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Reverse Logistics & Waste Management

Role of Logistics in Consumer Goods Industry

Introduction

Most discussions on ‘’Logistics’’ assumes the traditional definition of the term as ‘’the movement of products from manufacturer through a chain of intermediaries – Agents, Dealers, Distributor, Wholesalers and Retailers – down to the final consumer’’ (Wisner et al., 2009, pp. 6-7). This process is sometimes referred to as the ‘’supply chain’’ of the product. To a large extent, the effective and efficient organisation and management of the supply chain or distribution channel, account for the efficiency of the company. It is also considered as the core source of cost reduction and profitability (Walters, 2007).

Thus, companies strive to boost sales, optimize costs and lower risks of operation through improved logistics/ supply chain management. Even the simplest processes in companies are now being improved to enhance the prospect of achieving higher efficiency and making higher profits.Until recently, however, companies hardly considered the potentials in reversing the traditional direction of flow of logistics/supply chain from the manufacturer down to the consumer.

This reverse process, commonly referred to as ‘’Reverse Logistics’’ has been overlooked most of the time, yet it is a process that helps companies to reduce waste and enhance profits as it involves, reuse and recycling of products, wherever possible (Greve and Davies, 2010). The main focus of this study is on the use and importance of reverse logistics in industry using the fast- moving consumer goods (FMCG) sector as a case study.

Reverse logistics, as the term suggests, begins from the final consumer and ends back with the manufacturer. It is the process where products in whole or in part are returned for appropriate disposal and recycling (Greve and Davies, 2010). In other words, it is that aspect of logistics that is concerned with: the return of products; reduction in source; refurbishment; recycling; replacement of materials; discarding of wastage; remanufacturing and repair among others (Stock, 2007).

However, reverse logistics is not only the reuse of ampoules or the reprocessing of packaging materials; it also involves restricting of eco-friendly processes lowering energy and pollution costs and optimizing usage of raw materials (Rogers and Tibben- Lembke, 1998). Under reverse logistics, resources usually tend to go at least one step backwards in the supply chain. The process is beneficial for a company in the light of it cross- functional dimension that stimulates efforts to enhance internal integration.

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Use of Reverse Logistics Today – Reverse logistics has evolved as an opportunity for companies to engender more revenue, establish distinguished market position and reinforce the demand for the original products (Rogers and Tibben- Lembke, 2002). In developed nations, reverse logistics has gained momentum in recent times. For example, in the USA, reverse logistics costs contribute nearly one percent of the GDP of the country (UPS, 2005). Consequently, reverse logistics is becoming a regarded key component of sales growth and a competitive strategy. It is essential to have a concrete outlook towards asset- recovery strategy. In a brand conscious market, returned goods, repairs and recycled products can have a substantial impact on brand image (Agrawal, 2012). Companies such as the third party logistics that is Honeywell technology solutions and JBS logistics can strive to shield their brand and do not want their products to be sold in secondary markets or in discount stores (UPS Supply Chain Solutions, 2005).

Reverse Logistics in FMCG Industry – Today customers have become very conscious and it is a challenge for the Fast- Moving Consumer Goods (FMCG) companies to meet up with the ever changing customer demands. FMCG sector functions with hung volumes and low profit margins. Therefore, it is imperative for the sector to be prompt not only in delivering products on time but also helping customers return the product they are dissatisfied with through effectual reverse logistics (Langley and Capgemini, 2010). With the aim of customers and corporate social responsibility, FMCG companies are emphasizing a lot on the reverse logistics to get back the defective and unsold products in order to dismantle, recycle and discard them in an appropriate and cost effective manner and thereby, improving customer service (Wipro, 2009).

Problem Statement

Reverse logistics is becoming important for companies largely because of the fact that their produce need to be properly disposed of in terms of dismantling, remanufacturing, reuse or recycling (Hill, 2002). The supply chain planning pertaining to reverse logistics of the products that have ended their product life needs to be environment friendly yet cost effective. Since business integration has been intensifying, businesses have become a set of integrated networks comprising of multiple partners that require highly effectual supply chain planning for raw materials, product delivery and reverse logistics. Organisations across industries are trying to develop suitable models of a closed- loop supply chain management in order to develop a reverse logistics system that focuses on waste management along with recycling and remanufacturing in order to maximum possible efficiency and profits (Ferguson, 2010).

Aim of Research

This study aims to examine the problems faced by organisations, particularly in the FMCG sector, in reclaiming products for recycling. There is a need for an effective model of reverse logistics that can help in overcoming the probable possibilities of shortages in the re- supply of components for recycling to the manufacturer in order to develop waste management systems that enable recycling of the reusable components and proper disposal of the waste products to avoid environmental hazards.

Research Objectives

This research is being undertaken with the intention of understanding the concept of reverse logistics and closed loop supply chain and establishing the reasons why companies in the FMCG sector should engage in reverse logistics and waste management. Special emphasis will be placed on FMCG sector. The study emphasizes the effective waste management of products at the end of their life cycles and how reverse logistics can help in this regard.
The specific objectives of the study are thus as follows:

  • To establish the need of reverse logistics with organisations
  • To evaluate the role of reverse logistics in the waste management system of organisations
  • To identify how FMCG organisations use reverse logistics; and,
  • To develop a model for effective waste management based on reverse logistics.

Brief history of the development of Reverse Logistics

Recycling and the reuse of products and components have been in existence for a while. From early ages, components or obsolete items with metallic parts were collected and recycled due to the high economic value of the materials involved. Many industries, from their primitive stages, started collecting scrap and spoilage of production and reusing it as raw materials for the same product or some other process (Dyckhoff, Lackes, and Reese, 2004).

In developed economies such as the US and the UK, reverse logistics was taken seriously when researchers started showing losses caused due to inefficient inward supply chain. The Reverse Logistics Executive Council of the US claimed that American firms are incurring a loss of billions of dollars just because of poor preparedness and ineffectual system for handling the reverse flow of products for multiple reasons such as defects, non- sale, obsolescence, warranty, and end of life among others. Reverse logistics was only recently added to the Supply Chain Operations Reference (SCOR) model, emphasizing its importance in the supply chain management as per the futuristic requirements (Schultz, 2002 cited in Dekker, Fleishmann, Inderfurth and Wassenhove, 2004).

Gradually, with changing dynamics of business processes and formats, reverse logistics and closed loop supply chain has been attracting the attention of business management significantly, because of growing environmental concerns of companies such as reuse of product and materials and recycling (Blumberg, 2005). This can be credited to the identification of enhancing value of the components and technology developed to cater to the products at the end of the forward supply chain and the influence of green laws, especially enforced in Europe.

Industrialization and urbanization generated the problem of eventual disposal of waste, junk and garbage in a manner that is not hazardous to the environment and human existence (Anonymous, 2005). This evolved as a joint responsibility of both the administration and business in form of corporate social responsibility. Technological advancements gave a tremendous boost to the technological waste that needs to be treated before disposal for an effective reverse logistics system. Reverse logistics as a separate entity and independent function was evolved over the last 20 to 30 years, modifying the conventional supply chain and springing an inward supply chain from its end (Blumberg, 2005).

After understanding the concept and evolution of reverse logistics, it is logical to comprehend the significant differences between conventional supply chain models, such as the forward logistics, and contemporary supply chain models, that is, the backward or reverse logistics.

Logistics and Reverse Logistics: Comparative Assessment

As stated earlier, reverse logistics is a recent concept as compared to the forward logistics. There is ample literature available on forward logistics. However, there is little literature available on the concept of reverse logistics and even less documented literature is available on the distinction between forward and reverse logistics. Logistics is often seen as an integral part of the supply chain that is responsible for the effective planning, execution and control of the flow of goods from the point of origin to the consumption that is, to the consumers (CLM, 1999 cited in Tibben- Lembke and Rogers, 2002). On the other hand, reverse logistics is the passage of goods or materials in the opposite direction with the intention of recreation of value or recycling the material or appropriate disposal of the goods (Rogers and Tibben- Lembke, 1999, 2001 cited in Tibben- Lembke and Rogers, 2002). The following are the major differences between forward and reverse logistics:

Forecasting of the volume of products: Demand forecasting is easier than estimating the return of products from the customers due to many reason such as defect, repair, replacement or disposal. Estimating sales is effectively done and forward logistics can be planned accordingly. However, it is very difficult to estimate how many units of the product shall return and for what reason. Forward logistics is proactive while reverse logistics is reactive. (Coughlan et al 2009; Farahani, Rezapour, & Kardar, 2011).

Cost of Shipping and Transportation: In forward logistics products are shipped in bulk quantities and therefore economies of scale can be attained through proper planning and execution. The movement of goods is from one to many. On the other hand, under reverse logistics, the products that are returned are dissimilar in nature and quantity is also not fixed, therefore, no economies of scale is possible and costs incurred are comparatively higher for reversal movement of goods. The movement of goods is from many origins to one destination ( Fleischmann et al., 1997 cited in Tibben- Lembkle and Rogers, 2002; Coughlan et al., 2009).

Product Quality: There is uniformity of quality and other attributes of the products that are moved through the channels of forward logistics. All products are homogeneous. While in reverse logistics, products of all sorts of quality and attributes come back through a variety of channels. Thus, a high cost evaluation process is required to evaluate each of the units that are returned in order to estimate the value that can be derived from it (Tibben- Lembkle and Rogers, 2002; Coughlan et al 2009).

Packaging of products: In forward logistics, apart from the goods damaged in transit, the goods are packed properly to avoid damage during transit. There is uniformity of packaging that facilitates easy stacking and storage of goods. While in reverse logistics, the products returned usually do not have complete packaging, even unsold products have tampered packaging at times. This makes shipping even more difficult and costly in case of return of products (Tibben- Lembke and Rogers, 2002; Coughlan et al 2009).


Clarity of Destination: In the case of forward logistics, destination of goods is clear cut, to retailer or industrial distributor while in case of reverse logistics, there are multiple destinations as the products returned need different treatment hence need to be shipped to various destinations (Tibben- Lembke and Rogers, 2002; Coughlan et al 2009).

RESEARCH METHODOLOGY

Introduction

In this section, the explanations of research strategy and research approaches used in this study are outlined and justified. The methodology is evaluated and justified as well as the strategies exploited in this research. The researcher then give details in questionnaire design and the data collection procedures applied in the research. Finally the method of sample selection is discussed.

Research Theoretical Framework

How do we define ‘’Reverse Logistics’’? In simple words it can be defines as ‘’Going Backwards’’. According to Rogers and Tibben- Lemke (Aug, 1998); reverse logistics can be defined as:‘’the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal.’’ Stock (1998) says that reverse logistics is about overall management of products in terms of ‘’product returns, source reduction, recycling, materials substitution, reuse of materials, waste disposal, and refurbishing, repair and remanufacturing.’’

Reverse logistics has been found to play an important role in almost any manufacturing firm, be it large scale or small scale, the range of product offered by them, or the geographical reach of the firm. The main reason for choosing the FMCG segment was that FMCG products are consumed on a higher scale with high frequency and therefore the importance of reverse logistics decision are also enhanced.

The main focus of this dissertation would be to find answers related to:
i)The need for reverse logistics today
ii)Usage and benefits of reverse logistics
iii)Reverse logistics for the FMCG industry

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Research Philosophy

Research Paradigm can be described as ‘’system of ideas or views used by the community of researchers to generate knowledge’’ (Higgs and Titchen, 1995; Guba and Lincoln, 1994). The three principal research paradigms are empirico-analytical or positivism, interpretative and critical research (Higgs and Titchen, 1995). Each of these paradigms can be used to view the world happening in different ways and also all of them involve different approaches to study the collected data.

Empirico-analytical or the positivism paradigm has its origins in natural science and has its roots in philosophical position. It relies on deductive logic which is a combination of observations and experiment or survey such as primary and secondary research. This helps in either refuting the common beliefs or confirming the laws laid down by previous researchers in order to make generalization about the given phenomenon (Neuman, 1994).

On the other hand interpretivism and critical research paradigms are used for qualitative research studies. They focus on seeking answers to the human actions and experiences and generating accounts of their meaning from the viewpoints of those involved. Interpretive methodologies focus on finding the meaning behind human action and experience while critical research involves ‘’advocating and becoming aware of how our thinking is socially and historically constructed and how this limits our actions, in order to challenge these learned restrictions’’ (Davidson et al, 1995; Higgs and Titchen, 1995; Newton et al, 2000; Rice and Ezzy, 1999; Tesch, 1990). In the present research study interpretive research paradigm is applied to describe the ‘’phenomenon’’ called reverse logistics, how it has been constituted in the community. Hence, the focus of this study was the common elements of subjective experience described by separate individuals who were interviewed.

Research design strategy

The next step in research requires systematic and rigorous design strategy, for the implementation of study, data collection, interpretation of data and reporting of results. Qualitative research helps in ‘’illuminating the subjective meaning, actions and context of those being researched’’ (Popay, Rogers and Williams, 1998).

The core purpose of designing research strategy is to authentically represent perspective of participants involved in the research process and also the findings should be coherent in terms of data collected and actual secondary research on which the study was conducted.

Since this research uses a qualitative research methodology it would allow flexibility in terms of gathering and interpretation of data. Qualitative research mainly involves working with small sample size so the study can be conducted in depth (Miles and Huberman, 1994).

Zikmund (2000) contends that qualitative research is conducted not to make any generalizations rather it is conducted to gain greater knowledge, better understanding of the phenomenon, concentrates more on findings the opinions, experiences and feeling of the participating individuals so that subjective data is produced. The questions in the qualitative research cater to how, why what, when of the phenomenon.

Data collection procedures

The present study utilises a qualitative approach in order to collect data; and involves three main methods. The resulting data will be transcribed and then analysed using one of the varieties of techniques for data analysis. The three main methods that are Focus groups interviews, direct observations, and In-depth interviews are explained below:

  • Direct Observations – Not all data collection approaches have to involve direct interaction with people. In this type of study, the researcher aims is to become part of population being studied in order to develop a detailed understanding of the values and beliefs held by the members of the population. The data can be collected by both external (non-participant observer) and internal observer (member of staff). This techniques can be used when data collection through other means has limited value or difficult to validate. A list of things which are to be observed is listed by the researcher or he/she can make notes about the topic on spot and analyse later. Observing the people about how they behave in real situations can give more reliable results than directly asking them. These observations can also serve as a technique to verify or nullify the information which was provided in face to face interviews (Saunders et al 2007).
  • In-Depth Interviews – Interviews are similar to focus group, but here subjects are interviewed individually, interviews in qualitative research is most commonly used technique as they are usually wide ranging and helping in probing details to a greater extent. Unlike quantitative research where the questions are predetermined, qualitative research encourages the respondents to express their opinions at length. Interviews can be highly structured, semi-structured and unstructured.

Since this research study is qualitative in nature, in-depth interviews were selected in the form of semi-structured interviews. Semi-structured interviews were selected because they tend to work well when the interviewer has already identified a number of aspects. There are many advantages and disadvantages of in-depth interview. Firstly, in such type of interview, interviewee can provide more detail answer regarding a specified question. Further, accurate and honest answer can be availed through this method.

However, in-depth interview also suffers from many disadvantages as well. It involves too much of time, due to which only small number of interview can take place. Further, it also becomes difficult for the researcher to compare the result of in-depth interview, as each one is of unique nature (Advantages and Disadvantages of Different Types of Interview Structure, 2010).

Conclusion

The research paper has tried to gather the basic concepts of reverse logistics management in FMCG sector and has also highlighted barrier and benefits of goods reverse logistics processes. The data for the secondary research was collected with the help of numerous articles, journals in order to understand the topic, formulate questionnaire for qualitative analysis, getting right people for participation in study and finally analyse the gathered data. The participants have been handling supply chain and reverse logistic operations for the last 10 years and were well versed with different operations related to reverse logistics. They indicated that reverse logistics is a very important part of any organisation these days as is operating every day. During the interview, it was revealed that their firm that specific reverse logistics strategies which help in better management of the returned products.

Reverse logistics is especially important in the FMCG sector where products are returned every now and then. Implementing good reverse logistics have different benefits like; it helps in maintaining green image for the organization, it reduces the costs and maximizes the profits, helps in optimal use of resources available without wasting the resources which are getting depleted, better consumer satisfaction, and improved customer loyalty, reduction in return process time.

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REFERENCES

Books and Journals

  • Blumberg, D., 2005. Introduction to Management of Reverse Logistics and Closed Loop Supply Chain Processes. Florida: CRC Press
  • Brito, M., Flapper, S., and Dekker, R., 2002. Reverse Logistics:A Review of Case Studies. Economic Institute Report.
  • Brown, H., Jong, M. and Lessidrenska, T., 2007. The Rise of the Global Reporting Initiative (GR1) as a Case of Institutional Entrepreneurship. Harvard University.
  • Chan, F. and Chan, H., 2008. A Survey on Reverse LogisticsSystem of Mobile Phone Industry in Hong Kong, Management Decision. 46(5). pp.702-708.
  • Collis, J. and Hussey, R., 2003. Business Research: A practical guide for undergraduate and postgraduate students. 2nded. Basingstoke: Palgrave Macmillan.
  • Coughlan and et. al., 9. Marketing Channels. 7thed. New Delhi: Dorling Kindersley.
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