Write a minimum of a four-page paper, plus the title page and a reference page on the following statement:
1. To complete this Case Study: Reverse Logistics primarily concerns itself with recovering material and/or economic value from products which are at the end of their useful life. This class will familiarize participants with motives, theory, and practical application, using a variety of sources including textbooks and case studies as well as scientific literature.
2. Review Managing Reverse Logistics reading text and specifically, CH 3 Case studies. Choose a case Study, review the information and pull together the past exercises to develop your methodology and supporting methods to either agree or disagree with the Case Study. Explain your reasoning in an APA style paper of 1-2 pages. Write your Case study in a memorandum format, with a business header, Include the Case Study problem statement; You do not need to post Case Study Response to the Forum Folder, You will be graded on Content, Understanding, Timeliness, Critical Thinking, Correctness of Writing.
– Readings: SPMR – Managing Reverse Logistics deBrito – CH 3; LO – 1-13
– Read readings your chosen Case Study.
– Post your Case Study to the Assignments Folder
– Then read your Case Study.
– Identify, assess, analyze and solve problems related to supply chain management
- Understand the concepts and vocabulary of the Reverse Logistics discipline
– Develop and apply research skills appropriate to the requirements of the unit and discipline
– Understand how the concepts of related management disciplines are applied in the development of Reverse Logistics problems
– Understand and apply the concepts learned to L&SCM problems and support their solutions with logical argument
– Communicate an understanding of the unit’s concepts and their application in written and verbal/ presentation media
– To develop individual intellectual inquiry and application skills
– To demonstrate the realization of these outcomes by achieving an adequate overall standard in the assessment process
Incorporate at least one reference from articles listed within the online APUS library.
•Written communication: Written communication is free of errors that detract from the overall message.
•APA formatting: Resources and citations are formatted according to APA (6th edition) style and formatting.
•Length of paper: typed, double-spaced pages with no less than a four-page paper.
•Font and font size: Times New Roman, 12 point.
Chapter 3 Reverse Logistics: a review of case studies Practice is everything Periander 3.1 Introduction This chapter reviews more than 60 case studies on the field of reverse logistics, giving a fair idea of the diversity of reverse logistics practices. The review not only gives an overview of real life situations, but it is also a source of case support for researchers. This is important because one cannot provide proper insights into reverse logistics without being familiar with how firms are dealing with it in practice, what are the trade-offs during decision-making, how decisions are being supported, and so on. Field studies and surveys can be extremely helpful in getting this knowledge. At the end of the nineties, Rogers and Tibben-Lembke (1999) presented a broad collection of reverse logistics business practices, giving special attention to the U.S. experience, in which the authors carried out a comprehensive questionnaire. One year later, Guide (2000) published a study on research needs based on an extensive survey within the remanufacturing industry in the U.S. Also, quite some case studies on reverse logistics have been described in the literature dealing with different industries, recovery options and drivers. This literature is however scattered over journals for very different research communities. Besides this, in countries in the forefront of reverse logistics 79
81 80 Chapter 3. Reverse Logistics: a review of case studies a substantial number of case studies have been published in other languages than the lingua franca and are therefore not accessible for the majority of the research community. This chapter can also be used as a check list for researchers willing to conduct (comparative) case studies. The analysis of the case studies is based on the framework of Chapter 2. Concisely, according to the framework, a first characterization of reverse logistics situations starts with answering the following questions: what?, how?, who?, and why?. I.e., what products/materials are being returned? how are they being recovered?, who is involved?, and why is all this happening? Actually the two research projects, the framework and the case studies review were carried out in parallel, and in an interactive way. The analysis of the case studies is facilitated by the framework. At the same time, the case studies put the adequateness of the typologies and its completeness at test, leading to a refinement of the framework when necessary. So, on the one hand, the case studies review is a means to ground the framework on empirical evidence, and on the other hand, the framework is a means to see through the case studies. The framework of Chapter 2 constitutes the last words of the interaction between this research work and the framework. We present the case studies according to the following decision-making areas, widely used in Operations Management: Network Structures, Relationships, Inventory Management, and Planning and Control. For each section we describe and organize the cases and we put forward preliminary insights as well as research gaps, which we link with a research agenda. For some of the decision-making areas, some of the dimensions of the framework are predominantly important. We also discuss this and we provide research directions to further investigate this, by indicating the kind of elements that could be considered in more detail, depending on the decision-making area. The remainder of the chapter is organized as follows. Section 3.2 describes the methodology employed for finding and classifying the case studies. Section 3.3 provides statistics regarding the type of industry, the product and the geographic area of the cases. After that, Sections 3.4 to 3.8 present the case studies, and preliminary insights related to the state of the art of research in the field. Section 3.9 presents the overall insights of this review. Finally in Section 3.10 we present the conclusions and we put forward research directions. An earlier version of this work has been reported in De Brito et al. (2003).
82 3.2. Methodology 81 3.2 Methodology Case study here means a close analysis of the practice (in scientific literature), together with the circumstances and its characteristics leading to an understanding of the situation within its own context (see Stake, 1995). Note that this definition rules out mere examples that are short on details. The approach also excludes the pure description of business practice in professional magazines. We do not contest the usefulness of professional magazines in learning about reverse logistics practice (see e.g. Duijker et al., 1994-2000). However, articles in professional magazines more likely than scientific literature include immaterial content and are biased with promotional aims. Thus, our main source of literature is scientific literature. Yet, we includ refereed professional literature like the Handbook of reverse logistics (Van Goor et al., 1994-). The search procedure was as follows. The search was carried out by three researchers, one junior and two seniors. We inspected the Science Citation, and the ABI/Inform online libraries, using the combination of key words listed in Table 3.1. Table 3.1: Key words used for the search of case studies Asset recovery By-products/byproducts Post-consumer Repair Containers Producer responsibility Repairable Co-products/co-products Product ownership Resale / re-sale Core Product recovery Resell / re-sell Defects Product stewardship (commercial) Return Defective Reassembly Reuse/ re-use Disassembly Rebuild Reutilization Dismantling Recalls Reusable Disposal Reclaim Reverse logistics Downgrading Reclamation Rework Energy recovery Reconditioning Salvage Environment Re-consumption Secondary (market) Garbage Recovery (product, asset) Separation Gate keeping Recycling Source reduction Green logistics Refill Take back Material recovery Refillable Upgrading Obsolete (stock) Refurbishing Value recovery Outlet Remanufacturing Warranty Overstock Repack Waste We also survey literature that is especially dedicated to the topic, like the proceedings of renowned conferences, namely the APICS Reman and IEEE
83 82 Chapter 3. Reverse Logistics: a review of case studies on Electronics and the Environment (see APICS, 2003, and IEEE, 2003). The main search took place in early 2001 and continued till end 2002. Note that we report only on the literature that fit the case study criteria, i.e. leading to an understanding of reverse logistics issues, through a close analysis of a real case. To give the reader the overall reverse logistics context, we gathered, for each case study, information on the five dimensions of reverse logistics, i.e. what, how, who, and why-returning, why-receiving as introduced in Chapter 2. In order to be engaged in, or to anticipate recovery activities, firms have to consider several strategic, tactical and operational matters. At the strategic level, the design of the recovery network has to be decided upon first. At the tactical level, relationships with partners have to be developed. Relevant issues here concern measures to ensure that the actors involved follow a certain behavior. At the operational level, inventories and the recovery activities have to be managed and controlled (see Ganeshan et al., 1999; Fleischmann et al, 1997). Information and communication technologies play an important role to achieve this. Thus, we present the case studies according to the following decision-making focus: Network Structures, Relationships, Inventory Management, and Planning and Control. Furthermore, there is an overview of Information and Technology (IT) for reverse logistics. By IT we denote technological means to process and transmit information (see IT definitions by OECD, 2003, and NAICS, 2003). If a case focuses on multiple decisions, then the case study is discussed in more than one section. With our search procedure, we found 26 case studies on Network Structures,10 cases on Relationships, 14 cases on Inventory Management, 25 cases on Production Planning and Control, and 7 cases dedicated to IT issues. 3.3 Statistics We have found more than sixty cases involving reverse logistics. Using the United Nations classifications for Industry (see http://esa.un.org), roughly 60% of the cases are in the manufacturing category; about 20% are within wholesale and retail trade and about 10% in construction. We have also found cases in the following categories: transport and communication, public administration and defense, and other community services (see Table 3.2). We also use here the United Nations classifications for Products (see http://esa.un.org). In Chapter 2 we actually expanded this classification (what-types) as for thorough research, a more detailed typology is necessary. For an overall perspective, we state here the statistics according to the United
84 3.3. Organiz. of end-of-life legislation (Europe) white goods retailers companies electronics (NL) (+ no disposal costs)  dist. items recycling other mater. households, specialized specialized glass Glass end-of-life legislation (Europe) (glass) (glass) firms players players industry Foundation  other mater. recycling other mater. car certified selected glass Car end-of-life legislation (Europe) (car wrecks) owner disassemblers recyclers industry Foundation (NL) economics  other mater. recycling other mater. waste Recyclers Recyclers Dep. of Recyclers end-of-life legislation (Europe) (construction) (sand) processors consortium consortium Public consortium Works  other mater. recycling vs. materials households, opportunistic specialized pulp consortium end-of-life legislation (Europe) (paper) incineration or energy businesses players industry Governm. economics  other mater. recycling materials households public public – Kaohsiung s end-of-life (corporate) (Asia) (waste) authority authority municipality citizenship  cons. goods recycling fibers, households, municipalities, professional road, dam carpet end-of-life economics (Eur. & (carpets) materials companies specialists organization builders industry (legislation) N.A.)  cons. goods recycling other mater. business carpet Dupont Dupont end-of-life economics (N.A.) carpets nylon fibres customers dealers  other mater. recycling other mater. steel steel steel steel & other industry manufacturing corporate (Europe) steel scraps (steel) industry industry industry industry government by-products citizenship  other mater. recycling materials households demolition specialized industry government end-of-life corporate (Europe) (construction) players recycler citizenship
87 86 Chapter 3. Reverse Logistics: a review of case studies Duhaime et al.  discuss the collection and distribution of returnable containers for Canada Post. Again the inventory balance between the different locations is a major problem. The last two cases also have production planning and control issues and are also discussed in Section 3.6. De Koster et al.  describe return handling operations of three food retailers, three department chains, and three mail-order companies (see Chapter 5). Networks for remanufacturing (3 cases) Remanufacturing is typically applied to complex equipment or machinery with many modules and parts. It is usually a labor-intensive activity, which requires much testing. Fleischmann et al. (2000) makes a further distinction into networks set up by the OEM and by independents, as in the latter case there can be no integration with the forward chain. We found the following cases. Krikke et al.  discuss the remanufacturing of photocopiers. The authors consider two options for the remanufacturing facility, one coinciding with the manufacturing facility and one in a cheap labor country. They evaluate the costs of both options, including the transportation effects. Meijer  discusses the remanufacturing of used scanners, printers, copiers, faxes at Canon. Dijkhuizen  discusses the remanufacturing network of IBM. He deals with the problem of where to re-process the products: in each country, or centrally at one place in Europe. Networks for Recycling (11 cases) One can distinguish two types of networks depending on the organizer/ responsible party, viz. private and public. Fleischmann et al. (1999) and Goggin and Browne (2000) have also made this kind of differentiation while classifying networks for recovery. Public Networks (7 cases) There are several papers describing the set-up and organization of recycling networks in The Netherlands. Bartels  describes the Dutch nationwide system for the recycling of batteries. Since 1995, it is legally required that all Dutch battery manufacturers and importers have the batteries they sell retrieved and recycled. Stichting Batterijen (Stibat), was put together to make possible for Dutch battery manufacturers and importers to fulfil these legal requirements. Stibat is a non-profit organization, of which batteries manufacturers and importers
88 3.4. Case studies on Reverse Logistics Networks 87 are members. The Stibat Plan describing how batteries are collected and processed was approved by the Dutch ministry of Environment (VROM). De Koster et al.  deal with recycling of white and brown goods. White goods are large consumer appliances, like washers, dryers, and refrigerators. Brown goods are small domestic appliances, such as a video recorder. The authors also describe the details of network for end-of-life large white goods in De Koster et al. (2003). The consumer pays a disposal fee when purchasing the good, and the sector organization is responsible for distributing the money among the parties involved. Van Notten  explains the glass recycling system in the Netherlands. The rules are legally established by the Dutch Ministry for the Environment (VROM). The glass industry formed a Glass Recycling Foundation to deal with them. The authors discuss the bring and pickup systems for the collection of glass scrap from households. Van Burik  describes the car-recycling nation-wide scheme in the Netherlands. Again a society, Auto Recycling Nederland (ARN) was raised by the car manufacturers, importers, and other players in the network of the car industry to address car recycling. A tax on new purchased cars, paid by the consumer to the car importer is used to pay for the recycling. Discarded cars are first assembled at car dismantling centers. Resulting materials are collected and centrally recycled. Recycling companies are paid for processing volumes. Barros et al  discuss the design of a network for the recycling of sand case that comes free during the sieving of building waste, in the Netherlands. Sand recycling in large-scale infrastructure projects, e.g. road construction, is considered a potential alternative to land fill and furthermore aligned with environmental legislation. The Department of Public Works is responsible for the destination of the recycled sand, since it coordinates large-scale infrastructure projects. As the Dutch government aims to increase the recycling quota of building waste from 70% to 90%, a consortium of construction waste processing companies is interested in improving efficiency in the sand-recycling network. The main problem tackled in the paper is the determination of the number and location of depots of the sand. Kleineidam et al.  consider the structure of the recycling network of the paper industry in the Netherlands. Paper recycling in the Netherlands is bounded by the rules put down by the Dutch Ministry for the Environment (VROM). Companies selling or importing paper and cardboard in/to the Dutch market are members of the Dutch Corporation of Paper Recycling. This corporation is in charge of the control mechanisms. The recycling system resembles a close-loop, with used paper being collected, processed, and turned
89 88 Chapter 3. Reverse Logistics: a review of case studies into pulp, which is raw material for the paper industry. Paper from households is mainly collected by a network kept up by non-profit organizations. The authors investigate the dynamic behavior of the chain and use it to evaluate the system. In the analysis, both incineration costs and paper taxes are considered. Chang and Wei  discuss the recycling network for household waste of the city of Kaohsiung in Taiwan, Waste management is maneuvered by the Environmental Protection Bureau of the city. This bureau has the challenge to have in place an effective planning recycling program. The authors deal with the allocation of the recycling drop-off stations. Private Networks (4 cases) Louwers et al.  discuss the set up of a carpet recycling system. It concerns a special type of carpets, of which the output is used as feedstock in the chemical industry. Both the organization and the collection network are discussed. Realff et al.  discuss a similar network, using the same technology, but now in the U.S. Spengler et al.  discuss two cases, one for recycling building debris and one for the recycling of by products in the German steel industry. The authors consider the effect of various variables, like the cooperation between companies. 3.4.2 Preliminary insights The outline of the previous section is organized around two dimensions of the framework, as follows: the how and the who (see Chapter 2). In more detail, we presented cases for Networks for re-distribution/re-sale, Networks for remanufacturing, Networks for Recycling – Public Networks, Networks for Recycling – Private Networks. Typologies of the how and the who, also have been (more or less consciously) employed in previous literature to distinguish reverse logistics networks (see Fleischmann et al., 1999; Goggin and Browne, 2000; Fleishmann et al., 2000; and Fleischman et al., 2004). Thus, the how and the who are two prominent elements when one characterizes reverse logistics networks. We come back to this on Section 3.9.
90 3.5. Case studies on Reverse Logistics Relationships 89 In general, within reverse logistics networks, the models to determine the location of facilities are based on deterministic integer programming models (Fleischman et al., 2004). However, it is commonly accepted that reverse logistics is characterized by much more uncertainty than in forward logistics (see Dekker et al., 2004). With this in mind, there is space for stochastic programming modelling with respect to reverse logistics network design (see e.g. Listes and Dekker 2001). 3.5 Case studies on Reverse Logistics Relationships It is typical for reverse logistics that several parties are involved, such as the sender of the product, the collector, the processor and the organizer/initiator (see Chapter 2). To stimulate/enforce a certain behavior of their partners, parties in the reverse chain make use of various incentive tools. In this subsection we discuss our findings with respect to the tools that are used in practice to stimulate/enforce a desired behavior of partners in the context of product recovery. A summary of the cases is provided in Table 3.5. A distinction should be made between two categories of incentives to stimulate/enforce a certain behavior of other players in the supply chain: 1. incentives to acquire products for recovery, and 2. incentives to force others to accept the products a company wants to get rid of. To be more concrete, two examples follow: in the first situation, a producer of toner cartridges may be interested in getting back its empty cartridges; in the second situation, a company buying chemical raw materials in kegs, may wish that a supplier takes back these kegs (avoiding in this way potentially high disposal costs, once the kegs are empty). Accordingly, these companies are looking for incentives to make their wishes come true but against the lowest costs. The cases embrace incentives regarding functional returns, service returns, end-of-use returns and end-of-life returns. 3.5.1 The case studies We have found ten cases illustrating the employment of eight different incentive tools, as follows: 1) Deposit fee: This fee may concern the product itself or the distribution item like a bottle, box, and pallet. An example of the former is the deposit
91 90 Chapter 3. Reverse Logistics: a review of case studies Table 3.5: Case Studies on Relationships Reference Product(in) Recovery Product(out) Sender Collector Processor Future Organizer Return Drivers option customer reason  cons. goods remanufact., (product-in) customers U.S. customers Unysis end-of-use economics (toner (parts) of Unysis postal of (+ price) (customer (N.A.) cartridges) retrieval service Unysis relations  ind. goods remanufact., ind. goods owners Mercedes Daimler- owner Daimler- Chrysler (Europe) (car refurbishing of Mercedes- -Benz dealers service economics Chrysler of Mercedes- (Mercedes- (trade-in) (+ customer engines) -Benz engine Benz cars Benz) relations) mobile specialists customers City of end-of-life  Chemicals recycling other mater.user (batteries) of batteries units, for raw Leicester (+ info.) (Europe) stores, malls other mater. (UK)  other mater. recycling (100% supplier of Kayak s recreational Walden end-of-life corporate (N.A.) (plastic (+ DfX, recycled) consumers recycled manufacturer kayak Paddlers citizenship scraps) innovation) kayak resins market  cons. goods remanufact. (product-in) customers U.S. customers Xerox end-of-use economics (toner of postal of (+ price) (N.A.) cartridges) Xerox service Xerox  cons. goods remanufact. (product-in) cellular Recellular Recellular end-of-use economics (cellular airtime (specialist) (specialist) (+price, (N.A.) phones) providers…)  cons. goods recycling other mater. users of UPS several HP HP end-of-use economics (N.A.) (toner toner specialists (+donation (+ to put cartridges) cartridges by HP jobbers out to WWF) of market  dist. items re-distribut. (product-in) distribution Campina Campina Campina Campina functional economics (Europe) (PC bottles, centres of (+ deposit crates) supermarkets fee)  other mater. recycling other mater. demolishers, 3rd party building RockWool RockWool end-of-life economics (Europe) (rock wool) building logistics industry (+buy) (+ green suppliers industry provider back) image)  Chemicals recycling Chemicals households, UPS, several end-of-life (Europe) (batteries) companies retailers, specialists (+ price) municipalities corporation
92 3.5. Case studies on Reverse Logistics Relationships 91 fee that has to be paid when renting a car, whereas an example of the latter is the deposit fee on certain bottles from glass and PET bottles (functional returns), see e.g. Vroom et al . 2) Buy back option: At the moment that a product is sold, the buyer is offered the possibility to sell back the product on a later moment in time. Some conditions can be imposed, such as kilometers driven. For instance, Ford has a program called Options, which gives the client some advantages in exchanging his/her car, after two years, for another new car Ford (end-of-use returns). Rockwool Lapinus, the Dutch subsidiary of the Danish Rockwool Company, gives the client the opportunity to return rock wool for free or for a lower price than he/she would else have to pay to get rid of it (end-of-life returns), see Wijshof . Numerous examples of buy back options for unused products (commercial returns) are presented in the literature, where no explicit attention is paid to what happens to these products thereafter (see e.g. Tsay (2001)). 3) Trade-in: One can only get a new product if a used one is returned. This incentive is among others used by Daimler-Benz for the engines that they produce for Mercedes-Benz passenger cars and small vans (Driesch et al, ). Owners of a Mercedes-Benz (MB) passenger car or small van with an MB engine can go to an authorized MB dealer in order to have their present engine replaced by a reconditioned engine (service returns). The MB dealer removes the engine and sends it to the central parts Distribution Center (DC) of the center of Daimler-benz motor recycling (DB-MTR). From this DC, a reconditioned engine is sent to the dealer where the engine is available within 24 hours. The MB-dealer puts the reconditioned engine in the MB passenger car or van, after which its owner can use the car again. 4) Acquisition price: This is paid to the sender/giver when he or she delivers a product for recovery. Some suppliers for toner cartridges, including UNISYS, deliver their cartridge in a box that can be returned for free to them either by post (Bartel ) or via another third party logistics service provider like Hewlett Packard or Xerox do (see McGavis , Guide and van Wassenhove, ). Recellular, a U.S. cellular phone remanufacturer is also very active in setting prices to buy used mobile phones in the B2B environment (see Guide and van Wassenhove ). These are cases of endof-use returns. Also manufacturers of batteries use this type of incentive, see Yender . Another example is Varta, the German battery manufacturer, that pays 50p in the UK for every returned rechargeable battery (end-of-life returns) send
93 92 Chapter 3. Reverse Logistics: a review of case studies to a collection point (see Faria de Almeida and Robertson ). 5) Supplying timely and clear information about the recovery program: How important this incentive is, is illustrated by a pilot system for the collection of different types of batteries in Denmark and Germany (end-of-life returns), where it turned out that it was too difficult for a number of suppliers to understand clearly which type of battery they have (see Faria de Almeida and Robertson ). 6) Power: As always, power can be used to force desired behavior. An example is New England Foam of Windsor. One of the customers of this company, Walden Paddlers uses her power as a customer to force her supplier, New England Foam of Windsor, to take back their cardboard boxes (end-oflife returns), see Farrow and Johnson. . 7) Environmental responsibility: The idea is to appeal to the consumer s environmental responsibility. This incentive is likely to require a lot of advertising, and its reliability is questionable, as is illustrated by the collection of toner cartridges (end-of-use returns), by Hewlett Packard (see McGavis ). 8) Social responsibility: The idea is to appeal to charity donors. Basically, it works as follows: for each product received for recovery, a non-profit organization receives an amount of money. This incentive was used by Hewlett Packard in the beginning of the nineties but it did not result in a satisfying number of returns (McGavis, ). A drawback of this incentive is that the company is going to accept the products without any guarantee of quality. This also applies to the previous tool, i.e. appealing for the consumers environmental responsibility. Very recently, this incentive was revived by Recellular (see Recellular, 2003) in the U.S. and by the retailer chain Tesco in the U.K. (see Tesco, 2003), to acquire used mobile phones. All these are examples of end-of-use returns. 3.5.2 Preliminary Insights Among the ten cases, there are quite different incentive tools: 1) Deposit fees (Vroom et al.), 2) Buy back options (Wijshof ) 3) Trade-in (Driesch et al, ), 4) Acquisition price (Faria de Almeida and Robertson , Bartel , McGavis , Guide and van Wassenhove , ; Yender ),
94 3.5. Case studies on Reverse Logistics Relationships 93 5) Timely and clear information (Faria de Almeida and Robertson ), 6) Power (Farrow and Johnson ), 7) Environmental responsibility (McGavis ), and 8) Social responsibility (McGavis ) In the beginning of this section we distinguished two type of incentives: 1) incentives to acquire products for recovery, and 2) incentives to force others to accept the products a company wants to get rid of. Actually only one among the ten cases found was on the latter type of incentive. This is the case of Walden Paddlers using its power to force its supplier of foam to take back the cardboard boxes (see Farrow and Johnson ). Besides this, not all the other cases are examples of incentives exclusively dedicated to acquire products for recovery. Many of the tools are also meant to keep customers. One example is the buy back option offered by Ford (www.ford.nl), when the customer buys another new Ford after 2 years. Another example is the case of the engine trade-in option offered by Daimler Chrysler (Driesch et al ). Other tools are not directly coupled to a selling activity and they can involve more than just own customers. For instance, a gift to a non-profit organization (see McGavis ) as used by Tesco to get back used mobile phones. Or, deposit fees on beverages, where customers from one shop may return the empty bottles in another shop. Actually, the latter seems to be the only incentive that is specific for product recovery. Other incentives can serve other objectives than recovery alone. Next, we make some observations regarding the incentives in the cases and the return reason why-returning. The cases do not report on manufacturing returns. These are usually handled internally, or they are not a matter of acquisition anyway. A similar argument can be used for the absence of stock adjustments. None of the cases include product recalls, as in this situation safety is a key-issue thus the parties involved have to take their responsibility. Regarding B2B and B2C commercial returns, these are documented in the literature on contracts for unused products with a return option (see Anupindi and Bassok, 1999; Corbett and Tang, 1999; Debo et al., 2004; Tsay et al., 1999; Tsay, 2001; Lariviere, 1999). The cases presented here embraced incentives to acquire products from functional, service, end-of-use and end-of-life returns (see Table 3.6). The table shows that for several return reasons, it seems to exist different incentives to choose from. Although all the aforementioned incentives can be found in practice, there are no models in the literature supporting the choice of incentive. The litera-
95 94 Chapter 3. Reverse Logistics: a review of case studies Table 3.6: Case studies: return-reason vs. incentive Cases Return Reason Incentives Acquisition  Functional Deposit fee  Service Trade-in  End-of-use Acquisition Price  End-of-use Acquisition Price, Environmental Responsibility & Social Responsability  End-of-use Acquisition Price  End-of-use Acquisition Price  End-of-life Buy back option  End-of-life Acquisition Price  End-of-life Acquisition Price & supplying timely and clear information Disposition  End-of-life Power ture deals with one or more aspects of those mentioned above. For instance, 1) literature on sales contracts with return options for unused products; and 2) research on the optimal acquisition price to realize a certain flow of products. The prime focus of the first group of literature is on what may be gained by both sellers and customers by allowing customers to order more under certain return options. Usually a fixed sales price is assumed for the products that are taken back by the seller. Besides this, most of the literature on contracts with a return option concern unused products (see Anupindi and Bassok, 1999; Corbett and Tang, 1999; Debo et al., 2004; Tsay et al., 1999; Tsay, 2001; Lariviere, 1999 ). Klausner and Hendrickson (2000) present a mathematical model that might be used for estimating the acquisition price. Guide et al (2001) present a mathematical model to determine the optimal acquisition price for products from the field as well as the selling price of these products. In the above two models the time aspect is neglected, i.e. a steady state situation is considered. This aforementioned literature can be used as a starting point to construct a model to support the choice of which incentive to choose, under which conditions. Another research opportunity is searching explanatory variables with respect to the choice of incentive. To start with, we suggest mapping who is
96 3.6. Case studies on Inventory Management 95 who in each network. This is because an important factor in choosing between incentive tools is to be informed on the alternatives that other players have and the costs associated with them. Therefore, the type of players and their interrelations are likely to determine the type of incentive tools employed. 3.6 Case studies on Inventory Management The 14 cases on inventory management within reverse logistics are given in Table 3.6. They can be classified according to the return reasons (see Section 3.2). We did not find cases for all the return reasons. We did find cases for functional returns, B2C commercial returns, service returns, end-of-use returns and end-of-life returns. Omissions can be explained as follows. Manufacturing returns are often treated in production planning contexts. Product recalls are often special events, which are left out of consideration in inventory management. Warranty returns have similar characteristics as repairs. They differ mainly in the contractual side and accordingly one cannot expect many publications with an inventory management focus. Stock adjustments are somewhat similar to some of B2B commercial returns (bulk returns) and might even not be distinguished from them in the case descriptions. Below we go over the cases in more detail. 3.6.1 The case studies Functional returns (2 cases) This category corresponds to distribution items, that is, products like containers, bottles, railcars and crates, which are used for distribution purposes. On this we report two cases, viz. Swinkels and van Esch  and Del Castillo and Cochran . Here the location of the distribution items is a major issue in the inventory decision. Del Castillo and Cochran  study production and distribution planning for products delivered in reusable containers. Their model includes transportation of empty containers back to the plants. Availability of empty containers is modelled as a resource constraint for the production of the original product. The model is applied to a case study of a soft drink company using returnable bottles. Swinkels and Van Esch  describe how the optimal stock of refillable beer kegs is determined within Bavaria, a Dutch beer brewery.
97 96 Chapter 3. Reverse Logistics: a review of case studies Table 3.7: Case Studies on Inventory Management Reference Product(in) Recovery Product(out) Sender Collector Processor Future Organizer Return Drivers option customer reason  ind.goods re-use ind.goods internal customer CERN internal CERN reiumbursement,economics (Europe) customers (bring-back) customers end-of-use  cons. goods re-sale cons. goods customers mail order mail order customers mail order reimbursement economics, (Europe) company company (same market) company legislation  spare parts repair, spare parts service service Refinery internal service economics (Europe) (refinary) re-use engineers engineers customer  distribut. re-distribut. (product-in) retailers Coca-Cola Coca-Cola original Coca Cola functional economics (N.A.) items chain chain  spare parts repair spare parts Caracas Caracas Caracas Caracas Caracas service economics (S.A.) (railways) subway subway subway subway subway  spare parts repair spare parts telephone Lucent Lucent same Lucent service economics (Europe) (telephones) companies Technologies Nederland Technologies Nederland chain Technologies Nederland  ind. goods repair, ind. goods business IBM end-of-life economics (Europe) (IBM) refurbish. spare-parts customers etc.  cons. goods remanufact., (product-in) customers specialized specialized manufacturers end-of-life economics (Europe) (power recycling other mater. party facility (pro-active) tools)  ind. goods repair, ind. goods UK UK UK UK UK service economics (Europe) (aircraft engine) refurbishing Air Force Air Force Air Force Air Force Air Force  cons. goods reuse, (product-in) users Norwegian TAC or same Norwegian end-of-use economics, specialized market National service corporate (aid equip.) refurbish., Technical Aid (Europe) retrieval,… Centers (TAC) player Insurance Administration citizenship  cons. goods re-sale cons. goods customer 3rd party Wehkamp same Wehkamp reimbursement economics (Europe) log. provider (catalogue) market (legislation)  distribut. items re-distribut. distribut. items business Bavaria Bavaria Bavaria functional economics (Europe) (beer kegs) customers agents Bavaria  cons. goods remanufact. cons. goods consumer photo Kodak same Kodak service economics (single-use shops, chain (Europe, photo other N.A.) cameras) retailers  spare parts remanufact. spare parts Importer Volkswagen Volkswagen Importer Volkswagen service economics (Europe) (cars) organizations (in Kassel) (in Kassel) organizations (in Kassel)
98 3.6. Case studies on Inventory Management 97 Commercial returns (3 cases) Commercial returns occur in a B2B or in a B2C setting (see Section 3.2), where the buyer has a right to return the product, usually within a certain period. In the B2B setting, there are all kind of contracts lowering the risk of e.g. the retailer by giving him the opportunity to return what is not sold. In this situations, returns are likely to be in bulk and at the end of a season. In the B2C setting, consumers are given, or they have by law, the right to return a product if the product does not really meets his/her expectations. Sanders et al.  describe how the inventories of products are controlled within Wehkamp, a Dutch mail order company, selling all kinds of consumer goods to the Dutch and Belgium market. Two types of products are distinguished: seasonal and non-seasonal products. For the first, the company employs an amended version of the newsboy model taking into account returns. For the latter, the inventory management is done according to an (R, S) policy. De Brito and Dekker  investigate the distribution of the return lag, i.e. the time between the purchase and the return of an item, and its consequences for inventory management (see Chapter 6). Two cases of commercial returns are considered, viz. a mail order company and and the warehouse at the center for nuclear research, CERN. Service return (6 cases) Within service systems like repair systems returns occur basically in two ways. First of all, the products themselves may be brought or sent to a center for repair. If the repair is successful, they are brought back, else, a new product or system needs to be bought and the one that failed is discarded. Secondly, if one needs a continuous functioning of the product or system, one may directly restore functionality by replacing a spare part. The failed part is then repaired, after which it will enter the inventory of spare parts. The cases found are described below in detail. Díaz and Fu  study a 2-echelon repairable item inventory model with limited repair capacity. For several classes of arrival processes they develop an analytic expression for the number of items in queue at the different stages of the system. They analyze the impact of the capacity limitation and compare the performance of their approach with an uncapacitated METRIC type of model. Both models are applied to the case of spare parts management at the Caracas subway system. Donker and Van der Ploeg  describe how the optimal stock of reparable service parts of telephone exchanges is determined within Lucent Technologies Netherlands. They use an amended METRIC model, where the service
99 98 Chapter 3. Reverse Logistics: a review of case studies measure is fill rate (i.e. the percentage of demand that can immediately be fulfilled from stock) and there is no budget restriction for service parts. Moffat  provides a brief summary of a Markov chain model for analyzing the performance of repair and maintenance policies of aircraft engines at the Royal Air force. Van der Laan  describes the remanufacturing chain of engines and automotive parts for Volkswagen. It is somewhat similar to the engine remanufacturing case with Mercedes Benz in the previous section (see Driesch et al. ). A special example of service returns is the one described by Toktay et al.  on Kodak s single use camera. Customers return it, so they can develop the film. Printed circuit boards for the production of these cameras are either bought from overseas suppliers or remanufactured from the cameras returned by the customers via photo laboratories. The issue is to determine a cost-efficient order policy for the external supplies. Major difficulties arise from the fact that return probabilities and market sojourn-time distribution are largely unknown and difficult to observe. The authors propose a closed queuing network model to address these issues. They assess the importance of information on the returns for the control of the network. De Brito and Dekker  investigate the distribution of the return lag, i.e. the time between the purchase and the return of an item for a spare parts warehouse at a petrochemical plant. End-of-use returns (1 case) This return reason concerns items that are only temporarily with the user. The product may e.g. be leased or rented. Rudi et al.  discuss the product recovery actions of the Norwegian national insurance administration. This public entity retrieves no longer needed wheel chairs, hearing aids and similar products provided to people with handicaps. They assess how many are needed to meet all demands. End-of-life returns (2 cases) Fleischmann  describes the dismantling of computers at the end of their life-cycle into useable spare parts with IBM. This source nicely combines with return obligations and it is a cheap source for spare parts for systems on which one does not want to spend too much. The problems identified were a lack of knowledge of the content of the computers, as well as, an insufficient information system to handle the operations. Klausner and Hendrickson  develop a model to determine the optimal buy-back amount to guarantee a continuous flow to remanufacturing power-
100 3.7. Case studies on Planning and Control of recovery activities 99 tools. The authors apply the model to the actual voluntary take-back program in Germany. 3.6.2 Preliminary Insights We have grouped the presentation of the cases according to the why-returning typology, i.e. according to the return reason as follows: Functional returns, Commercial returns, Service returns, End-of-use, End-of-life This is because this seems a natural way of grouping and discriminating the reverse logistics issues raising from each inventory system. Other authors have done roughly the same (see Dekker and van der Laan, 2003). Many have defended that product data are essential for efficient handling of returns. For instance, Kokkinaki et al. (2004) provide an example of the value of information for disassembly. Other authors have investigated the impact of data, with respect to returns, on inventory management performance (Kelle and Silver, 1989 ; Toktay et al., 2000; De Brito and Van der Laan, 2003). Yet, there is still room to model the impact of having a priori information on what can be recovered, i.e. on which parts are likely to be recoverable. In practice, techniques to forecast return behavior would have to be enriched with broader explanatory variables. We refer to Toktay (2003) for a discussion of factors influencing returns, which are potential explanatory variables in advanced forecasting models. Concluding, it remains to be investigated in which degree inventory systems characteristics like timing, quality and degree of control, are determined by the return reason why-returning, as well as on the type of product (what). 3.7 Case studies on Planning and Control of recovery activities This subsection deals with the planning and control of the recovery activities, i.e. collection for recovery and the recovery itself.
101 100 Chapter 3. Reverse Logistics: a review of case studies Part of the planning and control of product recovery concerns the planning and control of supply of goods to be recovered in which incentives play an important contextual role. This important aspect has already been dealt with in subsection 3.5. In this subsection the incentives and their effect on supply and acceptance are assumed to be given. Planning and control of recovery activities is strongly related to inventory management, the topic of the previous section. The latter includes the levels triggering recovery activities. Hereafter it is assumed that the inventory strategy has already been decided on. What are left are decisions concerning the planning of activities, such as on lot sizes, re-processing priorities and scheduling. The 23 case studies on planning and control of product recovery activities that we found in the literature (see Table 3.8) can be subdivided into case studies dealing specifically with: 1) collection for recovery (13 cases), and 2) recovery itself (9 cases). The cases are succinctly presented in Table 3.7. 3.7.1 The case studies Collection for recovery (13 cases) In a number of case studies the lot size used for collection is given, usually without explaining how these lot sizes have been determined. All the case studies that we found concern end-of-use or end-of-life returns. Andriesse  describes the Packaging Return System of Philip Morris for reusable pallets and sheets used to cover pallets. Philip Morris Holland BV and most of its suppliers agreed that the lot size for returning reusable pallets should be a full truck. Del Castillo and Cochran  describe the model used by EMSA, a soft drink producer in Mexico City, for determining the quantities of refillable bottles to be returned to the bottling plants. First the final customers return the bottles to the stores, which return them to the depots. Duhaime et al  present a model that is used by Canada Post to determine the number of empty containers that should be distributed and returned each month, as well as the number of containers stored each month per region. Klausner and Hendrickson  mention the lot size used for the collection of power tools by Robert Bosch GmbH.
102 3.7. Case studies on Planning and Control of recovery activities 101 Table 3.8: Case Studies on Production, Planning and Control Reference Product(in) Recovery Product(out) Sender Collector Processor Future Organizer Return Drivers option customer reason  distr. items re-distribut. distr. items suppliers Philip Philip suppliers Philip functional legislation (Europe) (pallets) Morris Morris Morris  cons. goods recycling other mater. households, distributors Ortes Ortes end-of-life economics (Europe) (PVC lamellas) (PVC) firms of lamellas Lecluyse Lecluyse (image)  see table 3.4  ind. goods repair, (product-in) NY City, M.-K. NY City, M.-K. service economics (N.A.) (subway) refurbishing Chic. Tr. Chic. Tr.  see table 3.7  see Table 3.4  see Table 3.5  ind. goods remanufact. (product-in) Air force Air force US Navy Air force Air force  (aircraft overhaul/repair  equipment Depot  other mater. recycling other mater. Producer Producer Producer Producer Producer manufacturing economics (Asia) (glass scrap) (glass) of glass of glass of glass of glass of glass leftovers  see Table 3.7  cons. goods retrieval, parts & consumers Municipal Secondary Municipal legislation (Europe) (PC monitors) recycling other mater. Waste Company  spare parts remanufact. (product-in) Detroit Diesel markets Waste Company Detroit Diesel economics (N.A.) (engines)  other mater. recycling gypsum building 3rd party producers customers organiz. of end-of-life legislation (Europe) (gypsum) companies LSP (gypsum) (gypsum) producers  other mater. recycling (product-in) Trespa 3rd LSP, Trespa Builders Trespa manufacturing economics (Europe) (wood) (buildings) demolishers leftovers (legislation)  dist. items re-distribut. (product-in) builders, 3rd LSP, Trespa Trespa Trespa economics, (Europe) (pallets) demolishers demolishers legislation  see Table 3.4 … chemicals retrieval… chemicals (manufacturing (manufacturing Schering AG (manufacturing Schering AG manufacturing (Europe) (pharmaceut.) (pharmaceut.) process) process) (pharmaceut.) process by-products  cons. goods recycling other mater. households municipalities, recycler users of government end-of-life corporate (Europe) (white & brown) retailers other mater. citizenship  ind. goods remanufact. ind. goods Pratt&Hitney Pratt&Hitney (N.A.) aircraft engine  dist.items recycling other mater. households, municipalities specialized Metal industries Stichting legislation (Europe) (tin plate) (tin) etc. player  other mater. recycling other mater. construction specialized manufacturing corp. citiz. (Europe) (construction) firms players leftovers legislation  see Table 3.4  see Table 3.4
103 102 Chapter 3. Reverse Logistics: a review of case studies Bartels  describes the Dutch nation wide collection and processing of disposed batteries. Among others, attention is paid to the collection of batteries at municipality collection points. These depots call one of the contracted collectors to collect the batteries, what has to happen within one month. Van Donk  describes the system set up by Nelis Utiliteitsbouw B.V., a Dutch construction company. The system has as objective to raise the level of reuse of different types of materials by separating them at the building locations. Among other things, attention is paid to the number and sizes of containers used for collection. Whenever at a building location it is expected that a container will be filled soon, a recycling company is called who replaces the filled container by an empty one. Van Notten  describes the recovery of glass in The Netherlands. The bring and pickup systems for the collection of glass scrap from households are discussed, including the sizes of the containers used and the collection scheme, usually being once a week. Schinkel  describes the Dutch nation wide system for the recycling of gypsum. Attention is paid to the actual collection of gypsum via special containers and bags. T Slot and Ploos van Amstel  describe the pilot project in the region of Eindhoven, the Netherlands preceding the introduction of a nation wide system for the collection and processing of discarded white and brown goods. Among others attention is paid to the collection scheme at households (fixed, once per month or quarter), and the collection frequency at sales points of white and brown goods. Ubbens  describes the recovery of metal from metal packaging materials in The Netherlands. Among others attention is paid to the number and sizes of special containers for collecting from households. Wijshof  describes the system setup by Rockwool Benelux in the Netherlands for the collection and processing of rockwool production scrap and waste, as well as for the rockwool disposed after use. Among others attention is paid to the sizes of the bags that are used for collection, and the number of bags that has to be filled before a third party is collecting them for Rockwool. The disposer has to contact the third party to do this. Simons  describes the recycling system set up by Trespa International B.V. This company is a producer of sheets made from resins and wood fibers, which are used in the building industry. The recycling system was established to recycle(or alternatively to incinerate) these sheets, or parts of them. Attention is paid to the collection of leftover sheets at building sites. These leftovers are put into containers supplied by Trespa. The customer lets Trespa know when a container is filled. Empty containers replace filled containers
104 3.7. Case studies on Planning and Control of recovery activities 103 when new Trespa sheets are delivered to the customer. The reusable pallets used for the distribution of the Trespa sheets to the customers are collected by third party logistics service providers (3rd LSP s). Bakkers and Ploos van Amstel Jr  describe the recycling system setup by Ortes Lecluyse, a Dutch producer of PVC window blinds. Attention is paid to the sizes of the containers used for collection and to the frequency for emptying these containers. The containers are located at their direct customers, and they are collected once a week, when new window blinds are delivered. Recovery itself (9 cases) Two cases have been found on disassembly that deal with the sequence in which products should be disassembled as well as the method and degree of disassembly, i.e. the choice between destructive and nondestructive disassembly and the extent of the disassembly. Krikke et al.  discuss the disassembly of PC monitors, where it appears difficult to determine in advance the level of disassembly. This is due to the heterogeneity of the products to be recovered. Kobeissi (2001) determines the optimal disassembly plan for washing machines. Bentley et al  mention that Morrison-Knudsen uses MRP II to plan the remanufacturing of subway/transit overhaul, but the authors do not explain exactly how. The latter also holds for Robinson  who mentions the use of MRP by Detroit Diesel Remanufacturing West, that remanufactures Detroit Diesel engines. Driesch et al  describe the car engine recovery network set up by Mercedes-Benz For Europe, including the actual planning and control of the recovery activities in the plant in Berlin. Among other things it is mentioned that the disassembly, cleaning, test, remanufacturing and reassembly activities are dealt with in lots, and that the number of engines that are disassembled is related to the number of reconditioned engines that are reassembled. No further details are given, nor is explained how these lot sizes have been determined. Guide and Spencer  and Guide and Srivastava ,  discuss a method for rough cut capacity planning to the Air Force overhaul depot. Guide and Srivastava  discuss a method to determine the inventory buffers between the disassembly and the remanufacturing shop, and the inventory buffer between the remanufacturing and the reassembly shop. Thomas Jr.  mentions that the Pratt Whitney Aircraft remanufacturing facility in West Virginia uses MRP to schedule inspection and rebuild of military and commercial aircraft engines. The batch size is one because
105 104 Chapter 3. Reverse Logistics: a review of case studies different engines have to go through different routings. The bottleneck is the engine reassembly. Buffer time is used to protect this activity form variations in foregoing activities. This time is determined via Linear Progamming, but no formulas are given. Spengler et al.  discuss an Mixed Integer Linear Programming model used for the planning of processing components arising from the dismantling of buildings in the Upper Rhine Valley. Next there are two case studies where the resources used for production are also partly used for processing as described. Gupta and Chakraborty  describe the processing of glass scrap generated during the production of glass. A mathematical model is presented to determine the optimal production lot size, taking into account the recycling activities. Teunter et al  describe the mathematical model presently used by Schering AG, a German producer of pharmaceutical products, including the re-processing of by-products. 3.7.2 Preliminary Insights The case studies on planning and control of product recovery activities that we found in literature can be subdivided into case studies dealing with: collection for recovery (13 cases) – separate collection for recovery (Andriesse , Del Castillo and Cochran , Duhaime et al , Klausner and Hendrickson , Bartels , Van Donk , Van Notten , Schinkel , t Slot and Ploos van Amstel , Ubbens , and Wijshof ). – combined collection and distribution (Simons , Bakkers and Ploos van Amstel Jr ). recovery (9 cases) – separate recovery (Krikke et al. , Bakkers and Ploos , Bentley et al. , Robison , Guide and Spencer ; Guide and Srivastava - -Guide and Srivastava , Thomas Jr, , Spengler et al. ). – recovery combined with production (Gupta and Chakraborty , Teunter et al. ). Quite a number of planning and control concepts for product recovery have been presented in academic literature. However, the supply of recoverables
106 3.8. Case studies on IT for Reverse Logistics 105 is often assumed to be autonomous, except for some literature on repair (for an overview see e.g. Guide and Srivastava, 1997b) and remanufacturing (see Guide, 2000; Guide et al., 2001; Guide and van Wassenhove, 2001; Minner and Kiesmüller, 2002). No direct relation between sold/leased and recovered products is assumed. Besides this, uncertainty has been incorporated only as far as the arrival of products for recovery and the duration of repair related activities are concerned. Uncertainty with respect to the result of the processing activities has hardly been taken into account (for an exception, see Souza et al, 2002) Planning and control is all about deciding on how things are going to be done and by whom. These are stressed aspects in the case studies. Naturally, the most relevant elements of the framework for this decision-area are likely to be precisely the how and the who. This poses a research opportunity. We come back to it on Section 3.9. 3.8 Case studies on IT for Reverse Logistics We have found six cases concentrating on various applications of IT for reverse logistics activities (see Table 3.9). IT is used to support reverse logistics during different stages of the life cycle of a product, namely manufacturing, distribution and customer (see Kokkinaki et al., 2004 and Hendrickson et al, 2003). 3.8.1 The case studies Manufacturing (2 cases) Regarding the phase of product development and manufacturing there are two variables to consider within the what dimension: material content and product structure. The materials that are used and how they are combined determine the degree and the type of a potential recovery once the product is at the end of its life. Marking parts with manufacture identification are also helpful when a product has to be pulled out of the market due to defect, i.e. in case of product recalls (see Smith, 1996). Many companies have already in place product development programs encompassing design for the environment, for recovery, for disassembly, and so on: generally called as Design for X, or just DfX. This is the case for Xerox Europe as reported by Maslennikova and Foley . Xerox has an extensive Design-for-the-Environment program in place. The design of each new component has to be accompanied with instructions for the end-of-use.
107 106 Chapter 3. Reverse Logistics: a review of case studies Recovery can also be the starting point for product development, as is the case for Walden Paddlers, who launched a 100% recycled kayak project (Farrow et al. ). The project had to rely much on computer experiments as no available design then suited recycled resins. The company was able to attract a manufacturer to invest in advanced rotational molding technology and to convince the supplier to proceed to further resins separation. Distribution (3 cases) Landers et al.  highlight the importance of tracking component s orders in the case of a closed-loop business telephones supply chain. The authors use a concept called virtual warehousing where real-time information feeds expeditious algorithms to support decisions. The use of IT leads to an improvement in stock levels, routing and picking processes when compared with the pre-it scenario. Xerox (Maslennikova and Foley ) uses bar code labels to track packaging material with the aim of achieving resources preservation. Fraunhofer IML has developed software to embed data on recovery processes as reported in Nagel and Meyer . The authors consider two chains in Germany: the national refrigerator and the computer recycling networks. Costs could be minimized with the optimization of the location of facilities, vehicle routing and operations scheduling supported by the software. For the case of the German computer-recycling network, transport volume (in tons per km) could be reduced by almost 20%. Customer (4 cases) After the customer has accepted the product and starts using it, the product may need maintenanc