Understanding the reverse logistics operations of a retailer: a pilot study
| Date | 24 April 2009 |
| Pages | 515-531 |
| Published date | 24 April 2009 |
| DOI | https://doi.org/10.1108/02635570910948641 |
| Author | Hy Sonya Hsu,Christine A. Alexander,Zhiwei Zhu |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
Understanding the reverse
logistics operations of a retailer:
a pilot study
Hy Sonya Hsu
Business System Analysis and Technology Department,
B.I. Moody III College of Business Administration,
University of Louisiana, Lafayette, Louisiana, USA
Christine A. Alexander
Department of Business Administration & MIS, Texas A&M University,
Commerce, Texas, USA, and
Zhiwei Zhu
Business System Analysis and Technology Department,
B.I. Moody III College of Business Administration,
University of Louisiana, Lafayette, Louisiana, USA
Abstract
Purpose – The paper aims to illustrate the business process of reverse logistics by focusing on
studying the business activities of the distribution center of a major department store.
Design/methodology/approach – The case study methodo logy is used to explore th ree
questions: what are the essential characteristics and associated requirements underlying reverse
logistics?, how should the practices underlying reverse logistics be adjusted to address cost
minimization and value generation?, and what role does information sharing play in defining the
reach, range and cohesiveness of central returns center (CRC) of supply chain members in reverse
logistics?
Findings – The paper finds that the biggest problem a CRC is facing is the time required for
managing damages when no return authorization is forthcoming from the vendor. The goal of the CRC
is to maximize the amount of merchandise, which is shipped back to the vendor for full recovery.
While information flow within the firm seems to be more than adequate, information flow to supply
chain partners, especially where decisions need to be made, is not always adequate.
Originality/value – The paper provides the detailed description of the business process in reverse
logistics practiced by a major retailer. The outcome of this study contributes to the understanding of
what has been done in reverse logistics and what needs to be done in future.
Keywords Retailing, Information management,Distribution management, Reversescheduling,
Cost reduction
Paper type Case study
Introduction
There have been numerous research articles published focusing on forward logistics.
For instance, Huang et al. (2001) suggest implementing a global logistics management
system by building an enterprise resource planning (ERP) as the backbone. Li and
Shue’s (2003) study involves proposing a paradigm for developing an air cargo
logistics infomediary which can help integrate air cargo service providers and their
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Reverse logistics
operations
of a retailer
515
Received 23 September 2008
Revised 24 November 2008
Accepted 9 December 2008
Industrial Management & Data
Systems
Vol. 109 No. 4, 2009
pp. 515-531
qEmerald Group Publishing Limited
0263-5577
DOI 10.1108/02635570910948641
customers. Trappey et al. (2004) utilized a three-tier architecture for mobile agent
technology and developed a prototype system for tracking global logistics servi ce in
order to meet the growing demand for international supply chain and e-commerc e’s
logistics service providers. Forward logistics and reverse logistics constitute a
closed-loop supply chain. Gailen Vick, President of Reverse Logistics Trends, Inc.,
projects that most firms spend between 3 and 6 percent of their bottom-line on reverse
logistics activities. Companies are increasingly realizing that there are significan t costs
associated with handling this reverse flow of goods due to liberal return policies
retailers have to offer to keep their competitive advantage. According to a recent Harris
Interactive survey, 90 percent of respondents indicated that it is important to their
purchasing decisions that retailers offer a convenient return policy and process. The
study, conducted by Rogers and Tibben-Lembke (2001), reveals that the cost of reverse
logistics can account, on average, for as much as 4 percent of total logistics costs.
Unlike forward logistics, the study of reverse logistics is still in an exploration
stage. Jayaraman and Luo (2006) warned that firms should recognize the importance of
having an effective reverse logistics strategy in order to reduce risks of damaging
customer relations and jeopardizing brand image and reputation. Recently, the
systematic study of reverse logistics has been increasing. Koster et al. (2002) studied
retail return operations in nine retailer warehouses and identified some factors
contributing to the different practices. They found that in general the retailers studied
did a better job in handling forward flows than in handling reverse flows. Smith (2005)
conducted a survey in an attempt to understand how important reverse logistics is to
customer relations and satisfaction. The study reveals that the largest share of
variance of purchasing decisions was clearly explained by the variable of retu rns
procedures. Klausner and Henrickson (2000) developed a model to determine the
optimal unit cost of reverse logistics using empirical data from the current take-back
program offered by power tools manufacturers. Jayaraman et al. (2003) proposed a
mathematical programming model to solve a reverse distribution problem optimally.
They believe that reverse distribution is not necessarily a symmetric version of
forward distribution. Beamon and Fernandes (2004) formulated product recovery
networks as a multi-period integer programming model to address both the forw ard
flow and the reverse flow of the products.
Clearly, there is a lack of understanding of the business process of reverse logistics.
This research focuses mainly on a distribution center (DC) of a major retailer as a pilot
study to illustrate the process of reverse logistics from a supply chain point of view.
The rest of the paper is organized as follows. The process of reverse logistics is
discussed in the next section. The research questions are presented in the following
section. Next, a real-world business is used to illustrate the reverse logistic process in a
central returns center (CRC). Our results, limitation of the study, and the future
research will be discussed in the last section.
The process of reverse logistics
A portion of a DC is allocated to be the CRC that handles most returns from retail stores.
Approximately, 70 percent of respondents from Rogers and Tibben-Lembke’s (2001)
study said that they used a CRC for processing returns. From a supply ch ain partners’
perspective, products can be returned to deal with market situations such as stock
balancing, reverse marketing or end of life/season. From the consumers’ perspective,
IMDS
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