see Meyer, 1999; Coenen, 2000).

Reverse logistics is therefore a key competence in modern supply chains.

Accordingly, the importance of reverse logistics is widely recognized. Reverse logistics has renowned professional organizations, like the Reverse Logistics Executive Council (RLEC) in the U.S., which collaborates with academia.

In Europe, the European Commission has shown, for long, interest in the development of the field by sponsoring international scientific projects on reverse logistics, such as RevLog and Reloop (see Revlog, 2003; ReLoop, 2003).

This thesis is from the beginning rooted in one of these pan-European projects, namely RevLog, the European Working Group on Reverse Logistics.

This thesis contributes to a better understanding of reverse logistics. We bring insights to reverse logistics decision-making and to the field of reverse logistics as a whole. With respect to the initial question, is it a matter of simply managing reverse logistics or of reversing logistics management?, we encourage the reader to bear it in mind along the whole thesis. We will come back to it in the last chapter.

In the next section we put forward the definition and scope of reverse logistics. Then, we review some of the literature on the topic, including key monographs, PhD theses and reviews. After that, we present the structure of the thesis, and we put forward the aims, objectives and the methods employed.

1.1. Reverse Logistics: definition and scope 19

1.1 Reverse Logistics: definition and scope1.1.1 Definition and a brief history

“In the sweat of your face you shall eat bread Till you return to the ground, For out of it you were taken;

For dust you are, And to dust you shall return.” Genesis 3:19 Though the idea of reverse logistics dates from long ago (as the citation above attests), the naming is difficult to trace with exactness. Though systematically related with recycling, terms like Reverse Channels or Reverse Flow already emerge in scientific literature of the seventies (Guiltinan and Nwokoye, 1974; Ginter and Starling, 1978).

During the eighties, the definition was inspired by the movement of flows against the traditional flows in the supply chain, or as put by Lambert and Stock, 1981 “going the wrong way” (see also Murphy, 1986 and Murphy and Poist, 1989).

In the early nineties, a formal definition of Reverse Logistics was put together by the Council of Logistics Management, stressing the recovery aspects

of reverse logistics (Stock, 1992):

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