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Reverse Logistics Strategies on Secondary Markets Term Paper


Reverse logistics is an indispensable part of any company’s operations. Some firms choose to avoid paying a lot of attention to this aspect hoping that the volume of returned inventory will be insignificant. However, successful companies consider various ways to develop their reverse logistics options, which enables them to save funds as well as acquire a positive image and customers’ loyalty (Kokkinaki, Zuidwijk, van Nunen & Dekker, 2013). It is necessary to note that reverse logistics attracted significant attention in the 1990s. At present, large corporations have sound reverse logistics strategies that enable them to ensure proper flow of product (both direct and reverse) (Harrison & van Hoek, 2008). There is a considerable bulk of research on the matter, and companies can choose many strategies to improve their reverse logistics. It is noteworthy that small firms are also starting to employ reverse logistics solutions. These are mainly related to the secondary market sales. This paper focuses on some strategies related to the use of secondary markets and other reverse logistics methods that are applicable to small companies.

Definitions

First, it is necessary to define the major terms (reverse logistics and secondary market) that will be used in the paper. Reverse logistics involves “planning, implementing and controlling an efficient and cost effective flow of raw materials, in-process inventory, finished goods and related information” from the consumption point to the origin point “for the purpose of recapturing value or proper disposal” (Pumpinyo & Nitivattananon, 2014, p. 7049). Apart from the items mentioned above, companies may need or wish to return packaging, production leftovers and so on. Reverse logistics has a service component (including recalls, repair, maintenance, dismantling) and an environmental component that is closely related to corporate social responsibility (Harrison & van Hoek, 2008). It is necessary to note that reverse logistics includes products as well as waste disposal or recycling. In this paper, the focus is made on products-related reverse logistics.

The secondary market is the market where products are sold after use or after the sales on the primary market (Corbacioglu & van der Laan, 2012). Small companies often operate in this market, but large corporations also may enter the secondary market especially when it comes to particular channels. Kokkinaki et al. (2013) state that secondary market channels may include the market of used items, salvage, vendors and charity. Big companies usually resort to vendors and salvage brokers as well as charity. Whereas, small firms mainly operate in the market of used products although they may benefit from the use of other channels as well.

Reverse Logistics in Detail

It is possible to identify many reasons for reverse logistics. These may include warranty failures, damaged products, reusable materials, incorrect product orders and so on (Kwateng, Debrah, Parker, Owusu & Prempeh, 2014). Bonev (2012) outlines a number of major reasons for the reverse logistics that include manufacturing returns, distribution returns, and customer returns. Manufacturing returns are caused by raw material surplus, unmet quality requirements, and products overproduction. Distribution returns are associated with product recalls (safety and quality issues), contractual reasons (returns of unsold products, shelf-life expires), stock adjustments, functional returns (Bonev, 2012). Customer returns are related to the return of non-defective products, service returns (defective products), end-of-use returns, end-of-life returns.

The reverse logistics is often regarded as simply opposite to the traditional flow of products, but it is somewhat different. The reverse logistics may involve such stages as collection, inspection, remanufacturing, reuse, recycling, disposal, and redistribution. Some stages may be omitted, which depends on the type of returns and products. The collection phase involves a set of procedures aimed at gathering used products. This stage also involves location of the items, transportation and their storage. The company has to develop efficient communication strategies to ensure proper flow of products. The inspection phase is crucial as the items are examined, and the decision concerning the next steps is made. This stage involves collection of all the necessary data that enable to make the decision concerning the future of the items. Companies often have particular guidelines that make the process quite easy and straightforward.

As far as the final stage of reverse logistics is concerned, it can be remanufacturing. It is a set of procedures aimed at bring the product back to “as new condition” (Bonev, 2012, p. 19). It is noteworthy that this stage is closely connected with the concept of the manufacturing readiness levels. Cellucci (2011, p. 130) states that manufacturing readiness “begins before and continues during the development of systems, and it continues even after a system has been in the field for a number of years.” An efficient manufacturing readiness level assessment will include schemes for effective remanufacturing process. The facilities should be ready to carry out certain procedures, and all the necessary materials should be available. Remanufacturing is often a good option for various appliances as well as cars. The manufacture can detect the defective component, replace it, and the product may be brought to the ‘as new’ state.

Recycling includes disassembling and grinding. This is a widespread strategy used by many companies. Packaging is often a subject for recycling, which contributes to the development of a favorable image. Organizations try prove they are socially and environmentally responsible, which creates the added value to their products. Harrison and van Hoek (2008) state that recycling is often outsourced, which reduces costs but still creates a positive image of a company. It is also important to add that many firms chose to acquire recycling facilities which reduces their reverse logistics costs as well as manufacturing costs (Harrison & van Hoek, 2008). Paper packaging materials are conventional illustrations of the benefits of the use of recycling facilities as companies may reduce their costs through the use of materials obtained. An example of efficient recycling that can be outsourced is related to car making industry. For instance, discarded cars metals (that make up 75% of the weight of the final product) are recycled in such countries as the USA, the UK and Germany (Bonev, 2012).

Disposal can also be necessary under certain conditions. This method involves transportation, landfilling or even incineration. This strategy is used when the products’ defects cannot be fixed, when the products cannot be reduced, when the shelf-life of the items expires. One of the most conspicuous examples of the use of this method is the pharmaceutical industry (Kwateng et al., 2014). Pharmaceutical products cannot be reused. More so, their disposal has to comply with a number of requirements.

Redistribution is quite similar to the reuse phase, but the two strategies have significant differences. Redistribution involves the search for the customers in the primary or alternative markets. An illustration of this phase is associated with leasing. Cars and especially machines can be often distributed (Bonev, 2012). It is noteworthy that this phase involves such procedures as storage, transportation and sales.

Reuse is another strategy used in reverse logistics. This method is often associated with entering the secondary market. Unsold products that do not have defects or even items after some amendments can be sold at the secondary market. Amazon.com provides a variety of options as this is the platform where used items are resold (Bonev, 2012). Clearly, there are various other online platforms that can be effectively utilized. One of the examples of reuse is the sale of used books. It is noteworthy that many products can be resold. As has been mentioned above, there are other secondary market channels. Some companies may address vendors who will take the associated risks. Thus, the company reduces costs through minimizing risks, saving storage space, and returning some part of the product’s value. Another way to reuse products is related to charity. The company may donate its products to some charity organizations or directly to the end-consumer. For instance, a producer of toys can provide its products to an orphanage or a pediatric ward in a healthcare facility. The organization will receive publicity and improve (or sustain) its image. In many countries, charity projects are associated with tax reduction.

Which Strategy to Use

As has been mentioned above, many companies do not pay sufficient attention to reverse logistics. Some may sporadically employ this or that type of reverse logistic pattern based on the type of products produced. Clearly, the choice of the type of reverse logistics pattern depends on the type of the product, the condition of the product, the company’s priorities. If the products are non-reusable, the manufacturer should make sure an efficient disposal strategy is developed. One of the most important issues to consider is the conditions under which to return unsold products. Another issue to consider is related to the process of disposal itself. Thus, the company may outsource the entire disposal process and focus on location and transportation only. In some cases, it can be beneficial to construct or purchase the necessary facilities (Kwateng et al., 2014). This will reduce costs and will create the premise for more favorable conditions when working with partners. The company may include the disposal point to the agreement, which will become a significant competitive advantage.

Remanufacturing can be quite a common solution for manufacturers especially when it comes to insignificant flaws of products. As has been mentioned above, manufacturer readiness level should be properly assessed. Clearly, it is quite difficult to predict flaws that may occur, but it can be often achieved through affective risk management. To reach a high level of readiness, it is essential to make sure that all components and materials can be obtained within a short period. The production capacity should also be sufficient to respond to the challenges associated with additional manufacturing procedures. Additional storage space should also be considered.

At the same time, it can be beneficial for a company to consider the use of several patterns. For instance, the company can use remanufacturing, reuse and recycling under different conditions. Clearly, this has to be based on thorough analysis of the company’s capacity and resources. Even a pharmaceutical firm can resort to disposal and recycling (Kwateng et al., 2014). Of course, recycling of drugs is hardly possible, but it is possible and even advantageous to recycle packaging materials. Big companies can have particular facilities to dispose and recycle certain materials and components. However, smaller firms can contract other companies that specialize on recycling. The pharmaceutical manufacturer can improve its image as these companies often face a lot of criticism. The development of effective corporate social responsibility strategy can positively affect the organization’s overall performance.

Secondary Market and Reverse Logistics for Small Companies

Many firms try to avoid the reverse logistics pattern involving the entrance to the secondary market. This strategy is seen as cost- and time-consuming. Clearly, this method is often a last-resort option, but it can become quite an efficient solution applicable in many cases and bringing profit (Kokkinaki et al., 2013). As has been mentioned above, contracting vendors is rather common.

Large companies usually utilize this approach as it is rather cost-effective. The vendor takes up the risks, the storage space is available, there is no need to develop particular transportation channels to bring the goods to customers (Harrison & van Hoek, 2008). Of course, the company loses a significant share of the product’s value as sometimes the manufacturer receives only an insignificant part of the wholesale price (sometimes down to 10%). Another way is to address salvage brokers who may resell the products to another salvage broker or to the consumer. Large companies are ready to lose certain amount of money as they understand the gains associated with effective reverse logistics.

However, small firms can also benefit from reverse logistics as it is possible to resell products without losing funds associated with contracting vendors. Reselling of unsold or used products can help small ventures save funds and develop a competitive advantage. First, it is essential to develop a good understanding of the secondary market. It is necessary to consider the potential consumer profile. It is necessary to understand characteristic features of a person who may find the product useful. Thus, used books can be resold to students and even educators. When it comes to gadgets, highly professional items can be resold to amateurs who may want to try the product without significant investment. Even apparel manufacturers can employ the strategy of reuse. The price will largely depend on the state of the product and possible added values such as the ability to use luxury (professional, exclusive and so on) items at low prices.

To employ this strategy, it is necessary to implement some marketing research (to identify customer’s profiles, the market size and so on). It is also important to make sure that there is enough storage space for products that are on sale. It is also important to identify the most efficient channels (online websites similar to Amazon.com, company’s website, retail units and so on). Transportation should also involve efficient routes to collect the items and the ones to send products to customers.

One of the most cost-effective secondary market channels is the charity. As has been mentioned above, company can deliver returned (used or unsold) products to charity organizations or such public facilities as orphanages and hospitals. The company will not receive any monetary gains from that strategy (apart from tax liberalization in some countries). Nonetheless, it can acquire something more important: publicity and a positive image. To use this approach effectively, the company should also consider transportation and storage space. Apart from that, it is important to choose the most appropriate beneficiaries. Finally, the company should also communicate some details of the projects to the community (partners, consumers, other charities).

Both large and small firms can employ the two approaches mentioned above. At the same time, small companies can improve their position in the market through the use of efficient reverse logistics patterns. Small companies have to operate in highly competitive environments, and reduction of costs is critical. It is also important to create the added value to the products as it will help develop a significant competitive advantage. As has been mentioned above, it is crucial to implement a detailed research to develop proper transportation channels, establish proper communication channels with partners, consumers and other stakeholders, and so on.

Conclusion

On balance, it is possible to note that reverse logistics can improve the company’s overall performance significantly. There are different patterns of reverse logistics including remanufacturing, reuse, recycling, disposal, and redistribution. Each company can choose a set of methods or only one approach based on the type of products produced, and the way they are sold and distributed. Large companies have acknowledged the benefits of the reverse logistics, but small firms are still reluctant to utilize the associated strategy. Nonetheless, reverse logistics may be even more important for small ventures as they have to operate in a highly competitive environment and need to use any possibility to improve their competitiveness. Reverse logistics should be regarded as an integral part of any company’s operations as well as corporate and social responsibility paradigm.

Reference List

Bonev, M. (2012). Managing reverse logistics using system dynamics: A generic end-to-end approach. Hamburg, Germany: Diplomica Verlag.

Cellucci, T.C. (2011). A guide to innovative public-private partnership: Utilizing the resources of the private sector for the public good. Lanham, MD: Government Institutes.

Corbacioglu, U., & van der Laan, E.A. (2012). A quality framework in closed loop supply chains: Opportunities for value creation. In Y. Nikolaidis (Ed.), Quality management in reverse logistics: A broad look on quality issues and their interaction with closed-loop supply chains (pp. 21-39). New York, NY: Springer Science & Business Media.

Harrison, A., & van Hoek, R. (2008). Logistics management and strategy: Competing through the supply chain. Essex, UK: Pearson Education, Ltd.

Kokkinaki, A., Zuidwijk, R., van Nunen, J., & Dekker, R. (2013). ICT enabling reverse logistics. In R. Dekker, M. Fleischmann, K. Inderfurth, L.N. van Wassenhove (Eds.), Reverse logistics: Quantitative models for closed-loop supply chains (pp. 381-407). New York, NY: Springer Science & Business Media.

Kwateng, K.O., Debrah, B., Parker, D.W., Owusu, R.N., & Prempeh, H. (2014). Reverse logistics practices in pharmaceutical manufacturing industry: Experiences from Ghana. Global Journal of Business Research, 8(5), 17-26.

Pumpinyo, S., & Nitivattananon, V. (2014). Investigation of barriers and factors affecting the reverse logistics of waste management practice: A case study in Thailand. Sustainability, 6(1), 7048-7062.

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IvyPanda. (2020, May 10). Reverse Logistics Strategies on Secondary Markets. Retrieved from https://ivypanda.com/essays/reverse-logistics-strategies-on-secondary-markets/

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IvyPanda. "Reverse Logistics Strategies on Secondary Markets." May 10, 2020. https://ivypanda.com/essays/reverse-logistics-strategies-on-secondary-markets/.

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IvyPanda. 2020. "Reverse Logistics Strategies on Secondary Markets." May 10, 2020. https://ivypanda.com/essays/reverse-logistics-strategies-on-secondary-markets/.

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IvyPanda. (2020) 'Reverse Logistics Strategies on Secondary Markets'. 10 May.

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