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A framework for the role of warehousing in ReverseLogisticsShad Dowlatshahi aa Department of Marketing and SCM , The University of Missouri , Kansas City , USAPublished online: 06 Sep 2011.

To cite this article: Shad Dowlatshahi (2012) A framework for the role of warehousing in Reverse Logistics, InternationalJournal of Production Research, 50:5, 1265-1277, DOI: 10.1080/00207543.2011.571922

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International Journal of Production ResearchVol. 50, No. 5, 1 March 2012, 1265–1277

A framework for the role of warehousing in Reverse Logistics

Shad Dowlatshahi*

Department of Marketing and SCM, The University of Missouri, Kansas City, USA

(Final version received February 2011)

Reverse Logistics (RL) is the process of returning products from their consumer destination to capture theirvalue or proper disposal. This paper considers and analyses the current state of literature in warehousing.Warehousing, which is an operational factor in RL, has been analysed and evaluated in terms of the specificsubfactors associated with it. The research methodology used was exploratory case study research.The qualitative data were collected by use of two in-depth case studies chosen from two different industries.The analysis of the case studies resulted in the development of warehousing subfactors, propositions andinsights regarding RL operations. Based on these, a framework for effective design and implementation of RLoperations is provided. This framework determines the appropriate warehousing subfactors and how thereturn process of products/parts works. In conclusion, the managerial implications and future researchdirections are provided.

Keywords: Reverse Logistics; RL framework; warehousing; case study; exploratory case study research

1. Introduction

Reverse Logistics (RL) is the process by which products (e.g. end of life products) are returned from consumers orcustomer service centres for the purpose of gaining their value or planning for their proper disposal. The RL processis inherently a value added activity in which the values of previously shipped parts, materials and products arerecaptured. The RL system should be accomplished systematically and efficiently for the RL operations to beeffective. The RL operations, therefore, add significantly to the value chain by considering the reverse flow that iscapable of adding value to the products and generating a competitive advantage for companies.

RL activities could encompass retailers, manufacturers and service entities. RL has received a great deal ofattention from operations managers, as well as the highest level of company executives. RL has significanteconomic, environmental, managerial, regulatory and strategic implications for organisations that embark on it. RLcould open new markets that were not envisioned previously. Additionally, the nature of RL activities cuts acrossseveral functional areas such as marketing, operations, logistics, distribution and transportation. Other areas suchas finance and accounting, customer services, quality and reliability, purchasing and design/engineering could alsobecome heavily involved in the RL process. Due to RL’s interdisciplinary and cross-functional nature, as well as itsmany significant implications, this area presents a fertile and interesting research area in the field of Supply ChainManagement (SCM).

There are many estimates that highlight the significance of RL operations and its various facets. ManufacturingBusiness Technology (2007) estimated that up to $100 billion in products move through the RL pipeline each yearin the US. The average return rates can range from as low as 3% to as high as 40%, depending on the industry.Blanchard (2007) estimated that product returns cost US manufacturers and retailers $100 billion every year in lostsales, transportation, handling, processing and disposal. The author further stated that customer returns couldreduce a manufacturer’s profitability by an average of 3.8% and RL costs are nine cents of every sales dollar.Langnau (2001) stated that over the next few years, analysts have predicted that the average cost per product returnwould be $30–$35. Shear et al. (2003) noted that handling costs associated with product returns could reach $50 peritem and could be three times higher than outbound shipping costs. Robbins-Gentry (1999) stated that customerreturns were estimated at six percent of the overall sales and may be as high as 15% for mass merchandisers and upto 35% for catalogue and e-commerce retailers. Trebilcock (2001a) stated that across all retail operations, more than100 million parcel packages a year were returned at a total cost of more than $150 billion. Stock (2001) mentioned

*Email: shad@umkc.edu

ISSN 0020–7543 print/ISSN 1366–588X online

� 2012 Taylor & Francis

http://dx.doi.org/10.1080/00207543.2011.571922

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that RL costs in the US were about $35 billion per year, or 4% of total logistics costs. Min et al. (2005) stated thatthe cost of handling product returns usually comprises 4.5% of all logistics cost in the US. Bernon et al. (2009)stated that the total retail returns in the UK have been valued at 6 billion British Pounds a year. Some firms can seeas many as 30% of their products returned by customers.

1.1 Research questions, scope of the study, research methodology and organisation

The objective of the current study is to identify subfactors associated with warehousing that are necessary andcritical for effective design and implementation of RL operations through the use of case studies. The present paper,therefore, addresses two main research questions. First, what are the critical warehousing subfactors needed indeveloping effective RL operations? Second, how should a firm use these subfactors and the insights gained for themanagement and implementation of returned parts/products?

The scope of the study includes RL decisions as they pertain to warehousing of products in manufacturingcompanies (and not retailers, services or third party RL providers). Further, the focus of the current study is onwarehousing in RL. Products, for the purpose of the present study, are classified as hazardous or non-hazardous,mechanical or consumer goods and durable or disposable. Additionally, the scope of RL in this paper is onremanufactured products for manufacturing entities for which the returned products constitute a part of theiroverall business.

The research methodology utilised in this study is ‘exploratory case study research’. This study is applied and thecase studies are exploratory where a number of propositions are formulated and evaluated. For further study incase-study-based research, see Yin (1993, 1994) among many other references.

The current paper is organised into five sections. Section 2 presents the review of literature regardingwarehousing within the RL context. The case studies and the research plan are presented in Section 3. Thequalitative analyses of the cases are presented in Section 4. This section includes the development of the subfactorsfor warehousing, detailed propositions and the insights gained. The results, the framework for design andimplementation of RL operations, the managerial implications and the future research directions are presented inSection 5.

2. Literature review

The current study focuses on the role of warehousing that is necessary in the understanding of overall RL systemsand their implementation. This focus does not exist in the available literature. The present study has conducted areview of literature to identify common themes in warehousing that many practitioners and academicians view asessential for designing and implementing RL systems.

The re-entry of products/parts in an RL system redefines and restructures traditional warehousing functions andoperations. Warehousing serves a dual function in forward and reverse logistics. The duality of functions means thatwarehousing facilities must be capable of both shipping finished products (forward logistics) and receiving returnedproducts/parts products (reverse logistics). The utilisation of existing warehousing capabilities such as storage space,labour, equipment and operational methods can significantly enhance the effectiveness of the RL system. The reviewof literature in warehousing is classified into five broad categories.

2.1 The new role and function of warehousing in RL

Harrington (1998) discussed the new role of the warehousing function. The author stated that a warehouse is notfor just storing goods. It is to handle integrated flow processes within a company’s internal supply chain.Manufacturing Business Technology (2007) clearly focused on the level of coordination required for after-salesactivities. One major area mentioned was the role of warehousing in RL. Schwartz (2000) stated that controlling thematerial flow of returned items, by careful space planning inside the warehouse, is one of the key components toexecuting an RL program. Trebilcock (2002a) stated that warehousing systems should provide visibility andfunctionality in order to reduce the risk of higher inventory carrying costs and obsolescence. Larson andGammelgaard (2001) considered warehousing to be one of the three main logistics functions. The other twofunctions were transportation and inventory. Rouwenhorst et al. (2000) discussed various aspects of warehousingdesign and models from strategic, tactical and operational standpoints. The authors focused on the design-oriented

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studies as opposed to focusing on optimising isolated sub-problems in warehousing. Brockmann (1999) stated thatthe warehousing function would continue to be a dynamic function. The author further cited the 21 trends thatwould take the warehousing industry into the next century. The first of these 21 trends was focusing on thecustomer. Three of these trends were related to warehousing. Hurdock (2000) focused on total operations ofwarehousing and outlined 10 twenty-first century warehousing trends. The author indicated that warehousing stillprovided an important link between customers and suppliers. Baker and Canessa (2009) focused on a comprehensiveand systematic method of designing warehouses. This work generated a general framework of steps needed forwarehouse design. Each step contained specific tools and techniques. Field (2007) cited the new study by AmericanProduct Quality Center (APQC) which showed that warehouse management was one of the five high-level ProcessClassification Frameworks. Peterson et al. (2005) stated that the demands on warehousing have changedsignificantly in the past few years. In order to meet this challenge, warehouses have become more concerned withproper slotting and storage techniques. This paper further evaluated the slotting measures and storage assignmentstrategies.

2.2 Warehousing technologies, operations and procedures

Caldwell (1999) and Cooke (1997) focused on the importance and advantages of using computer technology andproprietary software to manage the process of handling returned goods in warehouses. The authors cited a companythat used to take months to sort shipments that came through its warehouse. This practice has now been reduced tominutes. Witt (1995) focused on the significant impact that technology has on warehousing operations. The centraltheme, according to the author, is the movement of information instead of the movement of products. Del Franco(1999) suggested the use of an automatic identification system. The author further encouraged the use of bar codescanners and Radio Frequency Identification (RFID) tags. Lee and Chan (2009) proposed an RFID-based reverselogistics framework and optimisation methodology for the collection points of returned items for remanufacturingand recycling operations. The RFID technology was used to count the quantities of the returned items in thecollection centres. The RFID signals were then transferred to a central processing centre. Lee and Park (2008)discussed the traceability issues associated with the use of RFID in supply chains that goes beyond simpledistribution channels. The authors concluded that the existing RFID data management scheme had to be modifiedin order to provide end-to-end traceability.

Zikopoulos and Tagaras (2008) also considered the effectiveness of sorting procedures characterised by limitedaccuracy just before disassembly and remanufacturing of used products. The author further developed a two-levelreverse supply chain with a remanufacturing model. Del Franco (1999) stated that having the right equipment andenough of it is essential for warehousing operations. Peterson (2002) focused on faster delivery of small and morefrequent orders of inventory at a lower total cost. The author proposed zone picking as an efficient way of dealingwith warehousing procedure. Zone picking, according to the author, required that a worker only pick thoseStock-Keeping Units (SKUs) stored within their picking zone. The results showed that the size or storage capacityof the zone, the number of items on the pick list and the storage policy had a significant effect on picking zoneconfiguration. Salema et al. (2006) proposed a Mixed Integer Linear Programming model for the design of an RLnetwork based on a warehouse location/allocation. The model was intended to simultaneously optimise the forwardand reverse networks.

2.3 Warehousing costs

Muroff (1993) outlined the hidden costs associated with operating warehouses as they relate to RL or othervalue-added services. The author noted that 80% of warehouses in the United States lose some money in theeffective and efficient utilisation of the resources in their warehousing system. Moynihan and Padmanabhan (2006)stated that any logistics strategy requires the minimisation of the costs of transportation, warehousing, inventoryand order processing, while achieving the desired level of customer service. This work developed a prototypedecision support system, which was used to perform profitability analyses for individual logistics customers. Varilaet al. (2007) examined the applicability of different drivers for assigning activity costs to products in a warehouselogistics environment for an electronics wholesaler. The findings showed that there might be significant variations inactivity costs that cannot be traced with any single transaction-based driver.

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2.4 The use of third party (3PLs) and newer trends for warehousing

Trebilcock (2002b) and Byrne (2006) stated that the use of in-house warehousing versus outsourcing thewarehousing function continues to be a challenge for RL operations. The authors seem to suggest that the trend istoward third party and public warehouses. The authors further stated that warehousing, due to its nature, cutsacross several different functions in many organisations. Also, Murphy (1986) stated that private warehousing waspopular for RL due to its convenience and reliability. De Koster and Warffemius (2005) presented a case of 3PLinternational warehousing operations. The authors stated that outsourced warehouse operations had a higherpercentage of error-free deliveries and were more flexible than in-house warehousing operations. Meade and Sarkis(2002), without focusing on warehousing, presented a model of selecting a third-party partner for a function of theRL system. The authors stated that the factors that play an important role in selecting a third-party RL providerdiffer from some traditional factors for supplier selection. Kannan et al. (2009) proposed a structured, Multi CriteriaDecision Making (MCDM) model for evaluating and selecting the best third-party RL provider using thefuzzy-technique.

Feng (2006) cited an increasing number of manufacturers that outsource more traditional activities liketransportation or warehousing to third-party logistics providers for a variety of value-added services related to RLactivities. Anonymous (2008) listed 50 leading 3PL-warehousing providers, identified by the editors of FoodLogistics, that service the food industry alone. Min and Ko (2008) stated that a growing number of 3PLs have begunto explore the possibility of managing product returns in a more cost-efficient manner. Foulds and Luo (2006)investigated four leading 3PL companies in New Zealand. Production transformation and reverse logistics (witha focus on warehousing) were the most commonly offered services. The authors also stated that third-partywarehousing providers were utilising new value-added services.

Vinay et al. (2009) discussed the novel trends (Fifth Party Logistics Providers [5PLP] and Seventh Party LogisticsProviders [7PLP]) in logistics outsourcing. The 5PLP focuses on the realisation of the full-fledge e-procurement.Another function of 5PLP could be combining the demands of the 3PLs into an aggregated demand. Accordingto the authors, the 7PLP is the combination of 3PLs and 4PLs with a focus on information technology andmacro-strategic consulting. The authors further cited the benefits of 3PLs. The authors also, by citing EconomicTimes (2003), stated that 3PLs are 57% of the total logistics operations in the US, 40% for Europe, 80% for Japan,but less than 10% for India.

2.5 General and miscellaneous literature in warehousing

Additional supporting literature include: Gorman (2009), Buxey (2006), Nilsson and Darley (2006), Quinn (2005),Trebilcock (2004), Greve (2003), Cruz (2001), DiMaggio (2000), Fleischmann et al. (2001), Hickey (2001), Krizner(2001), Trebilcock (2001b), Trebilcock (2002c), Whalen (2001), Aichlmayr (2000), Freese (2000), Brockmann (1999),Stock (1998), Young (1996), Andel (1995), Dawe (1995), Thierry et al. (1995) and Witt (1995). The details of thesereferences are available from the authors. These references indicated that the various warehousing functions andresources (whether they were provided in-house or from third-party warehousing providers) were essential for RLoperations.

3. Case studies and research plan

The case methodology used in the current paper is an exploratory case study in which a number of propositions areevaluated. Although a single case study is suitable for this study, two companies, an automobile electroniccomponents company (Co. 1) and a medical instrument manufacturer company (Co. 2), were selected for anin-depth analysis and evaluation of the propositions. Co. 1 produces incandescent light bulbs, batteries, steeringgears, radiators, wire harnesses, generators, instrument panels and catalytic converters. Co. 2 produces standardisedand customised Intravenous (IV) Start Kits, Central Venous Catheter (CVC) Kits and various other procedural kitsfor patient care.

For the owners of older automobiles in need of repair, a remanufactured part can represent a lower-cost,lower-risk alternative to a new part. Compared to buying a new part, the remanufactured part also representsa potential benefit for the customer who pays less, the manufacturer who earns more, and the environment, as fewernew resources are consumed. According to Seitz and Peattie (2004) Americans buy approximately 60 millionremanufactured automotive parts annually. De Poortere (2003) also estimated the aftermarket share of

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remanufactured power steering racks and air-conditioning compressors to grow from 30–80% from 2003–2008.Furthermore, medical instruments, which are usually very costly and are typically designed for a single use, are goodcandidates for remanufacturing operations. The findings by Heese et al. (2005) in a medical instrument companysuggested that by taking back and reselling refurbished products, a manufacturer could increase both profit marginsand sales to the detriment of a non-interfering competitor.

These two companies represent different sizes, products produced, nature of operations and external competitivefactors. These two companies also represent two major companies/industries that are engaged in RL as a secondarypart of their overall business. Each case study was treated as a separate self-contained experiment. More detailedinformation about these two companies is presented in Appendix I.

The plan for a case study experiment follows the suggested guidelines developed by Ellram (1996). Theinformation gathered regarding the RL warehousing practices of these companies was based on extensiveobservations, structured interviews with a number of employees and supervisors, archival records and companydocuments. The companies required strict confidentiality in supplying various case data. The details of the casestudy experiments are presented Appendix II.

4. Formulations and evaluations of warehousing subfactors

The use of exploratory case study research in this paper is intended to verify relevant theory of RL. In order toeffectively verify RL theory, the following steps are followed:

(1) Review literature. A review of the existing academic and practitioner literature was conducted (seeSection 2). Although some of the references were based on mainstream non-academic journal articles, theyrepresented relevant personal experiences, cases and experiments that are highly useful in the developmentof a conceptual framework for RL. These references represent our knowledge and the current state of theoryin RL regarding warehousing.

(2) Conduct case studies and identify warehousing subfactors. In order to expand our understanding of RL andin order to gain insight as to the RL practices in warehousing, an in-depth analysis of case studies isconducted. To do so, several subfactors for warehousing are identified as a result of the case study analysis.These subfactors are discussed within the context of Co. 1 and Co. 2 practices of RL in warehousing.

(3) Develop propositions. Based on the development and evaluation of the subfactors and the knowledge andinsights gained from the case studies, a proposition for each warehousing subfactor is developed andpresented.

(4) State the insight gained. Finally, the overall insights and perspectives gained as a result of developing thewarehousing propositions and case studies are presented.

The following subfactors are developed as result of in-depth analysis of the case studies for warehousing in RL.

4.1 Use of existing warehouses

The use of an existing warehouse for returned items appears to be a prerequisite for the successful design andimplementation of RL. This is consistent with the strategic utilisation of a firm’s existing resources. If the existingwarehouse is not sufficient, then private warehousing as a popular substitute could provide warehousingconvenience and reliability. The returned items were received and stored at a remanufacturing warehouse facilitythat was separate from Co. 1’s virgin product warehouse. Although Co. 1 realised that utilising existing facilities wasan important factor in reducing costs and facilitating operations, a decision was made to utilise additionalwarehouse space because of the full-disclosure issue. Co. 1 had a legal responsibility to fully disclose that a generator(the main remanufactured product for Co. 1) had been remanufactured. Co. 1 used the warehousing source as amechanism to disclose the nature of the remanufactured product. Co. 2 used designated warehouse space within theexisting warehouses in order to accommodate the bins of returned items. This subfactor was verified for Co. 2 butnot for Co. 1. Based on the above subfactor evaluation and validation for warehousing, the following proposition isdeveloped:

Proposition 1: The effectiveness of a warehousing system in RL is positively related to and largely determined by thefull use of existing warehousing functions and facilities or the effective use of third party warehousing providers.

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4.2 Use of current warehousing methods, equipment and technologies

The use of these methods, equipment and technologies facilitates the efficiency and the proper functioning of thewarehousing system. Co. 1 had to duplicate most warehousing methods and equipment, and had to be responsiblefor higher inventory carrying costs associated with the use of a separate RL warehouse. Co. 2’s existing warehouseequipment and machinery were used to handle and store the returned items. The full utilisation of the availableresources and methods of the current warehouses was made for Co. 2 in order to minimise the warehousing cost.This subfactor was verified for Co. 2, but not for Co. 1. Based on the above subfactor evaluation and validation forwarehousing, the following proposition is developed:

Proposition 2: The effectiveness of a warehousing system in RL is positively related to and largely determined by theuse of current warehousing methods, equipment, technologies and the proper utilisation of operational capabilities inwarehousing.

4.3 Improvements in warehousing layout and storage space

The layout of warehousing becomes important from two standpoints. First, the layout should provide a physicalseparation of virgin and RL items. Second, the layout should increase the efficiency, productivity and workability ofthe warehousing operations (even with limited available space) given the additional demand placed upon it by theRL operations. Co. 1’s warehouse layout was designed in order to facilitate the remanufacturing operations. Theremanufacturing warehouse was about 2.5 times smaller than the virgin product’s warehouse. Co. 1 still enjoyedexcess warehouse capacity. This was because Co. 1’s industrial customers usually held about two days worth of theinventory of generators in their facilities before shipping them to Co. 1. Some improvements and changes in Co. 2’swarehouse layouts were made in order to accommodate the two standpoints stated above. This subfactor wasverified for both companies. Based on the above subfactor evaluation and validation for warehousing, the followingproposition is developed:

Proposition 3: The effectiveness of a warehousing system in RL is positively related to improvements in warehousinglayout and storage space for the physical separation and yet the compatibility of the virgin and returned items.

4.4 Total costs of inventory

Understanding the total costs of inventory and the breakdown of the costs associated with virgin and RL operationsis important. This not only determines the proper allocation of costs, but also partially determines the effectivenessof the warehousing operations. Having industrial customers hold generators at their facilities reduced the amount ofinventory (and the cost) that Co. 1 maintained in its warehouse. Total inventory cost for Co. 2 was increased due tothe type and number of items held as well as the additional cost incurred to physically separate the returned andvirgin items. This increase was, however, proportional to and compatible with the increase in volume of items storedin the warehouse. It was also estimated that the additional inventory and warehousing costs at Co. 2 were minorcompared with the cost of capital for establishing a new remanufacturing warehouse. This subfactor was verified forboth companies. Based on the above subfactor evaluation and validation for warehousing, the followingproposition is developed:

Proposition 4: The effectiveness of a warehousing system in RL is positively related to the ability of the firm to dividethe total inventory costs in terms of detailed, timely, accurate and relevant inventory costs for virgin and returned items.

4.5 Identification of the location of remanufactured parts

As stated before, the identification and separation of items is essential not only for the integrity of virgin and RLoperations but also for the customers who purchase these products. It is also important for the remanufacturedparts to be accessed easily and without spending too much time and effort. Co. 1’s customers could distinguishbetween the virgin and the remanufactured generators by the identification of Co. 1’s source of the warehouse andpackaging. Since the bins containing the returned items were clearly marked and coloured, the remanufacturedproducts could easily be distinguished from Co. 2’s virgin products. This subfactor was verified for both companies.

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Based on the above subfactor evaluation and validation for warehousing, the following proposition is developed:

Proposition 5: The effectiveness of a warehousing system in RL is positively related to the ease of locating, identifyingand having accessibility to remanufactured parts and being able to properly retrieve and use the returned items.

4.6 Insights for warehousing in reverse logistics

The insights gained as a result of the development and evaluation of warehousing subfactors indicate that there-entry of products/parts into an RL system redefines and restructures traditional warehousing functions andoperations. The duality of functions means that warehousing facilities must be capable of both shipping finishedproducts and receiving returned products/parts.

The two main insights include: First, a comprehensive consideration and evaluation of all relevant warehousingresources, functions and activities is essential in facilitating the storing and retrieving activities and in reducing thewarehousing costs. Second, the distinction between inbound and outbound flow of parts and products is essentialfor the proper functioning of the overall warehousing operations. This separation does not necessarily imply that thewarehouse is totally divided into two separate entities. In fact, the compatibility of warehousing operations is moreimportant than the physical separation of virgin and returned items.

5. Conclusions and assessment of the results

Many of the subfactors associated with warehousing were considered and verified for Co. 1 and Co. 2 (see Table 1).Both companies considered the majority of the subfactors selected and evaluated in the current study as importantand essential subfactors for their warehousing operations. Both companies generally understood the importance androle of warehousing in their RL operations. Co. 2 showed that it was more proactive and innovative in its RLprocess than Co. 1 in terms of warehousing operations. Co. 1, on the other hand, was more reactive to warehousingoperations.

Three of five subfactors were verified for Co. 1, whereas five of five subfactors were verified for Co. 2. The twosubfactors that were not verified for Co. 1 were more significant in the degree of importance and impact onwarehousing cost and operations than the other three that were verified. Co. 1 partially understood the significanceof these two subfactors, although it believed that it was unable to make major changes in its warehousing system.Co. 2, on the other hand, fully understood the importance and the role of warehousing in its RL operations.

5.1 A framework for design and implementation of Reverse Logistics

An integrated approach to the design and implementation of RL is a necessity (Fleischmann et al. 2001). Thisapproach is contradictory to a piecemeal approach. According to Stock (1998), this integrated approach should bemapped or flow-charted. This approach is also useful with the planning, designing, implementing and controlling of

Table 1. The results of the proposition evaluation for Co. 1 and Co. 2.

Subfactor considered Result of subfactor evaluation for Co. 1 Result of subfactor evaluation for Co. 2

Use of existing warehouses,Proposition 1

This subfactor was not verified This subfactor was verified

Use of current warehousing methods,equipment and technologies,Proposition 2

This subfactor was not verified This subfactor was verified

Improvements in warehousing layoutand storage space, Proposition 3

This subfactor was verified This subfactor was verified

Total costs of inventory, Proposition 4 This subfactor was verified This subfactor was verifiedIdentification of the location of rema-

nufactured parts, Proposition 5This subfactor was verified This subfactor was verified

Summary of Results Three of five subfactors were verified Five of five subfactors were verified

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all RL activities. The integrated framework in Figure 1 is developed based on the literature review, the analysis

of case studies, the subfactor development and the propositions formulated. The framework provides for the

understanding of the relevant subfactors and their interrelationships for the design and implementation of RL with

regard to warehousing.It is assumed that the returned products/parts reenter the manufacture’s facility (see decision point A in

Figure 1). In Figure 1, first priority is given to the design and implementation of other relevant and important

operational factors preceding the warehousing function (see decision point A in Figure 1). These operational factors

include customer service, cost/benefits analysis and inbound transportation. The discussion of these operational

factors is out of the scope of this study. If these important operational factors are not met, the decision point B

allows for a company to re-examine and correct any deficiencies associated with these operational factors. Thiswould allow for the RL process to continue.

The first decision point focuses on the use of existing warehouses for remanufacturing operations. It is essential

for current warehousing resources (used for virgin products) to be utilised for remanufacturing products as well.

Figure 1. The role of warehousing in RL.

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The utilisation of existing warehousing capabilities such as storage space, labour, equipment and operationalmethods can significantly affect the success of the RL system. If these warehousing resources are not suitable, then agenuine attempt must be made to correct the problems (see decision point B in Figure 1). If the existing capabilitiescannot be made to be accommodating or be expanded (e.g. third party or private warehousing) at a reasonable costto satisfy the requirements of an RL system, then the process may be terminated at this stage.

The second warehousing decision point poses a similar question regarding the use of warehousing methods,equipment and technologies. These are important issues requiring the attention of the RL designer. The lack ofavailability of these resources could jeopardise RL operations. Given that the remanufactured prices of manyproducts have to be lower than those of the virgin products, it is essential that the existing warehousing resources beused to their fullest potential.

The third decision point focuses on the adequacy of storage space and layout requirements for the warehouse.In many cases, the physical separation of remanufactured products and virgin products is critical. A lack ofavailable space could necessitate the use of a new or third party warehousing facility. The cost of the new facilitycould be prohibitive. If the current layout and space requirements are not adequate or the necessary improvementscannot be made, the RL process might also terminate at this stage.

Once the main decision points are addressed, two action points follow. The total cost of inventory and theoverall costs of warehouse operations for remanufactured products need to be calculated. These cost figures need tobe detailed, relevant and as accurate as possible. Clear distinctions must be made between costs associated withvirgin warehousing operations and costs associated with remanufactured warehousing operations. This is essentialin the proper determination of the remanufactured costs and the eventual prices. If these costs are not available orcannot be determined, the RL success or its profitability cannot be accurately determined.

The last action point for the warehousing operations pertains to the ability of the firm to identify the location ofremanufactured parts and products. This is an essential function from many standpoints. These could includeproduct integrity, legal requirements, east of part retrieval and the allocation of proper costs.

The last decision point is decision point C in Figure 1. This decision point in the RL process focuses on theoperational factors of product redesign, remanufacturing, packaging, and outbound transportation. These areimportant operational factors that must be addressed for the RL process to be successful. The discussion of thesefactors is out of the scope of the current study.

5.2 Managerial implications

Figure 1 provides the building blocks for an optimal and logical progression of RL activities with focus onwarehousing. It also allows for an RL process to be terminated or continued when one or more factors are not fullyor partially met. Figure 1 not only summarises the key subfactors and components of warehousing in RL, but it alsoprovides guidelines for managers as how to use and apply the operational subfactors in warehousing.

The findings, insights gained, the propositions and the framework not only advance our current understandingof RL, but also they provide specific managerial guidance for design and implementation of RL systems from theoperational point of view for warehousing. Academic researchers and practitioners alike could rely on this study asit represents the integrated design and implementation of RL where a set of warehousing subfactors was considered.

The framework is driven by customer needs and requirements. Therefore, the framework is not time, industry orcustomer specific. It could be applied to different industries and companies at different time frames.

The framework allows for adjustments and changes necessitated by different industries and the nature of theproducts remanufactured or recycled. In other words, certain features of the framework could be changed oradjusted in order to provide flexibility for users of the framework. These adjustments could be made for the type ofindustry, the nature of RL operations, company size, the presence of regulatory and environmental issues, etc. As anexample the size of certain products returned and the status of their return from certain industries require differentstorage and handling. These could affect such factors as warehousing layout, the use of warehousing methods, etc.If the items stored are hazardous or perishable, these might require additional or different warehousing proceduresand operations.

The framework and insights developed here are compatible and complimentary with the strategic factors andrequirements of RL system design. For an example see Dowlatshahi (2005). The cases selected represent two majorindustries engaged in RL. The results, therefore, within the context of exploratory case study, could be furtherevaluated and applied to similar or different settings.

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5.3 Future research directions

In light of the findings of this paper, the following areas for future research are presented.The role of technology in warehousing operations could be explored further. The technological advancement

in warehousing operations could significantly change many of the existing warehousing paradigms. The role ofinformation technology, computer systems and the Internet should be considered within the larger technologicaladvancement. The concept of the paperless warehousing system could also be investigated as a vehicle for dealingwith returned items.

Also, there have been many new innovations in the area of warehousing. These innovative techniques should beexplored further. Integrating warehousing operations within the broad context of Enterprise Resource Planning(ERP) and an SCM system is an important area of future research. This is important as warehousing functionsbecome integrated within a larger ERP system. Also, the role and implications of RFID in warehousing operationsrequire further evaluation and research.

The role of third-party providers in the area of warehousing has gained much importance. Third-partywarehousing providers and their implications on cost, service and efficiency of warehousing operations can beexplored further. The future trends in 5PLPs and 7PLPs as they pertain to warehousing in RL should be exploredfurther as well.

The uncertainty and incomplete information associated with the flow and the rate of retuned items can affectmany aspects of the RL operations. The warehousing operation is no exception. The impact of these uncertaintiescan be further explored on the actual RL warehousing operations and procedures.

We could also explore how the results of this research can be changed if we use service organisations and retailersas opposed to manufacturing as the scope of the research.

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Appendix I

Co. 1 has successfully decentralised its purchasing. Purchasing has assisted Co. 1 with regard to supplier selection, evaluation andsources of supply for remanufactured parts. Co. 1 conducts a strategic product evaluation utilising a cross-functional team. Co. 1was selected for this case study because the automotive industry is a mature industry that must capitalise on new and innovativeways (e.g. RL) to gain a percentage of the market share in a competitive environment. Since the majority of Co. 1’s supplier baseis located nearby and because of the nature of its mechanical (durable) products, Co. 1 is a favourable candidate forremanufacturing or reusing. Co. 1’s products, for the purpose of this case study, include automobile and farm equipmentgenerators (the main remanufactured product for Co. 1). Co. 1 is the Original Equipment Manufacturer (OEM) for 30% of thegenerators marketed in the US.

Co. 2 was chosen for this case study because it is a smaller company that operates in a heavily regulated industry.The maintenance of product quality and the Food and Drug Administration (FDA) standards are essential in Co. 2’s operations.Co. 2 encourages single sourcing but has experienced some adverse results in supplier reliability in terms of timely deliveries.A major challenge facing Co. 2 is developing sources of supply for its new products that require foam and plastic parts. Co. 2 usesa cross-functional team for sourcing as well. Its sales representatives are located throughout the US. Co. 2’s products consideredfor RL were procedural kits including intravenous (IV) and Central Venous Catheter (CVC) kits.

Appendix II

The warehousing case data gathered about the companies were based on extensive observations of RL operations and activitiesby the authors, on-site interviews, archival records and company documents. Some of the records accessed included customerservice records, cost accountant records, various operational costs documents, warehousing cost figures, landfill cost reports,remanufacturing cost reports, etc. The interviews were semi-structured based on the final interview protocol. The questions werenot directly read from the interview protocol. The questions were posed in a conversational format (at times with an open-endednature). This provided an opportunity for the respondents to go beyond merely responding to the questions. The data collectionwas conducted within the span of six months for each company. No phone interviews were held. The companies agreed to makeavailable their sources of the data with strict confidentiality.

In terms of the pilot study, three university academicians and two RL practitioners participated in the pilot study. With theseindividuals’ assistance, the final interview protocol was developed. The pilot study participants were not connected to thecompanies targeted for this study. These individuals made valuable changes and provided corrections to the original interviewprotocol. The interview protocol was designed to be easy to read, understand and respond to.

The interviewees were the employees and supervisors at Co. 1 and Co. 2. They were all familiar and involved withwarehousing and RL operations at their respective companies. A conversational/informal manner was used to solicit informationregarding the nature and various aspects of the interview protocol from the interviewees. Also, the respondents were offered fullanonymity. Respondents were chosen based on their positions in the companies’ organisational chart and their positiondescriptions. Some of these positions included customer service manager, warehouse manager, RL coordinator, remanufacturingoperations manager and cost accountant. The questions were posed to at least two individuals in the same company who hadfirst-hand knowledge of the subject and were, therefore, able to answer the questions properly. Many interviews, with thesubjects, were held on a one-to-one basis. There were a total of 14 interviews conducted with Co. 1 and 12 interviewed conductedwith Co. 2. The duration of each interview ranged from 30 minutes to two and a half hours. In all, it took nearly six calendarmonths to conduct the case studies and to obtain and tabulate the case data.

With regard to interview coding, two tactics were used to record information. One was to take verbatim notes during theinterview. Second, when a tape-recorder was used, the relevant information was transcribed after the interview. When possible,relevant and related information was classified into case headings.

In terms of content validity, three university academicians and two practitioners were specifically asked to check for contentvalidity of the interview protocol. The interview protocol was based on the literature review and the knowledge of theinterviewers. The basic theme of the questions was on warehousing issues as well as related RL activities. The content validitywas established when the domain of the concept (the warehousing analysis of RL) was made clear in the pilot study and the

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academicians and practitioners determined whether the measure used fully represented the domain. The qualitative, yet strong,content validity was established by grounding the questions on the current state of literature review in RL.

The data obtained were crosschecked for reliability purposes. Whenever inconsistent results were obtained, additionalindividuals were interviewed or additional company information or documents were sought in order to reconcile the inconsistentresults. At no time was information deemed to be inaccurate, inconsistent or unverifiable elsewhere used in the analysis.The percentage agreement score was used to determine the reliability of the data. The percentage of data eliminated did notexceed 7% and 5% of the total amount of data obtained from Co. 1 and Co. 2 respectively.

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