International Journal of Physical Distribution & Logistics Management

Emerald Article: Designing the reverse supply chain: the impact of the product residual value Chiara Gobbi

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To cite this document: Chiara Gobbi, (2011),"Designing the reverse supply chain: the impact of the product residual value", International Journal of Physical Distribution & Logistics Management, Vol. 41 Iss: 8 pp. 768 - 796 Permanent link to this document: http://dx.doi.org/10.1108/09600031111166429 Downloaded on: 29-04-2012 References: This document contains references to 100 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 964 times.

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IJPDLM 41,8

Designing the reverse supply chain: the impact of the product residual value
Chiara Gobbi
Department of Operations Management, Copenhagen Business School, Frederiksberg, Denmark
Abstract
Purpose The purpose of this paper is to explore the impact of the product residual value (PRV) and the loss of value over time of returned products in the reverse supply chain conguration. It also examines whether or not the distinction of Fishers functional and innovative products holds for the reverse supply chain. Design/methodology/approach In order to identify the relevance of the Fisher model, the model needs to be recast in terms of PRV, which, in this context, is considered the independent variable in the reverse logistics arena. Products dened as innovative in Fishers taxonomy correspond to disposed products with high residual value, whereas functional products correspond to disposed products with low residual value. Furthermore, the PRV and the speed at which returned products lose their value are considered in order to determine the conguration of the reverse supply chain that allows for recapturing most of the PRV. These notions have then been tested by analyzing two reverse supply chains with a case study research methodology. Findings The ndings show that low PRV is associated with second-class recovery options (recycling and energy recovery) and that high PRV is associated with rst-class recovery options (reconditioning and remarketing). When the recovery option is recycling, time is not relevant, the primary objective is cost reduction (efciency), the chain is centralized, and actors and phases of the reverse chain are determined by the specicity of the recycling process. When the recovery option is reconditioning, time is primarily relevant, tradeoffs between costs and time efciency are necessary, the chain presents a centralized structure, and the presence of other types of actors and phases inuences the structure of the reverse supply chain. Research limitations/implications The focus is restricted to the industry of electrical and electronic products. Practical implications Based on the outcome of the study, managers are able to determine the basic prerequisites for the design of their reverse supply chains. Originality/value Previous literature suggests that when the PRV is high, early product differentiation is necessary, and the chain is therefore decentralized. The paper demonstrates that this is not conrmed in the case of low returned volumes and high reconditioning quality standards. Keywords Electronics industry, Returns, Recycling, Salvage, Reverse supply chain design, Reverse logistics, Product life cycle, Product residual value Paper type Research paper

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International Journal of Physical Distribution & Logistics Management Vol. 41 No. 8, 2011 pp. 768-796 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600031111166429

1. Introduction Because rms have historically concentrated on getting their products and services to the market, scientic contributions and business practices for the delivery chain have been well explored. Yet relatively few contributions have examined the potential of the reverse chain from a holistic point of view (Spengler and Schroter, 2003; Hana et al., 2008; Janse et al., 2010). Although such concepts as just in time, lean production,

mass customization, postponement, efcient customer response, vendor managed inventory, and continuous replenishment have been extensively explored from a theoretical and operational point of view, the literature contains few attempts to redeploy the same body of knowledge to investigate the reverse chain (Krikke et al., 2004). The focus of product return programs has traditionally been on cost minimization (Rogers and Tibben-Lembke, 2001). Over time, the level of interest within companies has expanded beyond the provision of reasonable after-sales service at the lowest possible cost. Companies are currently recognizing the increasing value of products and technology created at the end of the forward supply chain. This change in perspective, along with the impact of environmental legislation, has started to shift their focus toward various types of recovery programs. In fact, repair, refurbishment, remanufacturing and remarketing, cannibalization and recycling of raw materials are all examples of recovery options that can represent an attractive business opportunity, a positive answer to sustainable development, and a way of achieving competitive advantage (De Koster et al., 2002; Jack et al., 2010). Andel (1997, p. 61) stated: [. . .] by ignoring the efcient return and refurbishment or disposal of products, many companies miss out a signicant return on investment. It is therefore suggested that reverse, if strategically managed, can provide a competitive advantage by consolidating the market position with the overall benet of improving company image. However, prior to efcient management, it is necessary to design and implement the reverse chain that better supports the process of recovering value from disposed products. Grounded knowledge has been developed on several aspects of the reverse supply chain: . Differences between the forward and reverse supply chain (Fleischmann et al., 2001, 2004). . Differences between open loop and closed loop reverse supply chains (Guide et al., 2003; Geyer and Jackson, 2004; Krikke et al., 2004). . Reverse supply chain types (Fleischmann et al., 2001; De Brito et al., 2003). . Reverse supply chain drivers (Rogers and Tibben-Lembke, 2001; De Brito and Dekker, 2004; Toffel, 2004; Ravi et al., 2005). . Enabling factors (Rogers and Tibben-Lembke, 2001; Krikke et al., 2004). . Recovery options (Thierry et al., 1995) and recovery phases (Prahinski and Kocabasoglu, 2006). . Types and status of returned products, and actors involved in the reverse chain (De Brito and Dekker, 2004; Krikke et al., 2004). Instead, existing contributions on reverse supply chain design and conguration are limited almost totally to quantitative research and modeling, and they fail to provide business rules and a comprehensive framework for designing and implementing the reverse chain that better matches the conditions of the returned product (Derimel and Gokcen, 2008; Stock and Mulki, 2009). The aim of the study is to close the existing knowledge gap by identifying the most appropriate reverse chain structure in relation to the product residual value (PRV), considering if a centralized or decentralized structure is most appropriate, as centralization versus decentralization is a central issue in all forward supply

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chain design literature (Chopra and Meindl, 2010). Furthermore, the study investigates whether the well-known business model developed by Fisher (1997) can also be applied to the case of reverse chains. A multiple case study analysis within the electrical and electronic industries has been conducted in order to address these questions. Both industries comprise a broad range of products (e.g. blenders, grinders, washing machines, medical equipment, ICT equipment) and are going through signicant changes in recovery management as environmental legislation forces producers to consider appropriate recovery strategies. In addition, the sector is characterized by major changes in technologies and by a shortening of the product life cycle (Herold, 2007). This study focuses on End-of-Life (EoL) and End-of-Use (EoU) products that are returned by end-users. Other types of returns such as commercial returns, manufacturing returns, product recalls, by-products, and packaging returns have been excluded. Even though EoU and EoL are sometimes used as synonyms in the literature, there is a distinction between EoU and EoL returns (Krikke et al., 2004; Guide and Van Wassenhove, 2009). EoU products, as opposed to EoL products, may preserve functionality intact, and they are usually generated either by major technological breakthroughs that cause obsolescence or simply by customers changed preferences (e.g. replacement of mobile phones, audio-video devices, liquid crystal display monitors replacing cathode ray tube monitors). The distinction is relevant because EoU products may ow into secondary markets, prolonging the life cycle by delaying the moment the product becomes waste. Instead, in case of EoL returns, product functionality is lost (i.e. worn out products). Krikke et al. (2004, p. 26) denes EoL products as the returns taken back from the market to avoid environmental or commercial damage; EoU products, on the other hand, are products returned after some period of operations due to the end of leasing, trade-in or product replacement. The companies involved are manufacturers, logistics service providers, and recycling companies. The scope is therefore limited by the choice of industry, the type of returns, and company typology. However, focusing on an industry helps to control extraneous variations and to dene the limits for generalization (Eisenhardt, 1989). The next section presents the literature review, followed by a section describing the research problem and the research proportions, a section presenting the research methodology and design, and a section presenting a description of the case studies and outcomes. Then a presentation of the ndings follows. The paper ends by providing conclusions, limitations, and indications for further research. 2. Literature review The literature review is organized according to the denition of central terms and concepts used in the paper, followed by a section on the research gap. 2.1 Denitions of central terms Prior to further discussion, central terms within this research need to be claried. As one of the research objectives is the identication of the most appropriate reverse chain structure in relation to the PRV and to consider whether a centralized or a decentralized structure is most adequate, three terms are central to further analysis: supply chain structure, centralized versus decentralized structure, and PRV.

The literature yields three terms that characterize the formation and planning of supply chain: supply chain structure, supply chain conguration, and supply chain design. According to Lambert and Cooper (2000), supply chain structure refers to the length of the supply chain and the number of suppliers and customers at each level. Chen and Paulraj (2004) use the term to refer to a rm plus its suppliers and customers, where the main issues are the distribution of the tasks between the actors and the coordination mechanism that enhance supply chain performance. According to Zhang et al. (2009), supply chain conguration is the instantiation of a generic supply chain to a specic supply chain, whereas the lynchpin of supply chain conguration is in the coordination of product, process, and logistics decisions in relation to a variety of customer requirements. Smirnov and Chandra (2000) afrm that supply chain conguration is the approach to network enterprise creation in which enterprises are considered to be assemblies of reusable components dened on a common knowledge domain; conguring the supply chain therefore involves knowledge management among the chain agents. Graves and Willems (2005) and Li and Womer (2008) dene supply chain conguration as the practice of selecting among different suppliers, parts, processes, and transportation options, acknowledging that each option can vary in lead time and costs. For Akanle and Zhang (2008), conguring the supply chain requires the identication of the best combination of resources to answer everyday costumer orders, considering options of reconguration in case of changes in the demand pattern. Srai and Gregory (2008) provide a complete review of the conguration concept from a strategic management perspective. A major part of the literature that corresponds to the quantitative and modeling research stream uses the term supply chain design. Supply chain design is dened as the process of determining the number, location, and capacity of manufacturing, distribution, and storing facilities; the optimal quantity ow between them; the assignment of market demand to facilities; the selection of suppliers; the placement of safety stocks along the chain; and the transportation modes, production modes, and distribution channel to deploy (Graves and Willems, 2003; Meixell and Gargeya, 2005; Shen, 2005; Bidhandi et al., 2009; Melo et al., 2009; Klibi et al., 2010; Bottani et al., 2010; Lee and Wilhelm, 2010). Even if there are different connotations to the terms supply chain structure, conguration, and design, all three are frequently found in the majority of the reviewed papers; hence we can assert that the terms are used synonymously in the literature. Because the purpose of this study is not to contribute to the terminology discussion, the three terms are used equivalently here. Another important issue raised in this study is whether the reverse chain should be centralized or decentralized. Centralization versus decentralization in supply chain management is discussed, for example, in Lee and Whang (1999), Bernstein and Federgruen (2005), Waller et al. (2006), Ozsen et al. (2009), and Chopra and Meindl (2010). The main tradeoffs between a centralized versus a decentralized structure concern costs, lead time, and customer service (Abrahamsson et al., 2003). When centralization is pursued, the focus is on efciency, cost reduction, and economies of scale. When decentralization is pursued, the focus is on increased geographical coverage, short lead time, and increased customer service. In this study, we adopt the denition by Fleischmann et al. (2000, p. 660): centralization refers to the number of locations at which similar activities are carried out. In a centralized structure,

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each activity is installed at a few locations; whereas, in a decentralized structure, the same operation is conducted at several different locations in parallel. Because the purpose of the reverse supply chain is to recapture value from disposed products (Prahinski and Kocabasoglu, 2006; Atasu et al., 2008), determining the PRV of a dismissed product is crucial in conguring the supply chain. The PRV is considered a key concept in this study because it inuences the choice of the recovery option and therefore the supply chain structure. In nance, the residual value or salvage value is dened as the price at which a xed asset is expected to be sold at the end of its useful life. In the reverse supply chain context, the residual value of a product is dened as the value a product retains at the end of the usage phase (Kumar et al., 2007; Atasu et al., 2008). The usage phase represents one part of the product life cycle. In this study, we refer to the product life cycle as the succession of stages a product undertakes from design to disposal (design, production, distribution, usage, and ultimate disposal), which is the point of view adopted in product life cycle management theory (Tibben-Lembke, 2002). The usage phase is then the part of the product life cycle that refers to the use of the product by the nal user: the time the product is in users hands. Georgiadis et al. (2006, p. 516) refer to this concept as residence time: [. . .] the time the product stays with the user before it is returned. The PRV is the value that the product retains after usage the value remaining (preserved) after the manufacturing (value creation) phase and after the usage (value consumption) phase (Kumar et al., 2007; Brodin and Anderson, 2008). Recapturing value from the returned product (i.e. value reclamation) is the aim of recovery. Kumar et al. (2007) refer to the PRV as the EoU value. In Prahinski and Kocabasoglu (2006) the residual value is dened as salvage value. In this study, we adopt the term PRV. Furthermore, we investigate whether or not the well-known business model developed by Fisher (1997) also applies to reverse supply chains. In the Fisher (1997) model, responsive supply chains correspond to innovative products, whereas efcient supply chains correspond to functional products. Fishers paper is one of the most cited in the operations management literature, and a large number of studies have been conducted in order to validate, invalidate, or expand the model. The validity of Fishers model has been tested by Wong et al. (2006), Selldin and Olhanger (2007), and Lo and Power (2010). Another group of papers expand Fishers model by recasting efcient and responsive supply chain congurations with lean, agile, and hybrid supply chains (Mason-Jones et al., 2000; Christopher and Towill, 2001; Huang et al., 2002; Stratton and Warburton, 2003; Goldsby et al., 2006). Childerhouse et al. (2002), Ramdas (2003), and Payne and Peters (2004) expand Fishers model by integrating product attributes. Another key contribution is represented by Lees (2002) work, in which the demand uncertainty introduced by Fisher (1997) is considered in relation to the supply uncertainty. 2.2 Research gap Existing contributions on reverse supply chain design and conguration are limited almost totally to quantitative research and modeling. These studies consider specic reverse chain problems such as independent versus integrated reverse chain design with weak or strong correlation with a pre-existing forward chain (Fleischmann et al., 2001; Beamon and Fernandes, 2004; Kara et al., 2007; Srivastava, 2008; Lee and Dong, 2009; Mutha and Pokharel, 2009; Easwaran and Uster, 2010; Pishvaee et al., 2010),

facility location for reverse logistics (Shih, 2001; Bautista and Pereira, 2006; Walther et al., 2005; Queiruga et al., 2007), production planning and scheduling, capacity planning and inventory management for remanufacturing and disassembly, and reverse ow optimization (Walther and Spengler, 2005; Chanintrakul et al., 2009; de la Fuente et al., 2010). Only a limited number of studies consider the design and implementation of the reverse chain from a more holistic point of view, providing business guidelines (Thierry et al., 1995; Rogers and Tibben-Lembke, 2001; Guide et al., 2003; Blackburn et al., 2004; Toffel, 2004; Prahinski and Kocabasoglu, 2006; Bernon and Cullen, 2007; Kocabasoglu et al., 2007; Yang and Wang, 2007; Wikner and Tang, 2008; Jack et al., 2010; Janse et al., 2010), often focusing on specic aspects of the reverse supply chain such as a specic recovery option (Guide and Van Wassenhove, 2001), specic actors of the reverse supply chain (Hsu et al., 2009; Stock and Mulki, 2009; Simpson, 2010), or specic returned products (Pohlen and Farris, 1992; Shih, 2001; Knemeyer et al., 2002; Toffel, 2004; Hana et al., 2008; Grant and Banomyong, 2010). The purpose of this paper is to ll the research gap by providing a simple holistic framework for designing and implementing the reverse chain that better matches the conditions of the returned products and to investigate if Fishers business model can be applied in the reverse supply chain context. 3. Reverse supply chain design and the PRV 3.1 The relationship between the PRV and the recovery options Thierry et al. (1995) have identied the following recovery options: repair, refurbishing, remanufacturing, cannibalization, and recycling. From repair to recycling, the level of disassembly increases, while the possibility of preserving the product structure intact decreases. Repair refers to the return of used products to working order. Refurbishing raises used products to specied quality standards. Remanufacturing aims at reconguring the product in order to reach the same quality standards as a new product. In cannibalization, only a small proportion is reused in the form of parts and components. Recycling aims at recovering value on a material level. We argue that the PRV plays a central role in determining the appropriate recovery option (Stock and Mulki, 2009): the residual value determines whether or not the returned product should be disposed, recycled, repaired, refurbished, or remanufactured. Indeed, it is not correct to convey products with low residual value to recovery options such as repair, refurbishment, or remanufacturing (in combination referred to as reconditioning), but eventually to cannibalization and recycling (Knemeyer et al., 2002; Inderfurth, 2005; Kumar et al., 2007). The idea of considering the PRV when designing and implementing the reverse supply chain is the main tenet of this study. This notion is important because the PRV results to be the independent variable in the reverse arena. The PRV depends upon the returned product conditions as well as the existence of a secondary market. Specically, the distinction between low and high PRVs derives from a number of factors: the condition of the dismissed product (the age, quality, and intensity of usage; Guide and Van Wassenhove, 2003; Derimel and Gokcen, 2008), the demand for reconditioned products, the demand for recycled materials, the cost structure of the recovery process (Prahinski and Kocabasoglu, 2006; Kumar et al., 2007; Stock and Mulki, 2009), and the level of obsolescence (wear-out life, replacement life,

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technology cycle, design cycle, purchase cycle; Rose et al., 2002). All these factors are however exogenous, external to the reverse chain as they are all given conditions that the reverse chain cannot affect. They are dependent on the modality of use of the product, the existence of markets for reconditioned products and recycled materials, the criteria applied in product design, and the evolution of the technology embedded in the product. Of all the factors affecting the PRV, the most important is the existence of a secondary market that is willing to receive reconditioned products and at the price at which it is willing to receive them. The returned product can be in good condition, still functioning, and therefore apparently preserving a high residual value. However, if the returned product is obsolete and replaced by a newer generation of products that provides the same function or more functions at a lower price, the residual value is low. These considerations lead to the rst research proposition: RP1. The PRV determines the recovery option: the higher the PRV, the higher the possibility that the product is reconditioned (repaired, refurbished, remanufactured) and remarketed. Conversely, the lower the PRV, the higher the probability that the product is cannibalized and recycled. Recycling and cannibalization are classied as second-class recovery options, as the product structure is lost; the value is recovered uniquely in the form of components, materials, and energy generation through incineration, whereas the fraction that cannot be recycled is disposed by landll. Repair, refurbishment, and remanufacturing are classied, instead, as rst-class recovery options because they allow the recapturing of the residual value in the form of reusable products, thereby minimizing waste and environmental burden (Inderfurth, 2005; Simpson, 2010). This classication follows the Lansinks (Figure 1) scale ladder of ecological hierarchy for product recovery: recovery options that reuse more of the functional content of a product are preferred from an environmental standpoint (Duou et al., 2008). 3.2 The relationship between the recovery option and the reverse chain structure All recovery options can be linked to specic recovery operations. The following set of operations is recurrent: acquisition/collection, transportation, inspection, selection, separation/sorting, reconditioning, and disposal. Although acquisition and transportation are common phases, reconditioning and remarketing are distinctive for the reconditioning options (repair, refurbishment, and remanufacturing). In the case of reconditioning, the reverse supply chain presents the following key processes: product acquisition, reverse logistics, inspection, reconditioning, and remarketing. In the case of recycling, the reverse chain presents the following key processes: product acquisition,
Prevention of waste Reuse of products Reuse of components Material recycling Incineration with energy recovery Incineration without energy recovery Landfill +

Figure 1. Lansinks ladder: ecological hierarchy of recovery options

Priority order

reverse logistics, treatment, remarketing recycled raw materials, landll, and incineration (Krikke et al., 2004; Prahinski and Kocabasoglu, 2006; Grant and Banomyong, 2010). The recovery option thus determines the number and characteristics of the recovery phases and the number and type of actors involved (e.g. producers, public institutions, transportation providers, logistics providers, brokers, recycling companies). Consequently, the recovery option constrains the design of the reverse chain (Derimel and Gokcen, 2008). These considerations lead to the second research proposition: RP2. The recovery option affects the reverse chain structure by determining the type and number of phases involved, as well as the actors and their relationships. Because the PRV erodes over time, recovery options are, at different levels, time dependent (Stock, 2001; Yang and Wang, 2007; Hsu et al., 2009; Stock and Mulki, 2009). Blackburn et al. (2004) and Guide et al. (2003) recognize that the speed at which products are received, inspected, refurbished, and remarketed is crucial in recapturing most of the value. In particular, if the returned product has a high residual value and can be potentially reconditioned (rst-class recovery options), delaying the treatment causes a revenue loss, because returned products are subjected to fast obsolescence and degradation (Stock, 2001; Hsu et al., 2009). The concept introduced by Blackburn et al. (2004) in order to consider the loss of value over time is the marginal value of time (MVT), which can be expressed as:

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a MVT

Dv Dt

where Dv is the variation of value and Dt is the variation of time. The MVT measures the speed at which returned products lose value from the moment they are disposed by the user. High MVT means that the time for processing the returned product should be reduced as much as possible in order to extract most of the residual value rapidly. In order to reduce any delay, Blackburn et al. (2004) suggest a preponement strategy, which means to decentralize the initial phases of the recovery process (i.e. testing and evaluation) in order to direct the returned products to the most proper recovery option. It can be argued, however, that monitoring the MVT and reducing the processing time for high MVT products is relevant only if the PRV is high. In the case of low or no residual value, it is completely irrelevant if the returned product has a high or low MVT and is processed at a high or low speed. Indeed, in this case, any investment made to reduce the processing time would be totally lost (Stock and Mulki, 2009). The processing time should then be monitored and eventually reduced when the PRV is high. In these settings, the reverse chain should have a decentralized structure, at least for the rst phases of the recovery process. Not all the returned products with high residual have a high MVT. For instance, the loss of value over time varies across industries and product categories. Returned consumer electronics such as personal computers (PCs) lose their value at the rate of 1 per cent per week (Guide and Van Wassenhove, 2009). Products such as dishwashers and washing machines lose their value much more slowly. Furthermore, a decentralized structure requires multiple investments of the same kind in multiple sites (Chopra and Meindl, 2010), which are justied only in the case of high and homogeneous volumes (critical mass) that allow for the amortization of huge investments.

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These conditions are seldom veried in the reverse supply chain arena, characterized by different returned products, different intensity of usage, high variety, and multiple dispersed disposing channels (Knemeyer et al., 2002; Inderfurth, 2005; Wikner and Tang, 2008; Simpson, 2010). The aim of this study is to verify whether or not decentralization is the most convenient conguration in all cases of high PRV. These considerations lead to the third research proposition: RP3. Returned products with high residual value and high MVT call for a decentralized reverse chain (decentralized evaluation and testing); returned products with high residual value and low MVT call for a centralized reverse chain, whereas returned products with low residual value call for a centralized stricture, whether the MVT is high or low. By linking RP1 and RP2, we can derive that the PRV determines the recovery option and the recovery option constrains the reverse chain design. More precisely, the PRV inuences the choice of the recovery option that allows the most of residual value to be recaptured, and the recovery option limits the reverse supply chain conguration in terms of recovery phases, processes, and actors involved in the reverse chain. Furthermore, the PRV and the speed at which the returned product loses value constrain the reverse supply chain conguration in another way: whenever the returned products retain a high residual value and lose value at high speed (high MVT), the reverse chain should be decentralized (RP3). The proposed conceptual framework that needs to be veried is shown in Figure 2. 3.3 The PRV and the efcient versus responsive reverse supply chain If the primary objective of the reverse chain is to recover value in terms of reconditioned products, the chain design and conguration should guarantee a short lead time. Contrariwise, if the primary goal is to recover value in the form of recycled raw materials and/or components, time is less relevant and cost efciencies dominate (Krikke et al., 2004; Guide et al., 2006). This can be reinterpreted in terms of a responsive reverse chain in the rst case and an efcient reverse chain in the latter case according to Fishers paradigm. Fisher distinguishes between functional products with stable demand and a long life cycle and innovative products on the one hand with variable demand and a short life cycle on the other hand. He then proposes two supply chain structures in which
Proposition 1 Product residual value ? Recovery option Proposition 2 ? Proposition 3 ? Proposition 3 Reverse supply chain configuration Phases Processes Actors and relations Centralized Decentralized

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Low product residual value low MVT High product residual value

Figure 2. Conceptual framework for reverse supply chain conguration

Low MVT High MVT

? ? Proposition 3

an efcient supply chain needs to be designed in order to deliver products at low costs and a responsive supply chain designed for speedy response, concluding that the appropriate matching is the efcient supply chain for functional products and the responsive supply chain for innovative products. The relevance of the Fishers model for reverse chains is clearly seen by recasting it in terms of PRV: products dened as innovative in Fishers taxonomy correspond to disposed products with high residual value, whereas functional products correspond to disposed products with low residual value. Responsive reverse chains should therefore correspond to disposed products with high residual value, whereas efcient reverse supply chains should correspond to disposed products with low residual value (Table I). 4. Research methodology and design The propositions in this study have been investigated with a qualitative research approach, as at least three of the four points suggested by Yin (2003) are veried: the phenomenon of interest cannot be explained in isolation from its social complexity; there is a need to consider multiple subjective perspectives; and the phenomenon can be analyzed using concrete cases, considering their evolution within a temporal context. Furthermore, because the posed questions are how and why related to a contemporary set of events, over which the investigator has little control (Yin, 2003; Voss, 2009), the chosen research methodology is the case study research. Whenever possible, a research design that includes at least two case studies should be preferred to a single case design. Even with two cases, there is the possibility of providing for replication (Eisenhardt, 1989). Furthermore, two cases with opposing settings are convenient when seeking explanations rather than replication. In this type of research design, if the subsequent ndings support the contrasts, the results represent a strong start toward a theoretical replication, and it vastly strengths the external validity of the ndings (Yin, 2003). In this study, two cases with opponent reverse supply drivers have been investigated: legislation and value reclamation (Herold, 2007). They are opponents because the legislation forces producers to take back dismissed product even if the recovery process is not protable. The aim of value reclamation chain, on the other hand, is to generate prot from recovery. Table II includes the relevant information on the two analyzed reverse chains. Chain 1 is a legislation-driven reverse chain (legislation is the main driver) and Chain 2 is a value-driven reverse chain (value reclamation is the main driver). In both cases, the largest unit of analysis embeds smaller units of analysis and many different actors are involved. At least one interview for each type of actor was conducted, each lasting from 1 to 3 h. A total of 30 interviews were performed in 23 organizations. All the interviews were taped, transcribed, and coded. Interviews are subjected to bias (Yin, 2003); therefore, it is a good strategy to complement the data collection process with other sources. Whenever possible, site visits and direct observations were conducted along with the interviews. Company publications were also used to collect background information.

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Responsive reverse supply chain High PRV Low PRV Match No match

Efcient reverse supply chain No match Match

Table I. The relationship between the PRV and efcient versus responsive reverse supply chain

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Case study 2: the valueCase study 1: the legislation-driven reverse chain driven reverse chain Larger unit of analysis The reverse chain Multiple units of analysis Companies, institutional organisms, trading, and industry associations Types of actor Institutional organisms Industry/sector associations Producers/importers Waste management companies Actors interviewed The Danish Ministry of Environment and the WEEE System Collective schemes: LWF, Elretur, Nera, RE-DK, Ecodom Original Equipment Manufacturers (OEM): Bang and Olufsen, Bayer, Danfoss, Elgiganten, Nokia, Novo Nordisk, Zitech, Canon Recycling companies: Stena Technoworld, H. J. Hansen Elektromilj, Electrorecycling Product typologies Large household appliances Small household appliances IT and telecommunications equipment Consumer equipment Lighting equipment Electrical and electronic tools (with the exception of large-scale stationary industrial tools) Toys, leisure and sports equipment Medical devices Monitoring and control instrumentsAutomatic dispensers The reverse chain Companies Producers/importers Logistics providers ALPHABETA Geodis (Germany) Geodis (Italy) DHL

778

Table II. Presentation of the case studies

Notebooks Desktops Stationary computers CRT monitors LCD monitors Servers Printers/scanners Ovens Refrigerators Imagining devices

5. Cases descriptions 5.1 Case 1: the legislation-driven reverse chain The case under discussion concerns the implementation of the waste of electrical and electronic equipment (WEEE) reverse chain in Denmark. The ow is nanced by the producers, which have to pay a fee according to the annual market sales. The fee is used to establish the facilities necessary for collecting and recovering the disposed products from the nal users. In the most common situation, collective contracting is the form of collaboration chosen to comply with the legislation; the producers participate in organizations called collective schemes, which support the activities of collection, transportation, and treatment. The collective schemes interface with the municipal authorities, logistics service providers, and treatment companies. Therefore, types of actors involved in the WEEE system are various: governmental agencies (Ministry of Environment and WEEE System), trade associations and collective schemes, consumers, importers, producers, recyclers, and transportation companies, with their different levels of responsibility. Figure 3 shows the organization of the system. There are 300 municipal delivery stations located in Denmarks three main regions of Zealand, Funen, and Jutland, where consumers can dispose WEEE products. The user or municipal personnel sort the WEEE

300 delivery stations

80 municipal collection stations, WEEE products sorted stored in five fractions

Transportation and consolidation Jutland

Recycling

Refining

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Funen

Zealand

Source: Grunow and Gobbi (2009)

Figure 3. Representation of the WEEE recycling process

waste into ve categories. Collection sites are geographically dispersed to facilitate product disposal. Consolidation occurs when transporting the disposed products from the delivery stations to the municipal collection stations, from the municipal collection station to the regional sites, and from the regional sites to the recycling plants. Therefore, the chain leads to a centralized structure. Whenever the volume reaches a level that assures efcient truck loading, products are conveyed to the recycling plants. Recycling consists of removing hazardous substances and subsequent treatment. Valuable materials are sold to rening companies that enhance the purity level of the recovered materials, thereby increasing their value. All the residuals that cannot be recovered are incinerated or sent for landll disposal. The centralized structure is aimed at minimizing processing and transportation costs at the expense of a long lead time, which is irrelevant in the case of this type of dismissed product considered as waste. Centralization also guarantees high utilization of the recycling capacity. 5.2 Case 2: the value-driven reverse chain Case 2, the value-driven reverse chain, considers a logistics service provider that offers both forward and reverse logistics services (Geodis). Two reverse ows, representing two scenarios, have been analyzed: . Scenario 1: refurbishment of PCs and mainframe equipment. Refurbishment is performed centrally in Mainz for dismissed products collected from 15 European countries. The center is almost completely dedicated to a single customer, which is called Alphabeta for anonymity. . Scenario 2: pretreatment/dismantling of end of utilization products in Busnago, Italy. In contrast to refurbishment, the pretreatment service is performed for customers located in a single country (Italy). In both scenarios, the aim is the recovery of value in the form of products (refurbishment) or in the form of products, components, and parts (pretreatment/dismantling). The two scenarios can be considered as two instances of the same value-driven reverse chain,

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with Geodis as the focal company. However, they do present distinctions; although refurbishment is centralized, dependent on product typology (PC equipment), and customer-dedicated, pretreatment and dismantling is to some extent decentralized (Goedis Italy serves only the Italian market), partially product typology dependent, and not customer specic. Scenario 1: refurbishment. The dedicated site in Mainz performs the refurbishment of PC equipment; 200,000 units are treated yearly, with an average weight of 13 kg. Of these 200,000 units, 165,000 are refurbished and 35,000 are dismantled and scrapped, with 60,000 parts being harvested from the scrapped portion. The monthly load is approximately 16,000 units. The Asset Recovery Center (ARC) is 99 per cent dedicated to Alphabeta; therefore, the refurbishment process is highly dependent upon Alphabetas requirements in terms of performances and contract service-level agreements. One of the Alphabetas core businesses is the leasing of IT products to business users, and the ARC processes those leased products when they are returned. According to the service-level agreement, the total lead time to perform the complete process (picking, transportation, receiving, testing, error reporting, and refurbishment) is 12 days, counted from collection at the customer site to order completed, meaning that testing has been performed, errors and damages have been identied and registered, and the product has been sent to either refurbishment or dismantling. Of the 12 days, seven days are for collection, transportation, and receiving, and ve days are allocated to other operations (i.e. packing). Within 14 days, products must be available in the storing area, and ready for shipment. Geodis is in charge of collecting dismissed products whenever Alphabeta signs a new agreement with its customers. The inbound logistics must ensure collection from Alphabetas customer sites in Europe, intermediate consolidation, and delivery to the Recovery Asset Center in Mainz. An integrated track and trace system allows Geodis and Alphabeta to follow the entire inbound logistics process. The transportation service is partly performed by Geodis and partly outsourced, depending on the transportation infrastructure deployed in each country. The consolidation phase is crucial when the transportation service is not outsourced. The picked volumes are consolidated in the local country hubs before being delivered to Mainz. Truck loading optimization must be balanced with time-dependent constraints, as returned products are subjected to a loss of value of 2-5 per cent per month. The main challenge for the center is to adjust capacity planning within time frames as short as a few days. Geodis receives general information on the expected number of pallets and product groups but not on the quantity, types of products, or conditions. At the moment of receipt, the shipment and the product serial numbers are registered. All the products are subjected to an Asset Verication Test for functionality, conguration, and cosmetics check. A fault reporting system is used to register and identify errors and defects. After receipt, data wiping and hard disks impairment is performed. HDDs are physically destroyed by drilling or erased by magnetic elds. Refurbishment is performed by using the parts harvested from defective machines. Of the equipment received, 20 per cent is dismantled and scrapped due to bad cosmetic conditions, obsolete technology, or denied authorization for refurbishment and due to excessive refurbishment costs. Therefore, there is no need to supply the refurbishment process with externally acquired components. On the contrary, half of the harvested parts are used for refurbishment in Mainz and half are sent to a central warehouse

in The Netherlands and used by the European Alphabeta repair network. Whenever machines are not refurnished, valuable parts are harvested, and the remaining components are sorted into two categories: recyclable metals and harmful substances. Hazardous substances are sent to the proper disposal areas. After refurbishment, products are stored in the warehouse and nally packed. Products are always Alphabeta property during the overall process, and it is Alphabetas responsibility to remarket the reconditioned products via a brokers network. Reconditioned products are sold all over the world, but primarily in Europe. Figure 4 shows the settings of Scenario 1. Scenario 2: pretreatment and dismantling. The Geodis unit in Busnago, Milan operates exclusively for the Italian market. The site performs the disassembly of servers, stationary computers, and printers, mainly. It is dedicated primarily to the phases that come before recycling: dismantling, parts/components harvesting, and material separation. The output can be waste, recyclable materials, and metals and reconditioned products. Waste is conferred to waste treatment plants, recyclable materials and metals are conferred to specialized rening and melting plants, whereas reconditioned products are sold in secondary markets. The center occasionally acquires defective lots of electrical or electronic products from the market, and the products are repaired and resold. The service is offered to a diversied customer panel. The total processed volume is around 3,000,000 kg per year. The volume and weight of treated products can vary considerably, from PCs, through metal racks, to cash ow machines. The major part of the input is recovered as: . Refurbished machines. Returned defective lots are bought from the market, then repaired and remarketed. . Remanufactured and remarketed components/parts. Remanufacturing involves memory cards, hard disks, monitors, and keyboards. . Components consigned to specialized melting plants. Gold, silver, and palladium are recovered by melting in a blast furnace. . Material consigned to rening plants and recovered as raw material (plastic, paper, wood, glass, non-precious metals). . The remaining part is sent for incineration and landll.

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Customers business users 100% Receipt Asset verification test

Data wiping

Dismantling Parts harvesting Remarketing 85% Refurbishment Disposal Brokers Recycling companies 15%

Figure 4. Representation of the refurbishment process at Goedis Mainz, Germany

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Inbound transportation is outsourced to several transportation providers that collect disposed products from all over Italy and consolidate them at the local hubs in order to guarantee full truck loading. The quantity and typology of the received material is known in advance. The receiving is organized into several steps: receiving approval and weighing, material identication, updating of bookkeeping registers, updating of documentation and movement to the unloading areas, and dispatching to the process areas or preliminary depot. The process is differentiated according to the products received. Products received with an order of demolition are rst disassembled into valuable parts and hazardous and non-hazardous waste. Components are processed in order to extract valuable metals, distinguished as precious, ferrous, and non-ferrous metals. Products that are not covered by the obligation of destruction are also dismantled into parts, and materials and parts that are valuable are remarketed or used for refurbishment. The process is executed by specialized operators assigned to exible working stations adapted to process any type of product. The processing capacity is measured in kilogram per hour, and the average capacity is 80 100 kg/h. Capacity loading is generally performed on a monthly basis, but it is recalculated for incoming spot orders. The output follows different paths according to its typology. Waste is sent to disposal facilities specializing in the treatment of hazardous or nonhazardous waste. Precious and valuable metals are conferred to rening and melting plants. Refurbished products, valuable parts, and components are acquired by brokers. Figure 5 shows the settings of Scenario 2. 6. Findings In RP1, it is assumed that if the disposed product retains a high residual value, it is reasonable to consider rst-class recovery options with subsequent trading in secondary markets. If the product has a low residual value, second-class recovery options should be considered instead. The evidence that emerged from both cases supports the argument of RP1: . The legislation-driven reverse chain processes disposed products with low residual value and products are conveyed to recycling. The focus is on recycling and energy recovery in the form of incineration. . The value-driven reverse chain processes disposed products with high residual value, and products are remarketed as a whole after reconditioning (Scenarios 1 and 2), as valuable components/parts (Scenario 2) or as precious metals (Scenario 1). The chain concentrates on refurbishment and remanufacturing.
Business users Brokers Producers Consolidation hubs Pretreatment/dismantling hub

Figure 5. Representation of the pretreatment/dismantling process at Goedis Busnago, Italy

Local institutions Recycling/refining companies

Wholesalers retailers

The legislation-driven reverse chain processes returned products with low residual value and the products are conveyed to recycling. The fact that the legislation-driven reverse chain deals with low PRV is immediately explained by considering the typology of the returned products. The ow generates primarily historical waste products that have been in use for long periods. Returned products are either broken and repair costs more than the purchase of a new product or are obsolete surpassed by products with enhanced functions and newer technologies. All products are conveyed to recycling, supporting the argument that low residual value (dismissed products are waste) matches second-class recovery options. First-class recovery options (repair, refurbishment, remanufacturing) are carried out when the PRV is high. The two scenarios of the value-driven reverse chain, both the refurbishment process (the case of Geodis Germany) and the pretreatment/dismantling process (the case of Geodis Italy), aim at recovering value in the form of products whenever the residual value is high enough to justify transportation, reconditioning, and remarketing. In the rst ow (Geodis Germany), the information that the PRV is high is well known in advance, as the dismissed products are leased, with a known usage cycle and technology. That is why the producer Alphabeta has decided to support this prot generation opportunity with reconditioning and remarketing, maintaining the property of the dismissed products throughout the whole process. In the second ow, Geodis has invested in facilities that offer dismantling and preliminary treatment. In this case, it is not known in advance if the PRV is high, and reconditioning is performed whenever the received product has high residual value. Once more, the rst-class reconditioning options are tied to high PRV. In RP2, it is assumed that once the most convenient recovery option is determined by assessing the PRV, the recovery option affects the reverse chain structure by determining the type and number of phases involved, the actors, and the actors relationships. For the legislation-driven reverse chain, recycling is the recovery option. Recycling imposes the following set of phases: collection, sorting, consolidation, transportation, recycling, remarketing recycled raw materials, and landll and incineration of unrecyclable fractions. The presence of actors such as recycling and treatment companies and institutional governmental agencies assures the correct handling of the waste. Because waste recycling is regulated by stringent norms, the relationships among these actors are determined by specic contractual agreements. For the value-driven reverse chain, reconditioning is the recovery option. Reconditioning comprises the following phases: collection, transportation, inspection, reconditioning, and remarketing of reconditioned products. Reconditioning imposes the presence of specialized actors with specic assets (trained and skilled personnel and equipment for testing and repair). The relationships among the actors are not regulated, as they are in the legislation-driven reverse chain, but are based upon trust, commitment, and mutual dependence. This is especially veried by ARC Germany, which is fully dedicated to service a single customer: Alphabeta. Alphabeta and Geodis are strongly linked, and they periodically work together on strategies to reduce lead time, improve service, and enhance quality standards of the reconditioned products. In RP3, it is assumed that returned products with high residual value and high MVT call for a decentralized reverse chain (decentralized evaluation and testing); for returned products with low or high residual value and low MVT, the reverse chain should be centralized.

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The evidence emerging from both cases does not entirely support the argument of RP3, as all phases of the recovery process are centralized in both the reverse chains, whether legislation driven or value driven. Nevertheless, the MVT is always high in Scenario 1 and usually high in Scenario 2 (the value-driven reverse chain). The legislation-driven reverse chain processes returned products with low residual value (waste) for which the speed of treatment is irrelevant. Recycling waste is not time sensitive; therefore the chain is structured in order to maximize cost efciencies. In this case, the centralization of processing and transportation results in the most obvious conguration for providing economies of scale (Grunow and Gobbi, 2009). Collection sites are geographically dispersed in order to facilitate product disposal and are imposed by the WEEE authority. But as soon as the materials are sorted, the waste is consolidated before being transported to recycling plants. Because full utilization of the treatment capacity is also necessary for gaining economies of scale, products are not transferred to the recycling plants until a full truck can be loaded. Figure 6 shows the centralized structure of the legislation-driven reverse chain. The value-driven reverse chain processes returned products with high residual value. The residual value and MVT are high in the case of Scenario 1 (Geodis Mainz) because returned products are leased products that are refurbished and sold via a network of brokers. In Scenario 2 (Geodis Busnago), the residual value and MVT can vary according to the lots acquired from the market. Some lots present only minor faults, and products can be easily repaired and sold. Other lots are acquired in order to extract valuable components that can be remanufactured and sold. Only a minor portion of the returned products is sent to recycling. In both Scenarios 1 and 2, therefore, the processing speed is crucial in order to extract value from the returned products and gain higher prot from reselling, as the residual value and the MVT are usually high. The decentralization of the testing and repair phases accompanied by a preponement strategy is invoked in the literature in order to reduce lead time and delays (Blackburn et al., 2004, Guide et al., 2006). This guarantees that the PRV is not eroded by unnecessary long waiting and queuing times. The ndings, however, do not support this argument. Both Scenarios 1 and 2 present a centralized reverse chain structure. Neither of the two ows of the value-driven reverse chain (refurbishment in Mainz, pretreatment/dismantling in Busnago) supports the argument for decentralization. The rst ow is clearly centralized. The second leads toward centralization at least at the national level. For refurbishment, the chain operated by Geodis for Alphabeta is characterized by centralized testing and refurbishment (Figure 7). The centralization of activities has been decided for a variety of reasons:
Decentralized collection Consolidation

Centralized inspection and sorting

Recycling Full truck loading

Figure 6. The centralized legislation-driven reverse chain

Centralized operations allow tight control of quality standards for refurbishment. Local repair centers could introduce different routines that do not guarantee the same results. Centralization avoids multiple investments in specialized resources. The treated volumes do not justify multiple local investments. Local dedicated investments in specialized personnel and refurbishment equipment would be reasonable only in the case of sizable incoming volumes. The refurbishment center of Geodis Germany has the capacity to serve 15 European countries. Alphabeta treats the remaining volumes directly in Montpellier, France. Centralization allows Alphabeta to control the remarketing process and the network of brokers that acquire the reconditioned products and resell them in secondary markets.

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The second case, the ow operated by Geodis Italy, also presents centralized testing and dismantling (Figure 8). Centralization is on a national level, whereas Geodis is an international logistics service provider. During the interview with the managing director of the Geodis Italian Reverse Logistics Center, it emerged that the decision to serve only national customers was not dictated by considerations related to short lead time. Given the exceeded processing capacity, the potential expansion of the market would allow the same service to be offered to customers outside the Italian territory. However, because national legislations require the center to acquire disposed products as waste, complications can arise with cross-border transportation. In order to avoid difculties related to cross-border transportation authorizations, Geodis Italy has decided to maintain a national approach. The national approach is also determined
Decentralized collection Consolidation Centralized inspection Centralized treatment (remanufacturing/refurbishment)

Brokers Recycling

Figure 7. The centralized value-driven reverse chain of Scenario 1

Decentralized collection Centralized inspection Pretreatment and dismantling

Brokers Consolidation Recycling

Figure 8. The centralized value-driven reverse chain of Scenario 2

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by a clear policy decided by Geodis Headquarters to avoid internal competition among reverse logistics centers operating in other countries. In both scenarios, even though the sorting and reconditioning activities are centralized, the lead time is kept under tight control with an adequate reverse logistics policy. A short lead time, which is most important in the rst scenario (ARC Mainz), is guaranteed by fast reverse logistics, which penalizes full transportation capacity utilization in order to comply with the 14 days for order completion. A necessary tradeoff occurs between speed and cost efciencies. Despite this, as the reverse chain deals with value lost at the rate of 3-5 per cent a month, the tradeoff is toward speed. This study was based upon the assumption that responsive reverse supply chains correspond to disposed products with high residual value and that efcient reverse supply chains correspond to disposed products with low residual value. In order to characterize the responsive and efcient reverse supply chains, Fisher (1997) applies the following dimensions: the chains primary focus, the manufacturing focus, the inventory strategy, the lead time focus, the approach to choosing suppliers, and the product design strategy. In the case of a reverse supply chain, in order to determine if the reverse chain should be efcient or responsive, three factors are relevant: (1) Primary purpose. The evidence that emerges from the analysis reveals that the legislation-driven reverse chain primarily aims at recycling the incoming volumes, gaining cost efciencies, and respecting recovery targets, whereas the value-driven reverse chain primarily aims at reducing time delays and shortening lead time. (2) The manufacturing focus that can be seen in terms of recovery focus in a reverse chain. Considering the recovery process focus, the legislation-driven reverse chain attempts to maintain a high utilization level of the deployed infrastructures (transportation facilities and treatment facilities), whereas the value-driven reverse chain needs to balance high utilization rates with short lead time. (3) The lead time focus. The legislation-driven reverse chain is not time sensitive. Returned products have low or no residual value, rendering the recovery time irrelevant, whereas lead time is predominant in the value-driven reverse chain. The ndings are summarized in Table III. The analysis shows that the disposed products of the legislation-driven reverse chain fulll the characteristics of an efcient design, whereas the disposed products of the value-driven reverse chain fulll the criteria for a responsive chain. Analogous to
Efcient responsive reverse supply chain Primary focus

Responsive reverse supply chain

Table III. Efcient versus responsive reverse supply chains

Recycle efciently incoming volumes Recapture most of the PRV and maximize recovery targets Recovery process focus Maintain high average utilization Compromise between a high average rate of the recovery infrastructures utilization rate of the recovery infrastructures and the requirement for short lead times Lead time focus Irrelevant to shorten lead times as Investments to reduce the lead time long as it does not increase costs

Fisher (1997), therefore, the disposed products can also be characterized as functional and innovative products. 7. Conclusions Many studies in the reverse supply chain management literature take a narrow approach, addressing specic aspects of the reverse chain or employing mathematical modeling. This study provides a simple framework for designing the reverse chain on the basis of the evaluation of the PRV, which depends upon a series of factors exogenous to the reverse chain (Rose et al., 2002; Guide and Van Wassenhove, 2003; Kumar et al., 2007). It has been hypothesized that the reverse chain design depends on the recovery option, which ultimately depends on the PRV, whereas the centralized versus decentralized structure depends on the evaluation of the MVT. RP1 has postulated the dependency of the recovery option on the PRV. RP2 has postulated the dependency of the reverse chain design in terms of phases, process, and actors involved. RP3 has added guidelines for reverse chain design in terms of centralized versus decentralized structure in relation to the MVT. Furthermore, it has been assumed that by recasting Fishers model in terms of functional products corresponding to products with low residual value and innovative products with products with high residual value, it is possible to determine if the reverse chain should aim at efciency or responsiveness. The analysis revealed that RP1 and RP2 are supported by the cases evidence. RP3 has been partially veried, as the reverse chain results to be centralized in all cases. Instead, the application of Fishers model to the reverse chain results in consistency in all cases. The propositions have been tested with a case study research methodology, and two reverse chains legislation driven and value driven have been considered. The legislation-driven reverse chain, which deals with disposed products with low or no residual value, has recycling as the recovery option. Because efciency is imperative for recycling, the chain structure is arranged in such as way as to gain cost efciencies. Central consolidation hubs are utilized in order to collect centrally all the waste delivered to the municipal collection stations. By consolidating, the chain obtains economies of scale in transportation and treatment. The actors participating in the chain are recycling companies, governmental and institutional organisms, specialized logistics providers, and producers associations. The value-driven reverse chain, which deals with disposed products with high residual value, has reconditioning as the recovery option. Because reconditioning is time sensitive and the PRV decreases as time passes, it is crucial to reduce the lead time and eliminate delays. The chain operated by Geodis Germany for Alphabeta is extremely time dependent: 14 days is the total available lead time from collection to completed order. Chain responsiveness is reached to the detriment of cost efciencies in transportation. The tradeoff between cost savings and responsiveness is in favor of time reduction. The second chain, operated by Geodis Busnago, is less time dependent, as it acquires a mix of products with different residual values. The actors participating in the chain are logistics service providers, producers, and business users. In summary, this study has demonstrated that: . First-class recovery options (i.e. repair, refurbishment, remanufacturing) must be considered for returned product with high residual value; second-class recovery

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.

options (i.e. recycling and incineration) must be considered for returned products with low or no residual value. The recovery option determines the phases of the recovery process, the chain conguration, the type of actors involved, and their relationships. Although the literature suggests decentralization for returned products with high PRV and high MVT, the decision to implement a centralized versus decentralized reverse supply chain structure should be driven by the size of incoming volumes and the need of expertise (dedicated tooling and specialized personnel) in reconditioning. The efcient reverse supply chain is the right match for products with low residual value (legislation-driven reverse chain), whereas the responsive reverse supply chain is the right match for high PRV (value-driven reverse chain).

Results obtained from the case analysis are shown in Figure 9. 7.1 Limitations and indications for further research Contrary to RP3, supposing that high residual value and high MVT correspond to decentralized testing and evaluation, the value-driven reverse chain has been shown to be centralized in all its phases. As soon as returned products are collected, the transfer to a central treatment center occurs. The managing directors of Geodis Italy and Geodis ARC Mainz explained the choice of a centralized structure primarily in relation to incoming volumes and high investments required in terms of specialized recovery equipment and personnel. The center in Mainz benets from a favorable condition: having a long-term contract with Alphabeta for the refurbishment of leased IT equipment being returned from 15 European countries. The contract assures that
Main objective: reduce costs efficient reverse chain Phases: collection, sorting, consolidation, transportation, recycling, remarketing recycled raw materials Actors: final users, specialized logistics providers, producers associations, governmental organisms, recycling companies __________________________________ Chain structure: centralized Main objective: tradeoffs between costs and time efficiencies, time efficiency predominant responsive reverse chain Phases: collection, transportation, inspection, reconditioning, remarketing of reconditioned products Actors: business users, logistics providers, producers, brokers _________________________________ Chain structure: centralized

Low or high MVT irrelevant

Low PRV

Recovery option: recycling

Product residual value (PRV)

High PRV

Recovery option: reconditioning

Figure 9. Design framework for the reverse chain depending on PRV and the MVT

High MVT

Low MVT

the center has adequate incoming volumes for full utilization treatment capacity, whereas the center in Italy struggles on a daily basis to chase returned lots from the market. It appears, therefore, that current incoming volumes do not justify the establishment of local recovery facilities. Indeed, Alphabeta, one of the worldwide largest producers of PCs and mainframes, has only one other recovery center in Montpellier, France; two assets recovery centers are sufcient to refurbish leased equipment returned from all over Europe. At present, the reverse value chain analyzed in this study tolerates high transportation costs in order to guarantee short processing time in a centralized setting. Further research could address industries or products characterized by larger return rates and determine if the centralized chain structure still holds. This study focuses on two types of returns: EoL and EoU. Manufacturing returns, product recalls, by-products, packaging returns, and commercial returns have been excluded from this study. Further research can address these types of returns and determine if ndings are still valid. In particular, commercial returns could be an interesting area to investigate in order to enhance the understanding of the reverse supply chain, as they may confute some ndings of this study. For instance, commercial returns may support a decentralized reverse chain structure, as they usually require only minor processing before being placed back on the shelf. The main actors in this study are manufacturing companies, logistics service providers, and recycling companies. In particular, logistics providers have emerged as key players in the reverse supply chain management arena (Halldorsson and Skjtt-Larsen, 2006). Further research can be conducted to investigate the role of these actors that can benet from the favored position of owning the logistics infrastructure, complex knowledge of the mechanism involved in logistics, and idiosyncratic resources that can be leveraged for other activities, such as product returns. It is not merely fortuitous that major logistics providers are investigating ways of enhancing their reverse logistics portfolio (Prahinski and Kocabasoglu, 2006). This study has addressed the industry of electrical and electronic products. Although a focusing on industry level helps to control extraneous variations, it limits the possibility of generalizing the ndings to other industries (Yin, 2003). Therefore, further research should consider other industries in order to expand the applicability of results. In particular, the relevance of the PRV and the MVT that have been determinant in this study may be shown to be irrelevant in industries unaffected by rapid technological change and rapid loss of product value. This study is based upon qualitative research design and it utilizes case studies as research methodology. Two case studies with opposing drivers (legislation and value) have been considered. The choice of two cases with opponent tenets has the advantage that results represent a strong start towards a theoretical replication, vastly strengthening the external validity of the ndings (Yin, 2003). Nevertheless, further research could aim at theoretical replication by including other drivers (e.g. social reputation and company image), types of returns, products returned at different stages of the product life cycle, and other cases of value-driven and legislation-driven reverse chains (e.g. the reverse chain for EoL vehicles or batteries, both of which are regulated by European directives). Further research can also be directed at rening the research

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propositions by employing an analytical approach. Surveys, for instance, could represent a viable way of quantifying and strengthening the relevance of the ndings. This study provides a useful framework for producers wanting to determine a successful strategy for product returns. The starting point would be to determine which product return ows have a direct impact on the company and segment them according to the PRV. Further research could address the level of involvement of the producers on recovery actions (Herold, 2007). A high level of involvement could determine another conguration of the reverse supply chain a more decentralized structure in which retailers and wholesalers are involved by sharing the benet of a protable reverse chain, for instance. Economic metrics for efciency and effectiveness have been well explored in the supply chain management literature. In fact, an entire research stream is devoted to performance management systems (Morgan, 2007). Because the reverse ow has high impact in terms of benets guaranteed to the environment and the society, it would be relevant to combine performance indicators for economic efciency with performance indicators for environmental efciency. An interesting area for further research could be the denition of a performance management system that combines economic and environmental indicators. This study has contributed to the general understanding of the supply chain management eld. Supply chain management has received increasing attention over the last 20 years, but limited contributions have evaluated product returns from a management point of view. It is still an open question if it is correct to consider reverse supply chain as a separate stream or if the reverse ow should be considered as part of the forward supply chain in the logic of closing the loop (Krikke et al., 2004; Geyer and Jackson, 2004). This study does not support the argument of closed loop supply chains, as most often the return ow cannot be considered as part of the original supply chain. What emerges more frequently are two distinct ows, in which the demand of the forward ow becomes the supply of the reverse ow, the actors are different, and strategic objectives diverge. Thus, whereas the essence of supply chains is to create and provide value, reverse chains have the objective of recovering value or complying with environmental regulations.
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