This article was downloaded by: [134.208.103.160] On: 08 April 2014, At: 02:52Publisher: Institute for Operations Research and the Management Sciences (INFORMS)INFORMS is located in Maryland, USA

Interfaces

Publication details, including instructions for authors and subscription information:http://pubsonline.informs.org

Developing a Theory of Reverse LogisticsShad Dowlatshahi,

To cite this article:Shad Dowlatshahi, (2000) Developing a Theory of Reverse Logistics. Interfaces 30(3):143-155. http://dx.doi.org/10.1287/inte.30.3.143.11670

Full terms and conditions of use: http://pubsonline.informs.org/page/terms-and-conditions

This article may be used only for the purposes of research, teaching, and/or private study. Commercial useor systematic downloading (by robots or other automatic processes) is prohibited without explicit Publisherapproval. For more information, contact permissions@informs.org.

The Publisher does not warrant or guarantee the article’s accuracy, completeness, merchantability, fitnessfor a particular purpose, or non-infringement. Descriptions of, or references to, products or publications, orinclusion of an advertisement in this article, neither constitutes nor implies a guarantee, endorsement, orsupport of claims made of that product, publication, or service.

© 2000 INFORMS

Please scroll down for article—it is on subsequent pages

INFORMS is the largest professional society in the world for professionals in the fields of operations research, managementscience, and analytics.For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org

Copyright � 2000 INFORMS0092-2102/00/3003/0143/$05.001526–551X electronic ISSN

TRANSPORTATION—FREIGHT/MATERIALS HANDLINGENVIRONMENT

This paper was refereed.

INTERFACES 30: 3 May–June 2000 (pp. 143–155)

Developing a Theory of Reverse Logistics

Shad Dowlatshahi Division of Business AdministrationHW Bloch School of Business and Public

AdministrationUniversity of Missouri-Kansas CityKansas City, Missouri 64110-2499

Reverse logistics, a fairly new concept in logistics, has gainedincreasing importance as a profitable and sustainable businessstrategy. I describe a holistic view of reverse logistics and dis-till 11 insights for successful implementation of reverse logis-tics from the existing literature and published case studies. Thestrategic factors consist of strategic costs, overall quality, cus-tomer service, environmental concerns, and legislative con-cerns. The operational factors consist of cost-benefit analysis,transportation, warehousing, supply management, remanufac-turing and recycling, and packaging. Insights about these fac-tors together form the state-of-the-art knowledge about thekeys to successful design and use of reverse-logistics systems.

Reverse logistics is a process in whicha manufacturer systematically ac-

cepts previously shipped products or partsfrom the point for consumption for possi-ble recycling, remanufacturing, or dis-posal. A reverse-logistics system incor-porates a supply chain that has beenredesigned to manage the flow of prod-ucts or parts destined for remanufactur-ing, recycling, or disposal and to use re-

sources effectively. Reverse logistics hasreceived a great deal of attention fromoperations managers and company execu-tives. The issues surrounding functions,channels, differences between forward andreverse operations, cost, and other generalinformation about reverse logistics havebeen described by Kopicki et al. [1993],Pohlen and Farris [1992], Sarkis [1995],Stock [1992], and Thierry et al. [1995].

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 144

Reverse logistics is practiced in manyindustries, including those producingsteel, commercial aircraft, computers, au-tomobiles, chemicals, appliances andmedical items. Companies that have prac-ticed reverse logistics include BMW, Del-phi, DuPont, General Motors, Hewlett-Packard, Storage Tek, and TRW. Thierry etal. [1995] report that reverse logistics iswidely used in the automobile industry. Itprovides automobile firms with far-reaching cost and strategic advantages in ahighly competitive industry. BMW’s stra-tegic goal is to design a “totally reclaim-able” automobile by the 21st century. Itsobjective is to recover, recondition, andthen reuse all parts [Giuntini and Andel1995a]. The effective use of reverse logis-tics can help a firm to compete in its in-dustry, especially when confronting in-tense competition and low profit margins.

For a variety of economic, environmen-tal, or legislative reasons, product disposalmay no longer be the consumer’s responsi-bility as products come to be recycled orremanufactured by the original manufac-turers. Increasingly, stringent environmen-tal and packaging regulations are forcingcompanies to become more accountablefor residual and final products, long afterthey sell the products. Fewer products willbe disposed of as firms investigate theirreusability, remanufacturability, andrecyclability.

Fewer disposed products can benefitcompanies and the environment [Phelan1996]. Conceptually, reverse logistics canpromote alternate uses of resources thatcan be cost effective and ecologicallyfriendly by extending products’ normallife cycles [Melbin 1995]. From design

through manufacture to consumer, firmsshould explore and integrate reverse logis-tics as a viable business option in theproduct life cycle. By using reverse logis-tics, they can achieve the goals of sustain-able development. Within reverse logistics,maintaining the environment and makingprofits are actually complimentary. Re-verse logistics focuses on both environ-mental and economic goals. The effectiveimplementation of reverse logistics doesnot preclude achieving one goal at the ex-pense of the other. Companies that reman-ufacture are estimated to save 40 to 60percent of the cost of manufacturing acompletely new product [Cohen 1988;Heeb 1989; Toensmeier 1992; Wilder 1988]while requiring only 20 percent of the ef-fort [Lund 1984; Sturgess 1992]. Reverselogistics provides strategic cost savingsunlike traditional quick-fix cost-savingmethods, such as reducing payrollsthrough layoffs or purchasing substandardmaterials.

Business entities are evaluated on theirproductivity and profitability. Productivityis measured by the ratio of outputs to in-puts. No supply chain can be productivewithout a systematic process to managematerial movement. Reverse logistics canincrease a firm’s productivity and profit-ability by using low-cost, traditionally un-used inputs or resources. Inputs generallyinclude materials, managerial and laborexpertise, and variable fixed overhead.Productivity is measured by the ratio ofoutput (sales volumes or dollars) to in-puts. Decreasing inputs (thereby loweringthe denominator of the productivity ratio)increases a firm’s productivity and profit-ability. If a firm uses resources properly,

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 145

they become assets. Their value reflectsthe cost of research and development,product design, manufacturing, purchas-ing, packaging, and distribution. If theseassets follow a cradle-to-grave life cycle,they end up in a landfill or incinerator andhave a negative effect on the environmentand the company’s bottom line. In thenext generation of logistics, proactive com-panies must be innovative and integrateall strategic and operational factors intheir reverse-logistics systems.Review of Literature

Reverse logistics is a fairly new conceptin logistics and supply-chain management.Most articles on reverse logistics are inpractitioner-related journals, rather thanacademic journals.

I categorized articles related to reverselogistics by topic into five groups. The firstgroup of articles address global conceptsof reverse logistics. Koepfer [1993] focusedon remanufacturing and examined thethree options of rebuilding, remanufactur-ing, and retrofitting in a machine tool in-dustry, analyzing the choices among theseoptions regarding machine-tool life cycles.Koepfer concluded that the life cycles ofcapital-intensive machine tools can be ex-tended through rebuilding, remanufactur-ing, and retrofitting. Krupp [1993] focusedon bill-of-material restructurings and dis-cussed the development of bills of mate-rial to accommodate the unique challengesof remanufacturing, particularly as theyapply to “exchange” environments in theautomotive industry. He highlighted theevolution of such bills within the contextof a classical MRP II system. Krupp con-cluded that sales forecasts need to be ad-justed to reflect the uncertainty and vari-

ety of core returns for both salvaged andnew parts. An article published in Trans-portation and Distribution [1993] focused onenvironmental issues and stated that asthe green movement gathers momentumin Europe, more environmental concernsare affecting logistics. From packagingregulations to customer preferences, envi-ronmental issues are contributing to astrong focus on reverse logistics. Environ-mental concerns, not limited to conductingbusiness in Europe, are affecting reverse-logistics trends in North America. Willitsand Giuntini [1994] focused on costingand proposed an integrated environmentalmanagement system (EMS) that consid-ered a costing system from cradle tograve. They explored the role of an ac-counting system in generating accurateand relevant cost data in EMS. Companieswithout EMS are at a competitive disad-vantage, and accountants who focus onlyon liability accounting miss the opportu-nity of adding value by failing to becomeinvolved in EMS. Giuntini and Andel[1995a] discussed various concepts andforms of reverse logistics and described itsimportance, the trends driving the needfor it, and the functional areas involved.Reverse logistics can take several forms.They discussed the roles of pieces or partsand lease versus buy. Although the recov-ery of impaired material resources can behighly profitable, it takes years for an or-ganizational structure to deal effectivelywith reverse logistics. Giuntini and Andel[1995b], in describing the mechanics of re-verse logistics, stated that the managementof reverse logistics depends on the suc-cessful execution of the six R’s (recogni-tion, recovery, review, renewal, removal,

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 146

and reengineering). Defective inventoryshould be treated with the same respectand effort given to good on-hand inven-tory. Reverse logistics is still at its infancy.Melbin [1995], in focusing on transporta-tion networks, stated that companies thatestablish reverse-logistics systems benefitfrom repeat customers, higher returns oninvestment, and benefits to the environ-ment. AT&T saved $30,000 from a reverse-logistics program, as did Rose’s Stores.Third-party, multiuse, multiclient centerscan be used for several companies to con-solidate transportation or warehouse func-tions. Wilmshurst and Newson [1996] ad-dressed packaging legislation bydiscussing the passage of the EU packag-ing directive and its effects upon environ-mental measures and supply-chain costs.A general waste-management priorityshould be established, in order: minimize,reuse, recycle, incinerate, and landfill.Packaging has a significant impact on lo-gistical processes. The cost of packagingincludes not only the impact on logisticalproductivity but also the cost of purchaseand now, increasingly, the cost ofdisposal.

Additional relevant references for globalconcepts include Barry, Girard, and Perras[1993]; Byrne and Deeb [1993]; Cairncross[1992]; Kopicki et al. [1993]; Kuuva andAirila [1994]; Murphy, Poist, andBraunschwieg [1994]; Stock [1992]; andThierry et al. [1995].

The literature cited in this section pointsto the importance of the following factorsfor an effective implementation of reverse-logistics systems: (1) Remanufacturingoperations compatible with the currentmanufacturing processes are needed. It is

generally preferable to rely on current andproven manufacturing processes. Thiseliminates the need to reinvent entirelynew remanufacturing processes for reverselogistics. Reverse logistics and the accom-panying remanufacturing or recyclingoperations can pinpoint or identify possi-ble deficiencies in current manufacturingoperations. Building reverse logistics intothe current manufacturing processes is acost-effective proposal that can ultimatelyimprove both the manufacturing and re-manufacturing operations. (2) A cost-benefits analysis must be performed. (3)An improved or restructured bill of mate-rial is essential. (4) Effective managementand organizational procedures for dealingwith the requirements of reverse logisticsmust be in place. (5) Transportation modesand networks must be well integratedwith the existing transportation systems.(6) The packaging used in reverse logisticsshould be less costly, easy to handle, andenvironmentally friendly.

The second group of papers addressquantitative models. Krupp [1992] focusedon simple or variable return models, pro-viding a model for forecasting “core” ob-solescence in remanufacturing environ-ments. Products are supplied in exchangefor a “right rate of return” of products re-ferred to as cores. The actual return of theproduct occurs after the product sale.Product obsolescence is of great concern ina remanufacturing environment. Kruppdevelops a complex model that considers“out-dated” core return. The model in-cludes the comparison of forecast versusactual usage, core returns, and the numberof years in a product life cycle. DiMarco,Eubanks, and Ishii [1994] presented a

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 147

clumping model for evaluating the com-patibility of product design to end-of-lifeproduct retirement issues. By using aclumping model, which groups compo-nent parts, firms can make product-life-cycle decisions effectively. Clegg,Williams, and Uzsoy [1995] explored theeffects of recycling and remanufacturingon companies’ operations by presentinglinear programming models of productionsystems. The models examined the long-term viability of remanufacturing opera-tions and short-term operations-management issues. Companies in theelectronics industry can use linear-programming models to analyze the via-bility of the variety of recovered parts inremanufacturing operations. Shu andFlowers [1995] emphasized remanufactur-ing as an end-of-life option and consid-ered the effects of fastening and joiningmethods on remanufacture. They citedthree case studies of examples of fasteningand joining that facilitate assembly and re-cycling but impede remanufacturing. Theelements of fastening methods prone tofailure should be separated from the re-mainder of the part. Guide, Srivastava,and Spencer [1996] presented a simulationmodel for rough-cut capacity planning.The remanufacturing environment is agrowing segment of the overall environ-mental green effort. They provide clearevidence that current production-planning-and-control (PPC) methods arenot able to address remanufacturing issuesregarding capacity planning. Remanufac-turing firms must have accurate and up-to-date information on material-recoveryrates and routing-operation frequency tocope with uncertainty. New PPC methods

need to be developed and implemented toaccommodate capacity planning; other-wise chaos may emerge on the shop floor.

Additional relevant references pertain-ing to quantitative models include Fleisch-mann et al. [1997], Kroon and Vrijens[1995], and Krupp [1992]. These modelsand techniques, such as cost and linear-programming models, can be used to im-prove various aspects of reverse-logisticssystems, such as remanufacturing opera-tions, extending product life cycles, andimproving product failure rates in the au-tomobile and electronics industries.

Publications in the third group addressdistribution, warehousing, and transporta-tion. White [1994] discussed the signifi-cance of reverse logistics for material han-dling, especially regarding the protectingdimension. The units of products in re-verse logistics can be transported in bulkin specially designed returnable contain-ers. This way, the packaging and packingoccur at the ultimate point of sale. Thematerial-handling functions of moving,storing, protecting, and controlling materi-als will evolve and change as reverse-logistics systems are developed. Witt[1995] explored new technologies and effi-ciencies within the supply chain that allowcustomers to bypass retailers and yet re-ceive quality merchandise and also infor-mation and warehouse management in thenext decade. Since 55 percent of purchasesare expected to be nonstore, informationand warehouse technology will change theway all warehousing facilities operate.Andel [1995] discussed how cost-efficienttransportation routes can be designated totransport return products for reverse-logistics purposes. Consolidating and cen-

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 148

tralizing returns through a third-partyprovider who offers sorting and dispatch-ing by region can be cost-efficient. Dawe[1995] viewed return management as thebest opportunity to differentiate customerservice and create a competitive advantagefor a firm. The areas most in need of reen-gineering were the return process andwarehousing operations. On-site productinspection can reduce the cycle time of atypical return process from 125 days toseven days. This concept, however, mightbe impractical for some operations. Young[1996] described the closed-loop reverse-logistics-system chain responsible for thedisposal or use or reuse of the productsfrom initial distribution to the final dispo-sition of the products. In exploring therole of distribution, Young saw a more im-portant function for distributors with re-gard to managing trucking costs, waste re-moval, physical-handling methods, andwarehousing and receiving functions.

Additional relevant references pertain-ing to distribution, warehousing, andtransportation include Zikmund andStanton [1971]; Fuller [1978]; Murphy[1986]; Pohlen and Farris [1992]; Stock[1992]; Jahre [1995]; Kroon and Vrijens[1995]; and Fuller, Allen, and Glaser[1996]. The literature cited in this sectionpoints to the importance of distribution,warehousing, material handling, routing,and managing the flow of data regardingreturned items in reverse-logistics systems.Although these areas add little value to acompany’s operations, they are importantand involve significant cost and time, nei-ther of which should be ignored in anywell-implemented reverse-logistics system.These authors discuss changes in technol-

ogy, distribution, warehousing, transpor-tation, and material-handling operationsthat are evolving as a result of the intro-duction of reverse-logistics systems inorganizations.

The fourth group concerns companyprofiles. Russell [1993] emphasized thefundamentals of JIT manufacturing as itpertains to remanufacturing in a high-techcorporation. Remanufacturing resulted insubstantial cost savings at Storage Tek.Hefling [1995] described belt-worn elec-tronic systems at TRW that are capable ofvoice data recognition, and bar-coding ac-ceptance in the automotive industry,which is characterized by unknown partquantities and conditions from knowncustomers. Using such technology as bar-coding and voice-recognition systems canexpedite the process of retrieving and han-dling the after-sales parts in automotive-parts-remanufacturing operations.Giuntini and Andel [1995c] profiled orga-nizations from the steel, personal-computer, and commercial-aircraft manu-facturing industries. The results showedextended product life cycles, material costreduction, lower customer price, and im-proved equipment reliability. Phelan[1996] stated that DuPont’s commitment towaste reduction created new markets, newproducts, and greater profit margins forthe company. Innovations driven by re-verse logistics and waste removal can leadto new markets and new products.

In another paper on company profiles,Thierry et al. [1995] outline the product-recovery efforts of a large number of com-panies, including 3M, Aurora, BMW,Chrysler, DEC, Ford, General Motors, IBMUK, IBM, Mercedes-Benz, Opel, Peugeot-

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 149

Talbot, Philips, Shape, Volkswagen, Xerox,and an unidentified multinational copiermanufacturer. EPA [1997] reported on anumber of firms successfully engaged inrecoverable manufacturing, including Un-ion Carbide and Xerox for toner car-tridges, and Office Plan Inc. and MillerSQA for office furniture. Deere and Com-pany [1998] reported on the sales of re-manufacturing products, which exceeded$2.5 billion in 1996. The literature in thisgroup shows that some manufacturingconcepts and technologies, such as JITmanufacturing, inventory reduction, wasteremoval, voice recognition, and bar cod-ing, can contribute to effective and effi-cient implementation of reverse-logisticssystems in some companies.

The fifth group addresses applications.By using current literature and interviewswith government agencies, Pohlen andFarris [1992] developed the foundation fora framework of reverse-logistics channelsfor recycling. Greater coordination andbetter communication are needed to im-prove the flexibility of reverse-logisticssystems. Differing product characteristics,extensive handling, and low-density ship-ments pose obstacles to efficient channelsfor recycling. Webb [1994] discussed apaper-products-recycling company thatused “environmentally sound” raw mate-rials and minimized adverse environmen-tal impact by developing detailed environ-mental profiles of suppliers. Kroon andVrijens [1995] examined the use of return-able containers as an example of reverselogistics. They developed a five-party re-turn system with specific application to areverse-logistics system in theNetherlands.

Additional publications pertaining toapplications are those of Byrne and Deeb[1993], Fuller [1978], Kroon and Vrijens[1995], Melbin [1995], Thierry et al. [1995],and Wheeler [1992]. The literature in thisgroup shows that reverse logistics can beapplied to a variety of products that con-tain plastics, papers, metals, and othermaterials.

An overview of all literature cited indi-cates the following points:—The conceptual, quantitative, andapplication-case-based articles do not pro-vide an extensive treatment of reverse-logistics topics.—The majority of articles are short andlack the depth to demonstrate the level ofintegration necessary to implement reverselogistics across various functional areas.—Most authors assume prior, comprehen-sive understanding of the structure of areverse-logistics system and do not de-scribe the basic structure of a reverse-logistics system.—Most authors do not define the basicconcepts and terms. Most of the literatureis practitioner-oriented.

I address those aspects and factors of re-verse logistics that are largely ignored inthe literature.The Components of Reverse-LogisticsSystems

Carter and Ellram [1998] pointed out alack of theoretically grounded and holisticviews of reverse logistics, with most writ-ings descriptive and anecdotal. Develop-ing a theory requires both a strategic com-ponent and an operational component. Todevelop a reverse-logistics theory, I usedfactors and insights from the literature foreach component. The mainstream nonaca-

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 150

demic literature contains accounts of per-sonal experiences, cases, and experimentsuseful in developing a theory.Strategic Factors in Reverse-LogisticsSystems

Strategic factors consist of strategiccosts, overall quality, customer service, en-vironmental concerns, and legislative con-cerns. They are critical and must be con-sidered before operational factors.Strategic costs include life-cycle and per-formance costs but not purchasing andmanufacturing costs. Minimizing strategiccosts depends on effective utilization ofcurrent resources, methods, and technolo-gies, which is essential for a successfulreverse-logistics system [Fuller 1978;Kopicki et al. 1993; Kuuva and Airila 1994;Stock 1992; Thierry et. al 1995; Willits andGiuntini 1994].

Much of the investment in a reverse-logistics system should be for improvinglong-term return on investment (ROI) toprotect the stockholders’ interest. Strategiccosts can include the costs of equipmentfor remanufacturing products, the costs forqualified workers to run the reverse-logistics system, and the costs of addi-tional warehouse facilities. Managersshould ensure full utilization of currentequipment, labor, and facilities to mini-mize the total cost of a reverse-logisticssystem. To use current resources forreverse-logistics operations, the remanu-factured products must be compatiblewith the overall product strategy of thefirm.

Remanufactured products should be ofthe same high quality as the correspond-ing virgin products [Carter and Ellram1998; Stock 1992; Thierry et al. 1995]. Cus-

tomers usually expect consistent qualityfrom a manufacturer regardless of the na-ture of the product. Poor quality remanu-factured products can adversely affect afirm’s reputation and its overall sales.

Identifying and fulfilling customer-service requirements is essential [Andel1995; Byrne and Deeb 1993; Dawe 1995;Fuller 1978; Ginter and Starling 1978;Giuntini and Andel 1995b, 1995c; Kopickiet al. 1993, Murphy 1986; Stock 1992; Witt1995; Zikmund and Stanton 1971]. Thisstrategic factor of the reverse-logistics sys-tem should reflect the basic logistics ruleof right time, right place, right price, andright quantity. Recent shifts in consumerawareness have increased the strategic im-portance of capitalizing on noneconomicaspects of customer service, such as JIT de-liveries and postsale service and repairs.

Communities and customers are de-manding that manufacturers take respon-sibility for the environmental impacts oftheir products. Taking environmental con-cerns into account in reverse logistics canlead to cost savings and environmentalimprovements because reverse-logisticssystems retrieve resources that would nototherwise be used [Byrne and Deeb 1993;Carter and Ellram 1998; Kopicki et al.1993; Kroon and Vrijens 1995; Kuuva andAirila 1994; Lockamy 1995; Melbin 1995;Monczka and Trent 1995; Sarkis 1995;Stock 1992; Thierry et al. 1995; Webb 1994;Wheeler 1992; Willits and Giuntini 1994;Zikmund and Stanton 1971]. On the otherhand, such systems have costs, such aslandfill charges and transportation to ap-proved disposal facilities. Consumers maybe willing to pay more for products thatbenefit their communities and the

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 151

Figure 1: The operational factors of the reverse-logistics system consist of one external factor(the customer) and six internal factors. Each factor is further subdivided into two components.

environment.Legislative actions are important factors.

Companies can use reverse logistics tocomply with existing and possible futurelegislation [Byrne and Deeb 1993; Carterand Ellram 1998; Fuller 1978; Ginter andStarling 1978; Kopicki et al. 1993; Sarkis1995; Stock 1992; Thierry et al. 1995; Webb1994; Wheeler 1992; Zikmund and Stanton1971]. One influential piece of legislation isthe European Union’s (EU’s) packaging di-rective, signed into effect in 1994, whichestablished packaging regulations for theEuropean market. Firms competing in themarket must meet the guidelines for thecontent of recycled or recyclable materialsand avoid such substances as CFC andasbestos.

Once a firm has considered and ad-dressed these important strategic issues, itcan focus on operational factors at the tac-tical level of reverse logistics.

Operational Factors in Reverse-LogisticsSystems

Figure 1 shows the operational factorsof reverse-logistics systems: cost-benefitanalysis, transportation, warehousing,supply management, remanufacturing andrecycling, and packaging.

Although the operational factors are notof equal importance in all organizations,firms should consider all seven opera-tional factors, weighing them according totheir importance.

Customers, the external force, drive thereverse-logistics system depending onwho they are, their needs, and their will-ingness to support reverse logistics. Firmsmust consider two issues: (1) the specificfeatures (quality, reliability, delivery) cus-tomers want or expect from remanufac-tured or recycled products, and (2) cus-tomer education regarding the potentialeconomic and noneconomic benefits of re-

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 152

verse logistics.Through its costing system, the firm

should establish the cost-and-benefitsstructure for its reverse-logistics system sothat it can appraise the value of returnedmaterials, the costs of remanufacturingprocesses, and the overall costs and bene-fits of remanufactured or recycled prod-ucts. It should consider operational costsand landfill and contingent liability costs[Fuller 1978; Ginter and Starling 1978;Giuntini and Andel 1995a; Kuuva andAirila 1994; Pohlen and Farris 1992;Russell 1993; Stock 1992; Willits andGiuntini 1994; Wilmshurst and Newson1996; Zikmund and Stanton 1971]. In as-sessing disposal or landfill costs, the firmmay need to compare the cost of disposalwith the savings (or loss) of running re-manufacturing or recycling operations in-house to choose the better alternative. Indisposing of waste, the firm must considerits contingent liability, the costs associatedwith its long-term responsibility for land-fill waste and pollution.

Firms must coordinate their reverse-logistics activities with transportationmodes, inbound and outbound transporta-tion services, loads, networks, and re-sources to obtain the greatest benefits[Andel 1995; Kroon and Vrijens 1995;Stock 1992; Thierry et al. 1995: White 1994;Young 1996; Zikmund and Stanton 1971].The firm should use intermodal transportfor transporting returned products for re-manufacturing. Murphy [1986] stated thatmost firms relied on truck transportationin reverse logistics. In routing, the firmmust also consider the number of custom-ers, their locations, delivery or pickupschedules, and the criticality of the re-

turned products or parts for the remanu-facturing process. It should also considerthe possibility of consolidating freight forlow and high volume-to-weight-ratioproducts or parts within returned prod-ucts or parts and between returned andregular products or parts.

In considering the costs of warehousing,the firm must assess the requirements ofreturned and outgoing products or partsfor storage space, material-handling proce-dures, and carrying costs [Andel 1995;Dawe 1995; Stock 1992; Thierry et al. 1995;Witt 1995; Young 1996]. Firms can ware-house returned products or parts them-selves or lease space. Murphy [1986]stated that private warehousing was pop-ular for reverse logistics because of its con-venience and reliability. The firm mustconsider such storage issues as spaceavailability and cost and capital invest-ments in equipment, labor, and methods.It must also consider warehousing opera-tions, that is materials-management activi-ties, such as inventory, traffic, physicalcounting, control, coordination, materialhandling, and scheduling.

Supply management in reverse logisticsconcerns the reuse of the parts and materi-als of returned products to reduce the useand costs of raw materials [Clegg et al.1995; DiMarco, Eubanks, and Ishii 1994;Herberling and Graham 1993; Kuuva andAirila 1994; Sarkis 1995; Stock 1992;Thierry et al. 1995; Wheeler 1992]. A firmcan restructure the bill of material to man-age the flow of products or parts for rede-signed products. The firm must managethe disposal of the obsolescent returnedmaterials that cannot be used.

Remanufacturing or recycling is at the

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 153

heart of reverse logistics. A firm’s use ofcurrent manufacturing processes, stan-dardized components, and design for re-manufacturability or reassembly largelydetermines its success with reverse logis-tics [Clegg et al. 1995; DiMarco, Eubanksand Ishii 1994; Ginter and Starling 1978;Giuntini and Andel 1995a; Krupp 1993;Russell 1993; Sarkis 1995; Shu and Flowers1995; Thierry et al. 1995].

The firm must consider whether its cur-rent manufacturing processes and opera-tions, capabilities, and technology are suit-able for remanufacturing. It must beefficient and able to produce quality re-manufactured products. In designing forremanufacturability or reassembly, thefirm must achieve an economic productthat facilitates remanufacturing and reas-sembly operations.

Packaging is a marketing tool that cre-ates or enhances the product’s image andprovides product information and promo-tion. It is also an element in the product’soverall cost, its ease of use, and customerperception. Packaging also protects theproduct from breakage and spillage. Areverse-logistics system should providepackaging that serves these purposes butreduces materials, costs, and transport re-quirements [Andel 1996; Byrne and Deeb1993; Cooke 1992; Giuntini and Andel1995b, 1995c; Hastings 1993; Kopicki et al.1993; Kroon and Vrijens 1995; Lockamy1995; Stock 1992; White 1994; Wilmhurstand Newson 1996; Zikmund and Stanton1971].

Although operational factors differ inimportance depending on the nature of re-manufacturing operations, customer re-quirements, and the manufacturer’s inter-

nal resources and capabilities, I chosethese seven operational factors becausethey were comprehensive, relevant, andinterrelated.

I have identified two broad categories offactors essential for effective implementa-tion of reverse logistics. A holistic view ofreverse logistics is essential for a profitableand sustained business strategy.

The insights I developed can be framedas testable hypotheses. These hypothesesconstitute a theory of reverse logistics thatcan be compared to the practices of a com-pany or group of companies to determineits generalizability and applicability.

ReferencesAndel, T. 1995, “There’s power in numbers,”

Transportation and Distribution, Vol. 36, No. 8(August), pp. 67–68.

Barry, J.; Girard, G.; and Perras, C. 1993, “Lo-gistics shifts into reverse,” Journal of EuropeanBusiness, Vol. 5 (September–October), pp. 34–38.

Byrne, P. M. and Deeb, A. 1993, “Logisticsmust meet the ‘green’ challenge,” Transporta-tion and Distribution, Vol. 34, No. 2 (Febru-ary), pp. 33–37.

Cairncross, F. 1992, “How Europe’s companiesposition to recycle,” Harvard Business Review,Vol. 70 (March–April), pp. 35–45.

Carter, C. R. and Ellram, L. M. 1998, “Reverselogistics: A review of the literature andframework for future investigation,” Journalof Business Logistics, Vol. 19, No. 1, pp. 85–102.

Clegg, A. J.; Williams, D. J.; and Uzsoy, R. 1995,“Production planning for companies with re-manufacturing capability,” Proceedings of the1995 IEEE International Symposium on Elec-tronics and the Environment, Orlando, Florida,pp. 186–191.

Cohen, M. 1988, “Replace, rebuild or remanu-facture,” Equipment Management, Vol. 16, No.1, pp. 22–26.

Cooke, J. A. 1992, “It’s not easy being green,”Traffic Management, Vol. 31, No. 12 (Decem-ber), pp. 42–47.

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

DOWLATSHAHI

INTERFACES 30:3 154

Dawe, R. L. 1995, “Reengineer your returns,”Transportation and Distribution, Vol. 36, No. 8(August), pp. 78–80.

Deere & Company 1998, “Deere & Companyand Springfield Manufacturing Corporationannounce joint venture,” PRNewswire, Deere& Company.

DiMarco, P.; Eubanks, C. F.; and Ishii, K. 1994,“Compatibility analysis of product design forrecyclability and reuse,” Computers in Engi-neering, Proceedings of the International Confer-ence and Exhibit, ASME, New York, Part 1,pp. 105–112.

EPA 1997, Environmental Protection Agency,Report Number A630-N-97-002.

Fleischmann, M.; Bloemhof-Ruwaard, J. M.;Dekker, R.; van der Laan, E.; van Nunen,J. A. E. E.; and Van Wassenhove, L. 1997,“Quantitative models for reverse logistics: Areview,” European Journal of Operational Re-search, Vol. 103, No. 1, pp. 1–17.

Fuller, D. A. 1978, “Recycling consumer solidwaste: A commentary on selected channel al-ternatives,” Journal of Business Research, Vol. 6(January), pp. 17–31.

Fuller, D. A.; Allen, J.; and Glaser, M. 1996,“Materials recycling and reverse channel net-works: The public policy challenge,” Journalof Macromarketing, Vol. 16, No. 1 (Spring), pp.52–72.

Ginter, P. M. and Starling, J. M. 1978, “Reversedistribution channels for recycling,” Califor-nia Management Review, Vol. 20, No. 3(Spring), pp. 72–82.

Giuntini, R. and Andel, T. 1995a, “Advancewith reverse logistics,” Transportation andDistribution, Part 1, Vol. 36, No. 2 (February),pp. 73–77.

Giuntini, R. and Andel, T. 1995b, “Master thesix R’s of reverse logistics,” Transportationand Distribution, Part 2, Vol. 36, No. 3(March), pp. 93–98.

Giuntini, R. and Andel, T. 1995c, “Reverse lo-gistics role models,” Transportation and Distri-bution, Part 3, Vol. 36, No. 4 (April), pp. 97–98.

Guide, D. R.; Srivastava, R.; and Spencer, M. S.1996, “Are production systems ready for thegreen revolution?” Production and InventoryManagement Journal, Vol. 37, No. 4, pp. 70–76.

Hastings, P. 1993, “Logisticians must packgreener punch,” Purchasing and Supply Man-

agement (Supplement), pp. 5–6.Heeb, H. B. 1989, “Can old workhorses still

pull their weight?” Manufacturing Engineer-ing, Vol. 102, No. 4, pp. 74–76.

Hefling, M. 1995, “Accent on voice-based in-put,” ID Systems, Vol. 15, No. 2, pp. 53–54,64.

Herberling, M. and Graham, T. S. 1993, “Envi-ronmental purchasing: Separating the emo-tions from the facts,” 1993 Conference Proceed-ings of the National Association of PurchasingManagement (National Association of Pur-chasing Management, Tempe, Arizona), pp.75–78.

Jahre, M. 1995, “Household waste collection asa reverse channel: A theoretical perspective,”International Journal of Physical Distributionand Logistics Management, Vol. 25, No. 2, pp.39–55.

Koepfer, C. 1993, “Fixing up older machinetools,” Modern Machine Shop, Vol. 65, No. 11(April), pp. 90–97.

Kopicki, R.; Berg, M. J.; Legg, L.; Dasappa, V.;and Maggioni, C. 1993, Reuse and Recycling:Reverse Logistics Opportunities, Council of Lo-gistics Management, Oak Brook, Illinois.

Kroon, L. and Vrijens, G. 1995, “Returnablecontainers: An example of reverse logistics,”International Journal of Physical Distributionand Logistics Management, Vol. 25, No. 2, pp.56–68.

Krupp, J. A. 1992, “Core obsolescence forecast-ing in remanufacturing,” Production and In-ventory Management Journal, Vol. 33, No. 2,pp. 12–17.

Krupp, J. A. 1993, “Structuring bills of materialfor automotive remanufacturing,” Productionand Inventory Management Journal, Vol. 34,No. 4, pp. 46–52.

Kuuva, M. and Airila, M. 1994, “Conceptualapproach on design for practical product re-cycling,” ASME: Design for Manufacturability,DE-Vol. 67, pp. 115–123.

Lockamy, A., III 1995, “A conceptual frame-work for assessing strategic packaging deci-sions,” The International Journal of LogisticsManagement, Vol. 6, No. 1, pp. 51–59.

Lund, R. I. 1984, “Remanufacturing,” Technol-ogy Review, Vol. 87, No. 2, pp. 18–23.

Melbin, J. E. 1995, “The never-ending cycle,”Distribution, Vol. 94, No. 11 (October), pp.36–38.

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.

REVERSE LOGISTICS

May–June 2000 155

Monczka, R. M. and Trent, R. J. 1995, Purchas-ing and Sourcing Strategy: Trends and Implica-tions, Center for Advanced Purchasing Stud-ies, Tempe, Arizona.

Murphy, P. R. 1986, “A preliminary study oftransportation and warehousing aspects ofreverse distribution,” Transportation Journal,Vol. 25, No. 2 (Summer), pp. 12–21.

Murphy, P. R.; Poist, R. F.; and Braunschwieg,C. D. 1994, “Management of environmentalissues in logistics: current status and futurepotential,” Transportation Journal, Vol. 34, No.1, pp. 48–56.

Phelan, M. 1996, “Green is the color of moneyfor DuPont,” AI (June), p. 93.

Pohlen, T. L. and Farris, M. T., II 1992, “Reverselogistics in plastics recycling,” InternationalJournal of Physical Distribution and Logistics,Vol. 22, No. 7, pp. 35–47.

Russell, G. 1993, “JIT in remanufacturing: Howto do it,” American Production and InventoryControl Society Conference Proceedings, pp.447–448.

Sarkis, J. 1995, “Supply chain management andenvironmentally conscious design and manu-facturing,” International Journal of Environmen-tally Conscious Design and Manufacturing, Vol.4, No. 2, pp. 43–52.

Shu, L. H. and Flowers, W. C. 1995, “Consider-ing remanufacturing and other end-of-lifeoptions in selection of fastening and joiningmethods,” Proceedings of the 1995 IEEE Inter-national Symposium on Electronics and the Envi-ronment, Orlando, Florida, pp. 75–80.

Stock, J. R. 1992, Reverse Logistics, Council ofLogistics Management, Oak Brook, Illinois.

Sturgess, S. 1992, “Specifying replacementparts: The buyer beware,” World Wastes, Vol.35, No. 8, pp. 50–54.

Thierry, M.; Salomon, M.; Van Nunen, J.; andVan Wassenhove, L. 1995, “Strategic issues inproduct recovery management,” CaliforniaManagement Review, Vol. 37, No. 2 (Winter),pp. 114–135.

Toensmeier, P. A. 1992, “Remanufacture doesmore than just save on investment,” ModernPlastics, Vol. 69, No. 4, pp. 77–79.

Transportation and Distribution 1993, “Logisticsmust meet the ‘green’ challenge,” Vol. 34,No. 2 (February), p. 33.

Webb, L. 1994, “Green purchasing: Forging anew link in the supply chain,” American Soci-

ety of Agricultural Engineers, Vol. 1, No. 6 (Oc-tober), pp. 14–18.

Wheeler, W. A., III 1992, “The revival in re-verse manufacturing,” Journal of BusinessStrategy, Vol. 13, No. 4 (July/August), pp. 8–13.

White, J. A. 1994, “Reverse logistics moves for-ward,” Modern Materials Handling, Vol. 49,No. 1 (January), p. 29.

Wilder, R. V. 1988, “Remanufacturing: Upgrad-ing can be better than buying new,” ModernPlastics, Vol. 65, No. 4, pp. 73–77.

Willits, S. D. and Giuntini, R. 1994, “Helpingyour company ‘go green’,” Management Ac-counting, Vol. 75, No. 8 (February), pp. 43–47.

Wilmshurst, N. R. and Newson, P. L. 1996,“Packaging tomorrow’s challenge,” LogisticsFocus, Vol. 4, No. 1 (January–February), pp.13–15.

Witt, C. E. 1995, “Distribution: A differentiatorin 2000,” Material Handling Engineering, Vol.50, No. 11 (October), pp. 57–77.

Young, J. 1996, “Reverse logistics: What goesaround comes around,” APICS-The Perfor-mance Advantage (May), p. 75.

Zikmund, W. G. and Stanton, W. J. 1971, “Recy-cling solid wastes: A channels-of-distributionproblem,” Journal of Marketing, Vol. 35, No. 3(July), pp. 34–39.

Dow

nloa

ded

from

info

rms.

org

by [

134.

208.

103.

160]

on

08 A

pril

2014

, at 0

2:52

. Fo

r pe

rson

al u

se o

nly,

all

righ

ts r

eser

ved.