CONCEPTUALISATION OF REVERSE LOGISTICS

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CHAPTER 3 REVERSE LOGISTICS PROBLEMS, CHALLENGES AND SOLUTIONS

INTRODUCTION

The previous chapter focused on the conceptualisation of reverse logistics, whereas this chapter examines the problems and challenges of reverse logistics and solutions to overcome these problems. Reverse logistics is by its very nature a highly complex process and a specialised area of any supply chain. It does not matter what the product is, how it is sold or who the customers are, every organisation needs to focus on recovering the maximum value from returns (Min et al., 2006:94). Reverse logistics is generally more complex than forward logistics owing to multiple reverse distribution channels, individual product returns in small quantities, extended order cycles associated with product exchanges and a variety of product disposition options (Min & Ko, 2008:2).
In the preceding chapter it became apparent that reverse logistics can bring significant benefits for the organisations. However, if organisations do not manage their reverse logistics efficiently and effectively, they may find themselves struggling to match competitive market conditions, and thus unable to resolve customer demand or risking compliance with increasing environmental regulations (Mehrmann, 2007:29 ).
This chapter starts with an introduction, followed by a discussion of all the problems and challenges of reverse logistics, based on the literature findings. The problems are discussed according to the various main categories. Then the possible solutions, also based on the literature findings, to these problems and challenges are highlighted. These solutions are also discussed in main categories. Thereafter a framework will be provided to synthesise the problems, challenges and solutions. The purpose of this framework is to indicate what solutions can be used to overcome the specific problems or challenges organisations may experience in this regard, all based on the findings of this chapter. The chapter ends with a conclusion. Figure 3.1 indicates the outline of this chapter.

REVERSE LOGISTICS PROBLEMS AND CHALLENGES

Many factors influence the implementation of effective reverse logistics and these pose challenges for many organisations and supply chains. There are numerous barriers that make it difficult to have efficient and effective reverse logistics processes in place (Ravi & Shankar, 2005:1026). In this section, the problems and challenges that organisations may encounter in reverse logistics are discussed in terms of the costs associated with reverse logistics, lack of appropriate information systems for reverse logistics, problems with product returns, human and management-related problems, problems between reverse supply chain partners and reverse logistics problems relating to customers.

Costs associated with reverse logistics

Reverse logistics cost is significant and on the rise. It is a challenge for an organisation not only to manage forward logistics in order to minimise waste and maximise customer satisfaction, but also to pay considerable attention to reverse logistics (Carter & Ellram, 1998:85). The costs associated with reverse logistics can be quite complicated owing to all the details involved (Lee, McShane & Kozlowski, 2002:151).
One of the main pressures that organisations have to face in reverse logistics is to reduce costs (Pollock, 2010:8). Reverse logistics is a nonrevenue-generating process which results in only a few resources allocated to this part of the supply chain (Pogorelec, 2000:68; Rogers & Tibben-Lemke, 2001:141). Organisations scarcely view returns as part of their centralised cost structure (Biederman 2006:2) and run the risk of escalating costs by not addressing this component of the supply chain (Pogorelec, 2000:68).
According to the Reverse Logistics Executive Council (RLEC), the increase in costs for processing returns is an astounding 200 to 300%, in comparison with a forward sale. It can therefore be said that it may cost three times more to process the reverse logistics of an item than it does to process the forward logistics to sell it (Norman & Sumner, 2007:2).
Most organisations are not aware of the current costs associated with reverse logistics because processes may be poorly defined and the systems may lack the necessary support (Moore, 2006:10; UPS Consulting, 2004:3). The hidden costs of reverse logistics can be severely underestimated (UPS Consulting, 2004:3). The challenge for organisations is to determine how much the existing processes are costing them, especially when they have not disbursed the resources in order to determine what the true costs are (Schwartz, 2000:100). These hidden costs may include the following (Walden, 2005:1):
merchandise credit to the customer where the defect is not covered by the supplier under
its warranty
the cost of processing the return back to the distribution centre
the transportation cost of moving the items back to the central returns centre
the cost of testing and repackaging materials
the storage cost in the warehouse
the disposal cost if the item is damaged beyond repair

Lack of appropriate information systems for reverse logistics

The application of information technology is the principal link in the reverse logistics system (Zheng et al., 2005:853). The complexity of a reverse logistics programme means that information support is absolutely critical. However, Richey, Chen, Genchev and Daugherty (2005b:830) have found that traditional information systems are designed for forward logistics only and not reverse logistics.
One of the most serious problems that organisations have to face in executing reverse logistics is having an effective information system in place (Zheng et al., 2005:852). A lack of information and technological systems can be an extremely serious problem in terms of reverse logistics implementation (Ravi & Shankar, 2005:1013). Developing technology tools that work in reverse logistics is especially complicated because of a lack of standardisation in the reverse logistics processes (Richardson, 2006:2). Many logistics systems are not well prepared to deal with reverse logistics and if organisations do not have volume, the entire process can be woefully inefficient (Rogers & Tibben-Lembke, 1998:43). The main areas of concern in information include insufficient information technology (IT) investment, the low reliability of IT solutions, lack of information visibility and misinformation. Each of these problem areas will now be explained in greater detail.

Insufficient IT investment

Insufficient IT investment is a major problem and one of the most serious problems that organisations face in the execution of a reverse logistics operation (Jayaraman, Ross & Agarwal, 2008:414). Most organisations use labour-intensive, manual, inefficient and often undisciplined reverse logistics processes (Thrikutam & Kumar, 2004:1). Few organisations have successfully automated information systems in the return process and the resources allocated to these systems are also stretched to their limit and are not always available for reverse logistics applications (Jayaraman et al., 2008:414; Rogers & Tibben-Lembke, 1998:43).

Low reliability of IT solutions

Low reliability among standard IT solutions is another area of concern in reverse logistics. Despite a number of effective reverse logistics software and IT solutions available, the majority of organisations lack reliable reverse logistics management software systems (Rupnow, 2011:35).
Many enterprise resource planning (ERP) and customer relationship management (CRM) and warehouse management system (WMS) are not sufficiently reliable and effective to take products back (Norman & Sumner, 2007:1). ERP systems are the backbone of most organisations’ logistics information systems. These systems facilitate integrated operations and reporting and initiate, monitor and track critical activities such as order fulfilment and replenishment (Bowersox, Closs & Cooper, 2010:98). CRM is designed to extend the functionality of ERP sales and delivery applications. CRM provides sales representatives and customers with current information on sales history, shipment history, order status, promotional summaries and shipment information (Bowersox et al., 2010:105). A WMS incorporates processes to guide physical activities, including product receipts, material movement and storage and order selection (Bowersox et al., 2010:108). Most supply chain management (SCM) systems provide limited reverse logistics capabilities. These systems also lack end-to-end capabilities in areas such as returns forecasting and customer return collaboration and also fail to provide robust decision support for returns authorisation and disposition (Thrikutam & Kumar, 2004:3).

Lack of information visibility and capability

Many organisations lack visibility in their information systems (Rukavina in Walsh, 2007:42). With little data visibility, a broad range of deficiencies may exist, such as unreliable and inaccurate data capture and inadequate monitoring of customer satisfaction levels (Thrikutam & Kumar, 2004:3). Lack of return information visibility also makes the planning and productivity of reverse logistics extremely difficult (Stock in Kuzeljevich, 2004:36).
Closely related to visibility issues in reverse logistics is misinformation. Forecasting is a difficult task in reverse logistics where misinformation can pose difficulties. Misinformation means that the future return flow does not match the actual return flow. It is therefore caused by data being insufficient, abundant, ambiguous or conflicting (De Brito, 2003:206).
To conclude, organisations are still struggling through reverse logistics processing without adequate software system to collect data, supply visibility or provide the decision capabilities necessary for the special requirements of processing product returns (Rupnow, 2011:35).

Problems with product returns and reverse logistics processes

Product returns are the most common aspect of reverse logistics (Banker, 2001:1). Returns come from different places, in different conditions, with different disposal options (Rogers in Richardson, 2006:2). Product returns are often uncertain in terms of timing, disposition, condition and the quality and quantity of returns (Jayaraman & Luo, 2007:60; Mason, 2002:43). These uncertainties in product returns are described in further detail below.

Uncertainty of product returns

Return processing is highly dynamic, inconsistent and complex because it involves irregular material flows (Hart, 2008:12). Product returns can therefore have infrequent and erratic timing patterns (Daugherty et al., 2005:80). Organisations usually do not know what and how many products will be returned on a given day. The majority of product returns are unplanned and therefore unpredictable (Kussing & Pienaar, 2009:429). As mentioned in section 3.2.2, many organisations lack adequate information visibility. Similarly, a lack of visibility of incoming returned products makes planning for reverse logistics difficult in terms of the staff and resources needed (Barry, 2003:1; Jensen in Zieger, 2003:3).
As a rule, the products that are returned are in various conditions (Hart, 2008:12). This can pose problems because the quality of products that are returned is not as uniform as in forward logistics (Ravi & Shankar, 2005:1014). Products that are returned also diminish in value extremely quickly, especially technological products which could lose their value in a few short months (Tompkins, 2010:3).
Product returns are also not straightforward owing to the fact that reverse logistics involves the handling of products in small volumes (Daugherty et al., 2005:80). Not having enough volumes can cause the entire return process to become ineffective (Stock in Zieger, 2003:2).

Time and money spent on determining the most suitable disposition option

Another problem that organisations experience is what to do with product returns. As mentioned in chapter 2, disposition involves inspecting the returned product in order to determine whether it can be resold, repaired or discarded (Norek, 2002:38). All types of organisations generally have to deal with retrieving products and decide on the proper disposition option that will allow them to reclaim value that would have otherwise been lost (Richey et al., 2005b:832). The disposition of product returns is a key area of concern because it is also time-consuming and costly (Norek, 2002:38). These disposition options were discussed in more detail in chapter 2, section 2.6.
To conclude, in the product return process there is a lot of room for error, especially given the various stages a returned product must go through (Stock in Kuzeljevich, 2004:36). In many organisations, return processes are poorly defined and not adequately structured, which results in the inability to stay in touch with the identity, location, status and condition of returned goods going backwards through the supply chain (Thrikutam & Kumar, 2004:3).

Organisational and management-related problems

By now it should be clear that the reverse logistics process is unpredictable, which makes it difficult for organisations to plan and control it (Zeng et al., 2005:852). There are many human and management-related problems in the effective management of reverse logistics. These include the following: a lack of strategic planning to include reverse logistics; a shortage of executive managers for reverse logistics, a lack of top management awareness of and commitment to reverse logistics; a lack of departmental collaboration and communication and resistance to change; and the need for new approaches. These problems will now be discussed in more detail.

Lack of strategic planning to include reverse logistics

According to Stock (Harps 2003:2), only a small percentage of organisations link reverse logistics to their competitive strategy. Strategic planning is necessary in all areas of the business, including reverse logistics (Ravi & Shankar, 2005:1017). The problems and difficulties associated with the planning, control and implementation of reverse logistics strategies and programmes can result in a many mistakes and misperceptions on the part of the organisation (Stock, 2001:1). An executive management structure that does not include reverse logistics when considering product development or marketing strategies can expose the organisation to serious pitfalls (Walker, 2010:39).

Shortage of executive managers for reverse logistics

Often even the best-performing organisations may have limited or even no executive focus on their reverse logistics (Tompkins, 2010:1). A major problem in the successful management of reverse logistics is the absence of an executive overseer to take responsibility for reverse logistics (Rukavina in Walsh, 2007:42; Starkowsky in Andel, 2004:43). Stock and Mulki (2009:50) found that even if organisations do have an executive overseer who is responsible for reverse logistics, it is not this overseer’s main function and he/she has other responsibilities besides reverse logistics.

Lack of top management awareness of and commitment to reverse logistics

Top management can be a chief barrier to the successful management of reverse logistics, and if there is no commitment, this can hinder the entire process even more (Ravi & Shankar, 2005:1016; Rogers & Tibben-Lemke, 1998:35). Lack of awareness in terms of the importance of reverse logistics can be one of the main barriers to the successful management of the process (Ravi & Shankar, 2005:1017; Rogers & Tibben-Lemke, 1998:33). A major misconception is that returns represent failure, which results in management not wanting to devote their attention to reverse logistics (Rogers & Tibben-Lemke, 2001:141). Restrictive company policies because of management inattention can also make reverse logistics difficult to implement (Ravi & Shankar, 2005:1015). In organisations where managers do not recognise the importance of an effective reverse logistics programme, there is a risk of harming the organisation’s reputation and alienating customers (Daugherty, Richey, Hudgens & Autry, 2003:49).

Lack of departmental collaboration and communication

Reverse logistics processes often suffer from a lack of interdepartmental communication and cooperation (Lang in Hoffman, 2006:1; Rukavina in Walsh, 2007:42). Reverse logistics is a boundary-spanning process between business units in the same organisation, and developing a system that has to work across these boundaries can also exacerbate the problems (Rogers & Tibben-Lembke, 1998:43).
Unless all the departments understand the role of the reverse logistics process and its end goals, conflicting goals and priorities will be set across departments (Mollenkopf & Closs, 2005:42; Tompkins, 2010:2).

Resistance to change and the need for new approaches

The reverse flows may also involve an entirely different channel which requires new approaches (Norek, 2002:42; Richey, Genchev & Daugherty, 2005a:235). Resistance to change in the organisation can therefore be a problem because reverse logistics requires drastic changes in mindset and practice (Ravi & Shankar, 2005:1015). Having a successful reverse logistics process in place requires a shift in the organisation. However, many organisations’ policies and structures get in the way of the change necessary for the successful implementation of reverse logistics (Ravi & Shankar, 2005:1015).
In conclusion, the perspective of reverse logistics being unimportant is likely to impact negatively on an organisation’s performance (Autry, Daugherty & Richey, 2001:2) and a lack of accountability for reverse logistics is a major reason why reverse logistics tends to be undermanaged (Monaham et al., 2004:21). In many organisations, reverse logistics is still a “part-time” activity (Stock & Mulki, 2009:50).

Problems between upstream reverse supply chain partners

There are various problems in the reverse supply chain. For reverse logistics to be successful, collaboration between supply chain partners is crucial (Zeng et al., 2005:853). A lack of communication between partners can be a source of risk (Breen, 2006:546). Hence a key barrier to successful reverse logistics is the lack of support of channel members such as dealers, distributors and retailers (Ravi & Shankar, 2005:1017). Major problems with reverse supply chain partners can therefore stem from a lack of collaboration, a lack of communication and a lack of support. The parties involved in reverse logistics were discussed in chapter 2, section 2.5.

Reverse logistics problems relating to customers

There are various kinds of problems in reverse logistics that are related to customers or end-users, which originate from the following:

Lack of communication and rules enforcement

Suppliers do not always work effectively with their customers by communicating their expectations and arrangements for reverse logistics (Breen, 2006:546). Poorly defined return policies between the organisation and the customer can create extremely lenient or complex returns that can lengthen the processing time and consume valuable resources (Tompkins, 2010:2; Monaham et al., 2004:21). In many instances, organisations do not enforce their reverse logistics rules and allow customers to return products that should not be accepted (Breen, 2006:546; Norek, 2002:38). This can lead to abuse from the customers in the sense that they may take advantage through the level and type of returns (Daugherty et al., 2003:49). There are also instances where a customer, who did not receive a return merchandise authorisation (RMA) because of an unacceptable return reason, returns the product and still receives credit (Norek, 2002:38). RMA is essentially the authorisation given to a customer to return a product to a supplier (Rogers & Tibben-Lembke, 1998:262). RMA can also involve a reference number produced to recognise and give authority for a faulty product to be returned to a distribution centre or manufacturer (CSCMP, 2010:160).

Customer expectations and dissatisfaction

Returning products to an organisation can automatically carry with it a negative connotation in the customer’s mind (Dampier, 2006:22). Perceived expectations of customers are a vital aspect of any organisation, especially when a customer receives a product that does not meet a specific expectation (Riedel, 2004:1). This can jeopardise the organisation’s relationship with its customers (Dampier, 2006:22; Riedel, 2004:1). Organisations that do not consider their ultimate customers’ wants and needs as the driving force behind reverse logistics can cause major failures in the entire reverse logistics system (Dowlatshahi, 2005:3474).
To conclude this section, it is clear that there are many problems and challenges in reverse logistics relating to costs, information systems, product returns, human and managerial matters as well reverse supply chain partners and customers. In the next section, the solutions to these problems and challenges in reverse logistics will be discussed in detail.

TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION TO THE STUDY
1.1 INTRODUCTION
1.2 BACKGROUND
1.3 CONCEPT OF REVERSE LOGISTICS
1.4 DEMARCATION OF THE STUDY
1.5 PROBLEM STATEMENT
1.6 RESEARCH OBJECTIVES
1.7 RESEARCH METHODOLOGY
1.8 OUTLINE OF THE STUDY
CHAPTER 2 CONCEPTUALISATION OF REVERSE LOGISTICS
2.1 INTRODUCTION
2.2 REVERSE LOGISTICS DEFINITIONS AND RELATED CONCEPTS
2.3 IMPORTANCE OF REVERSE LOGISTICS
2.4 TYPES AND REASONS FOR PRODUCT RETURNS
2.5 PARTIES INVOLVED IN REVERSE LOGISTICS
2.6 REVERSE LOGISTICS PROCESSES, ACTIVITIES AND OPTIONS
2.7 CONCLUSION
CHAPTER 3 REVERSE LOGISTICS PROBLEMS, CHALLENGES AND SOLUTIONS
3.1 INTRODUCTION
3.2 REVERSE LOGISTICS PROBLEMS AND CHALLENGES
3.3 POTENTIAL SOLUTIONS TO PROBLEMS AND CHALLENGES IN REVERSE LOGISTICS
3.4 A FRAMEWORK FOR REVERSE LOGISTICS PROBLEMS, CHALLENGES AND SOLUTIONS
3.5 CONCLUSION
CHAPTER 4 CONCEPTUAL FRAMEWORKS FOR BEST PRACTICES IN REVERSE LOGISTICS
4.1 INTRODUCTION
4.2 FRAMEWORK 1: CONCEPTUAL FRAMEWORK FOR BEST PRACTICES IN REVERSE LOGISTICS
4.3 FRAMEWORK 2: CONCEPTUAL FRAMEWORK EXPLAINING THE CONCEPT OF REVERSE LOGISTICS
4.4 FRAMEWORK 3: CONCEPTUAL FRAMEWORK FOR INDENTIFYING PROBLEMS AND CHALLENGES IN REVERSE LOGISTICS
4.5 FRAMEWORK 4: CONCEPTUAL FRAMEWORK FOR FINDING POSSIBLE SOLUTIONS TO PROBLEMS AND CHALLENGES IN REVERSE LOGISTICS
4.6 CONCEPTUAL FRAMEWORKS FOR PROBLEMS, CHALLENGES, SOLUTIONS AND BEST PRACTICES IN REVERSE LOGISTICS
4.7 BEST PRACTICES IN REVERSE LOGISTICS
4.8 CONCLUSION
CHAPTER 5 RESEARCH METHODOLOGY
5.1 INTRODUCTION
5.2 DEFINING RESEARCH
5.3 THE MEANING OF RESEARCH DESIGN
5.4 PROBLEM STATEMENT OF THIS STUDY
5.5 RESEARCH OBJECTIVES
5.6 METHODOLOGICAL APPROACH ADOPTED IN THIS STUDY
5.7 PHASES OF THE STUDY
5.8 VALIDITY AND RELIABILITY OF THE STUDY
5.9 LIMITATIONS OF THE STUDY
5.10 ETHICAL CONSIDERATIONS
5.11 CONCLUSION
CHAPTER 6 EMPIRICAL RESULTS AND FINDINGS
6.1 INTRODUCTION
6.2 DESCRIPTIVE ANALYSIS
6.3 INFERENTIAL ANALYSIS
6.4 GAP AND OPPORTUNITY ANALYSES
6.5 REFINED BEST PRACTICE FRAMEWORK FOR REVERSE LOGISTICS
6.6 CONCLUSION
CHAPTER 7 CONCLUSION AND RECOMMENDATIONS
7.1 INTRODUCTION
7.2 SUMMARY OF FINDINGS: LITERATURE STUDY
7.3 SUMMARY OF FINDINGS: EMPIRICAL STUDY
7.4 RECOMMENDATIONS
7.5 FUTURE RESEARCH
7.6 CONCLUSION
BIBLIOGRAPHY
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