Reverse logistics


Studies and Scientific Researches. Economics Edition, No 18, 2013  http://sceco.ub.ro 

 
CONCEPTUAL ISSUES REGARDING REVERSE LOGISTICS 

 
Ioana Olariu 

“Vasile Alecsandri” University of Bacau 
ioana_barin_olariu@yahoo.com 

 
 
Abstract 
As the power of consumers is growing, the product return for customer service and customer 
retention has become a common practice in the competitive market, which propels the recent 
practice of reverse logistics in companies. Many firms attracted by the value available in the 
flow, have proactively participated in handling returned products at the end of their usefulness 
or from other parts of the product life cycle. Reverse logistics is the flow and management of 
products, packaging, components and information from the point of consumption to the point of 
origin. It is a collection of practices similar to those of supply chain management, but in the 
opposite direction, from downstream to upstream. It involves activities such as reuse, repair, 
remanufacture, refurbish, reclaim and recycle. For the conventional forward logistics systems, 
the flow starts upstream as raw materials, later as manufactured parts and components to be 
assembled and continues downstream to reach customers as final products to be disposed once 
they reach their economic or useful lives. In reverse logistics, the disposed products are pushed 
upstream to be repaired, remanufactured, refurbished, and disassembled into components to be 
reused or as raw material to be recycled for later use. 
 
Keywords 
Logistics; supply chain; reverse flows; network. 
 
JEL classification 
M31 
 
 
1. Introduction  
Because the reverse logistics is driven by two guidelines, of profit and legal 
regulation, it becomes more complex than the forward distribution system, in terms of 
managing, controlling and processing. Guide et al (2001) studied seven characteristics 
that distinguish reverse supply systems from the features of forward logistics: 
 Return uncertain timing and quantity of returns, which adds a degree of unrest to 

demand management and inventory control. 
 A need to balance returns. Too many items returned will cause a firm to penalize 

unnecessary port inventory cost. 
 Disassembly is a necessary process in remanufacturing, but the rate of recovery is 

uncertain, which brings difficulty to control sequential operations. 
 Uncertainty in materials recovered from returned items, which raises the question 

of coordinating inventory. 
 The requirement for a reverse logistics network. Companies should establish 

collection centers and remanufacturing centers to coordinate the return and 
remanufacturing process. 

 Complication of material matching restrictions. Customers often require some 
components of the product and will cause a problem that customer satisfaction 
when a part is not obtained. 

 Stochastic routing problems for materials in the repair and remanufacturing 
operations. This feature will bring in variability in operation causes coordination 
and control problem in reverse operation. 

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In addition to these operational differences between forward and reverse supply 
systems, conceptual system is a system before firing, while the reverse system is both 
a pull and push (Krikke, 1998). 
In the forward system, the eventual goal is to serve the end customers, while in a 
reverse system the targets are secondary customer groups, and firms have to 
implement obligatory returning process from the end-use customers. Therefore much 
coordination and adjustment are necessary in implementing the push and pull systems 
in reverse logistics.  
In the literature, there have been several streams of research on issues relating to 
reverse flows. These include reverse flow network design, inventory control for 
profits, closed-loop supply chain, green supply chains. 
 
 
2. Components of reverse logistics 
 

2.1. Return type 
Products, parts and materials are frequently reverse logistics cycle for different 
reasons at different points in the life cycle of the product of each element. There are 
four major returns in practice (Krikke et al, 2004): 
 End of life return (EOL): this return takes place when the product life cycle of the 

item comes to an end. 
 Commercial return: the reasons that these returns are made include wrong orders, 

customer dissatisfaction, defects, problems with installation etc. 
 End of use return: this category encompasses returned items after some period of 

operation due to end of lease, trade-in or product replacement. The products may 
be refurbished or repaired to be sold in an alternative market or in a 
geographically different market. 

 Reusable items: products in this classification are separate parts of major 
products such as reusable containers and pallets, recycled toner bottles, etc. 

There have also been many studies on inventory control for reverse flows, aiming at 
integrating the reverse flow into the manufacturers’ materials planning.  
 

2.2. Recovery options 
The first step in reverse logistics with respect to recovery program is to collect the 
items. Firms have different collection systems and strategies contingent on the type of 
product. With the products collected, firms sort the items based on the condition of 
the product (Jayaraman, 2006).  
Then companies seek to extract value out of the products or components as much as 
possible by assigning the returned items into an appropriate recovery method. Based 
on the literature, the recovery options are: reuse, remanufacturing and recycling.  
Reverse logistics is concerned with planning decisions and scheduling issues involved 
in manufacturing, warehousing, shipping, collection and reprocessing of used 
products, damaged products, unwanted products, outdated products and 
shipping/packaging materials.  
There are various reasons why those products are taken back instead of being thrown 
away: they can be recycled to get reusable raw materials; after refurbishment or 
repair, they can be resold on the market to gain more profit, they have to be 
reprocessed to comply with government regulations and environmental law etc. 
 

2.3. Secondary market  
New products are generally transacted in the primary market. The channel process of 
the primary market, as described by the forward supply chain system, is that flows are 

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Olariu 

from factory to manufacturer’s distribution center, to retailer distribution center, to the 
store, and then to the end customer.  
However, some retailers or remanufacturers face how they have to sell 
remanufactured products since the markets for used products are subdivisions of the 
primary market and are interwined.  
A secondary market is defined as a selling channel outside of the primary market, 
mainly to salvage or overstock brokers (Tibben-Lembke, 2004). Even though, 
secondary markets are important transaction places, the structure or sales channels in 
the secondary markets have not been well documented in comparison to the 
operational aspects of the reverse supply chains system.  
 

2.4. Network design for reverse flows 
Even though network formulation in the context of forward flow systems has been 
widely studied, the system performing forward activities in a traditional supply chain 
is not directly applicable to the network structure of reverse logistics since the 
forward flow system is nor originally designed to handle returned products.  
Due to on-equipment of handling return products in the forward system and different 
cost structures, such as the costs of collecting, classifying, testing and disassembling 
returned goods that occur only in the reverse channel but not in the forward system 
(Jayataman, 1999).  
Fleischmann et al (1997) also indicated that the reverse channel is not necessarily a 
symmetric picture of forward distribution.  
The studies on network design for reverse flows mainly focus on the design of 
logistics structures for shipping used/returned products back to the facilities.  
Among the more recent results, Fleischmann et al (2000, 2001) studied the network 
design problems and analyzed the impact of reverse flows on network designs and 
operational performance of a supply chain.  
The general processes associated with reverse logistics are described as follows 
(Fleischmann et al, 1997): 
 Collection: refers to all activities rendering used products available and 

physically moving them to some point for further treatment. Collection may 
include purchasing, transportation and storage activities. 

 Inspection/separation: denotes all operations which determine whether a given 
product is in fact reusable and in which way. Thus, inspection and separation 
result in splitting the flow of used products according o distinct reuse options. 
Inspection and separation may encompass disassembly, shredding, testing, 
sorting and storage steps. 

 Re-processing: means the actual transformation of a used product into a usable 
product again. This transformation may take different forms including recycling, 
repair and remanufacturing. In addition, activities such as cleaning, replacement 
and reassembly may be involved. 

 Disposal: is required for products that cannot be re-used for technical or cost 
reasons. This applies to products rejected at the separation level due to excessive 
repair requirements but Also to products without satisfactory market potential, 
due to obsolescence. Disposal may include transportation, landfilling and 
incineration steps. 

 Re-distribution: refers to directing reusable products to a potential market and to 
physically moving them to future users. This may include sales, transportation 
and storage activities. 

 
 
 

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CONCEPTUAL ISSUES REGARDING REVERSE LOGISTICS 

3. Closed-loop supply chains and green supply chains 
Most existing studies on closed-loop supply chains focus on management strategies 
and policies. The research on green supply chains focuses heavily on environmental 
issues, the linkages between the operations policies of supply chain partners, and the 
activities performed by plant managers, suppliers, and customers. Reverse logistics is 
a growing area in logistics management. Concern about environmental issues such as 
pollution, traffic congestion, global warning, disposal and clean-up hazardous 
materials has led to a number of environmental laws and EU directives that affect 
logistics systems design and strategies. Thus 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”.  
Essentially, reverse logistics is the process of moving goods from their point of 
consumption to the appropriate link in the supply chain for the purpose of capturing 
any residual value through remanufacturing or refurbishing, or the proper disposal. 
Thus, reverse logistics management represents a systematic business model, to 
profitably close the loop on the supply chain. But, reverse logistics is not only about 
reusing containers, recycling packaging materials, redesigning packaging to use less 
material, or reducing the energy use and pollution that results from transportation. 
These activities, while important, are more in the realm of green logistics. If goods or 
materials are not sent backwards through the supply chain, then an activity is probably 
not a reverse logistics activity.  
Reverse logistics also includes processing returned merchandise due to damage, 
seasonal inventory, restock, salvage, recalls and excess inventory.   
Key management elements in reverse logistics include the following: 
 Gatekeeping to screen defective and unwarranted returned merchandise at the 

entry point into the reverse logistics process. 
 Short disposition cycle times related to return product decisions, movement and 

processing to avert a lengthy ageing process on returns. 
 Reverse logistics information systems to properly track returns, and measure 

disposition cycle times and vendor performance. 
 Central return centers or processing facilities dedicated to handling returns 

quickly and efficiently.   
 Zero returns policies that avoid accepting any physical returns and instead set 

maximum values of returned products that are payable to customers. 
 Remanufacture and refurbishment of products, which has the following 

categories: repair, refurbishing and remanufacturing to recondition or upgrade 
products, and cannibalization and recycling to use or dispose of products. 

 Asset recovery classifies and disposes returned goods, surplus, obsolete, scrap, 
waste and excess material products, and other assets, to maximize returns to the 
owner, and minimize the costs and liabilities associated with disposition. 

 Negotiation of the value of returned material without any pricing guidelines. This 
task is often performed by specialist third parties, who advise the primary 
participants in the supply chain who are working to transfer ownership of the 
material back to the original source. 

 Financial management policies to properly handle accounting and reconciliation 
issues related to returned products. 

 Outsourcing reverse product flow, to reverse logistics outsource suppliers who 
can be used as a benchmark to help determine what and how reverse activities 
should be performed and how much those activities should cost. 

Reverse logistics reduces the amount of waste disposed into the environment, thus, 
reducing the reliance on landfills and energy. Saving energy is another valuable 

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environmental motive. Many companies today want to appeal to their customers as 
being “environmentally responsible”, a part of their marketing image. This has 
become more pressing as customers became selective of green and/or environmentally 
friendly products.  
Public environmental concern, coupled with sustainable development, has created 
opportunities for organizations to differentiate their products from their competitors 
by being “greener” (Johnson, 1998).  
The need to consider reverse and green logistics has also seen the growth of third-
party reverse logistics providers who assist companies to meet new guidelines and 
enhance their business opportunities.  
Environmental concerns about packaging, recyclability and reusability are becoming 
more important, and the implementation and management of reverse logistics will 
also affect logistics decision-making in the future. 
 
 
4. In conclusion 
Implementing reverse logistics has numerous benefits. These benefits are economical, 
environmental, marketing image, market share and exposure, and asset protection. 
The main motive behind reverse logistics is economical – minimizing cost and 
increasing profits. Reverse logistics is a chance to recapture value from returned 
products through recovery/reuse/repair options. Beside reducing cost, many 
organizations take back their competitors products in addition to theirs as a strategy to 
increase their market share. Some companies offer to collect all brands of a certain 
product in exchange for a price discount for the company’s own brand.  
Critical success factors for reverse logistics programmes to capture the key elements 
above include the following: management and control by mapping or flowcharting the 
reverse logistics process through the suppliers and other supply chain members, and 
developing partnerships to achieve reverse logistics goals and economies of scale; 
measurement by adopting full product life cycle and end of product life costing as 
they relate to reverse logistics activities and the product supply chain and finance to 
properly allocate sufficient resources for reverse logistics activities and environmental 
initiatives. 
 
 
References  
Blumberg, D.F. (2005) Introduction to Management of Rverse Logistics and Closed 

Loop Supply Chain Processes, CRC Press. 
Bowersox, D.J., Closs, D.J. & Cooper, M.B. (2002) Supply Chain Logistics 

Management, New York, NY: McGraw Hill. 
Dale, R.S. Tibben-Lembke, R.S. (1998) Going backwords: Reverse logistics Trends 

and Practices, University of Nevada-Reno: Reverse Logistics Executive 
Council. 

Dyckhoff, H., Lackes, R. & Reese, J. (2004) Supply Chain Management and Reverse 
Logistics, Berlin Heidelber: Springer-Verlag. 

Fleeischmann, M., (2001) Reverse logistics network structure and design, Rotterdam, 
The Netherlands: ERIM Report Series Research in Management. 

Grant, D.B.; Lambert, D.M.; Stock, J.R.; Ellram, L.M. (2006) Fundamentals of 
Logistics Management, McGraw-Hill Education; 

Johnson, P.F. (1998) “Managing value in reverse logistics systems”, Transportation 
Research Part E: Logistics and Transportation Review, 34 (3), 217-227. 

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Tibben-Lembke, R.S.; Dale, R.S., (2002), “Differences between forward and reverse 
logistics in a retail environment”, Supply Chain Management: An International 
Journal 7, 5, 271-282. 

Stock, (1998) Development and Implementation of Reverse Logistics Programs, 9-10, 
20. 

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	Ioana Olariu
	“Vasile Alecsandri” University of Bacau
	ioana_barin_olariu@yahoo.com
	Keywords
	Logistics; supply chain; reverse flows; network.
	JEL classification
	M31
	1. Introduction
	2. Components of reverse logistics
	2.1. Return type
	2.2. Recovery options
	2.3. Secondary market
	2.4. Network design for reverse flows
	3. Closed-loop supply chains and green supply chains
	4. In conclusion
	Implementing reverse logistics has numerous benefits. These benefits are economical, environmental, marketing image, market share and exposure, and asset protection. The main motive behind reverse logistics is economical – minimizing cost and increasi...
	References