Creating Competitive Advantage through the Application of Reverse Logistics in the Supply Chain Management
In every company, it is very important to attract new customers and retain the current customers on viable conditions. These actions cannot be accomplished in any single company without creating a competitive advantage. The main technique of creating a competitive advantage that a company can adopt is creating quality products or services than their competitors. They can also create products that the target customers would prefer than their alternatives. Many companies across the world have adopted reverse logistics as a strategy to increase competitive advantage. This is because this technique lowers supply cost in the supply chain.
Companies using reverse logistics can also reduce the opportunity cost of outdated products. Companies can also gain additional revenue and finally reduce the cost of operation. This is due to the fact that companies can be able to manage the flow of their products through the supply chain. Reverse logistics is also advantageous as it expands the global economy. Thus, reverse logistics can be defined as a process of controlling the flow of finished goods from their final destination back to the manufacturer for value addition so as to enable recycling or reuse or for proper disposal. Reverse logistics can be used to explain environmental externalities resulting from increased production and supply. The following essay will be on the theories that have been put in place in regard to creating competitive advantage through reverse logistics and evidence of the theories.
Theories in Reverse Logistics
The theory of reverse logistics has been gaining significant popularity for the organization across the world. This theory is essential for the cost-effective flow of the commodities that had been previously providing in the markets for the use by the consumers back to the organization. The theory of reverse logistics ensures that the organization can consider recycling and reuse of the previously supplied commodities as well as learn more about the market (Dowlatshahi, 2000: 1). This theory is used together with the theory of supply chain management. The theory of supply chain management ensures that the products flow from the point of production to the consumers is steady and maximized (Vural, 2015: 262). The theory of reverse logistics, therefore, can be used to ensure that the process of supply chain management is helpful to the organization. Supply Chain management theory helps the organization understand the methodologies that can be sued to maximize supply for the commodities through increase the demand and looking for new markets that have not be accessed before (Touboulic, and Walker, 2015: 3)
Reverse Logistics Concept in Supply Chain Management
The supply chain management deals with the flow of goods and services from the point of manufacturing to the point of consumers. The consumers are limited which make the organization selling a similar commodity to create a competitive advantage in order to outdo other fellow competitors (Mohamed and Omwenga, 2015: 45). The supply chain management requires an organization to apply various models in order to win the market. Some of the models that can embrace include the use of reverse logistics in the management of the supply chain and create a competitive advantage. The reverse logistics as defined in the introduction deals with the management of goods and services after they reach the market (Stănciulescu, 2011: 1). This idea means that the goods flow back to the organization for further management which ensures that the losses are minimized as well as optimizing the usages of the defective commodities (Menachof, et Al., 2009: 145).
In the market environment today, the consumers have a wide variety of goods and services providers. Therefore, the companies cannot sell all of their products at once. This means that the reverse logistics helps the company to manage the flow of goods from the flow of commodities from the manufactures to the consumers and managing those commodities that do not end up in the final consumers’ ownership. Reverse logistics can help the organization create a competitive advantage in that the commodities that are not sold will be managed for possible re-use (Stănciulescu, 2011: 2). On the other hand, the practices involved in the reverse logistics ensures that the organization minimizes the cost when some of the goods are recycled and reused in the organization’s activities (Vural, 2015: 265). This means that reverse logistics help the organization overcome the burden of surplus production wastage.
Moreover, management of the flow of goods and services enables the company to hire good and qualified staffs who are able to maintain the competitive advantages of the organization. Therefore, the reverse logistics practices can guide an organization to attract more consumers since the management of the flow of commodities from the manufacturer to the consumer is professional. Management of the surplus supply also requires professionalism hence the acquisition of qualified people in the supply chain management who can effectively apply reverse logistics can help an organization defeat the competitors in the markets.
Reverse logistics also refers to the process of ensuring the flow of raw materials is minimized. The low of these raw materials are from the consumers where they had maybe used the products of the organization and did not manage the waste properties. On the other hand, the management of the flow of goods from the consumers to the manufacturer can help the organization disposes of the waste properly hence helping the communities go green. Management of waste can be a good thing for the organization. This is because the environment which highly polluted with commodities and materials from a certain company, for example, the fast-food organization, can lead to discouragement from the potential consumers.
The efforts of keeping the environment clean can help the organization also minimize the cost wastage in dealing with problems associated with the dirty environments such as lack of clean water and raw materials due to global warming. In this regard, the consumers will not be happy with the company which is not managing the waste properly (Stănciulescu, 2011: 3). Therefore, the use of reverse logistics can help the organization acquire significant clean environment through recycling and reuse of the raw materials originating from the consumers.
Roles of Reverse Logistics
Through reverse logistic company can become efficient environmentally through recycling used products, reusing and minimization of the number of products used. Reduction of materials used in forwarding flow is one of the vital modes by which reverse logistics can work on. This reduces backflow of unused products and also reduces the damage of products as a result of over clumping when being transported (Mohamed, 2016:1). Recycling and reusing materials are very vital in the reduction of pollution it also allows products to move in reverse in the supply chain for the manufactures to reuse recycle and resells in subordinate markets. Many are the times when reverse logistic is confused with waste management but, there is a great difference between the two. In reverse logistic the materials that are recovered are revalued but waste management involves the collection of waste materials and treatment but these products are not assigned new roles. Reverse supply chain it entails all the activities that are involved in reusing, recycling, and final disposal of waste materials
Considering the entire word Europe has a waste management board which has directed all the firms to address their waste disposal in a manner that will cause little or no harm to the environment. The United States also has encouraged her firms to recover used products as this will minimize wastage and pollution in the country. In countries found in the Middle East which is an emerging market collection of waste products which is advised to be done by professionals sorting and transporting them is very much needed. In the third world countries which are also referred to as developing countries reverse logistic is known to add very low value to the recovered products this is as a result involvement of low reprocessing techniques. Reverse logistics if properly managed can lead to reduction of transport, disposal and procurement costs (Fleischmann et al, 2004:1). Due to increase in globalization and industrialization reverse logistic is expected to accelerate after some years especially in developing countries which in turn will lead to environment conservation and massive economic improvements.
Reverse Logistics and Competitive Advantage
We looked at the use of reverse logistics to ensure that the company management of the flow of goods is cost effective. This will help the company increase the wealth in the banks. As a result, the company will hence acquire an advantage over the struggling competitors. This is as a result of the reason that companies that do not use reverse logistics may be undergoing loses which could be easily avoided through the use of effective reverse logistics. The competition within the market and for the limited number of consumers is one of the determinants of how an organization functions within the market environment. Therefore, the use of reverse logistics ensures that the company is able to defeat the other companies in the same market and dealing with the same commodities and services. This can be achieved since the sue o reverse logistics enables an organization to acquire professional workers who will be able to manage the flow of commodities from the consumers as the origin and the company reuses the products or even disposes of them properly. On the other hand, reverse logistics ensures that the company is able to maintain a good relationship with the workers and the stakeholders.
One way that the stakeholders who include the customers are satisfied is through the application of reverse logistics to maintain a clean environment. If the company is able to maintain a clean environment where the consumers live, this will attract more consumers who will be willing to be associated with the organization (Aserkar, Kumthekar, and Aserkar, 2014: 228). This can only be effective if the company is able to apply the reverse logistics practices. This helps the organization to create a competitive advantage. This occurs since the consumers will have a good relationship with the company and do not refer to it as a polluter of the environment. The bottling companies which collect the used bottles for recycling have created confidence to the users of the products. Coca-Cola Company has created a competitive advantage through the application of reverse logistics. This company ensures that the used bottles are collected from the consumers and taken back to the company for reuse. This practice of reverse logistics helps this company in several ways (Lowe, 2017: 1).
To start with, the company reduces the cost of production. This is achieved since the bottles will be sued more than once hence the money which could have been used for the manufacture of other bottling equipment can be used elsewhere. Two, the company helps the environment to remain clean. This is an attraction to the end users who prefer a company that is promoting a green environment. Additionally, the company maintenance of the environment through the collection and recycling of bottling material helps to ensure that the raw material is always available. Coca-Cola Company uses a lot of water to manufacture the products (Lowe, 2017: 1). It is believed that the water to product value of 3:1. Therefore, reverse logistics enable the company to reduce environmental degradation (Mohamed and Omwenga, 2015: 45).
Another company that can apply the reverse logistics to have a competitive advantage is a fast-food company. This company can ensure that the leftovers are always collected and disposed of properly. The company in this industry can ensure that the tins and cans used to pack the fast foods are collected to ensure that the environment is not degraded. This can be achieved through the use of dustbins. The application of reverse logistics will ensure that the company installs dustbins in areas where the customers are likely to move when they purchase fast foods. Example, if a fast-food hotel is located near a beach or a people’s park, the dustbins can be distributed across the part or the beach.
Therefore, the consumers will not dispose of the packaging materials anyhow. However, they will put the materials in the dustbins which are labeled or branded to indicate which hotel has installed which dustbins. The collection of the debris in these dustbins can be of use to the organization in order to have a competitive advantage. To start with, the organization can screen the materials and see the waste products which can use again in the organization for the work they had been used for previously. That will ensure that there are cost management and minimization of production cost. As a result, the company or organization can be able to defeat the competitors through the accumulated funds which could otherwise be used for the production of new packaging materials.
On the other hand, the company can benefit through collecting the debris from the dustbin and disposing them properly. In many countries, there are set bodies that regulate pollution from the organization. Therefore, the collection of used materials and ensuring that they do of pollute the environment can be of help to help the organization adhere to the law and regulations concerning the management and maintenance of the environment (Aserkar, Kumthekar, and Aserkar, 2014: 228). Additionally, the members of the public who are the consumers will develop a close relationship with the organization that is managing the properties well. This will ensure that the company has less need to conduct intensive and aggressive advertisements in order to retain the consumers. On the other hand, the company will have a ready market for their products hence creating an advantage over the competitors (Vural, 2015: 265).
The reverse logistics also helps to maintain an agile supply chain (Elmas and Erdoğmuş, 2011: 161). This is a good way to ensure that the supply chain management id helping the organization benefit over the competitors. If the competitors are doing well in the market, an organization can be forced to either improve the services and good or exit the market. However, through the application of reverse logistics, the organization can improve its position in the market without being outplayed by the competitors. This can be achieved if the organization applies reverse logistics to acquire enough information concerning the issue of supply chain management. The return of goods initially provided or the market can be a source of useful information. The information helped the organization to understand which goods are doing well in the market. At the same time, the organization can use reverse logistics to acquire information about the commodities or services that are performing poorly in the markets (Elmas and Erdoğmuş, 2011: 164). This information is very necessary for the organization that is planning to win the competition battle among other potential competitors.
If the company realizes that certain products or service is not doing well in the market, they can either change the products and services or even abolish it can concentrate on the commodities that the company is doing extremely well. Unilever Company is one of the European based companies that was selling fast foods products. However, the application of reverse logistics helped the company identify the weakness in the market which led to massive losses due to dominance from fellow competitors such as McDonald’s. Therefore, the company stopped dealing with the consumable products and concentrated on the production and supply of dealing with product as us downy and baby products. This shows how a company can use reverse logistics to have a competitive advantage. The collection of the materials from the end users back to the company gives an overview of the market situation. The company can apply reverse logistics to ensure that the products which are not performing well in the market are removed from the manufactured commodities. This will help the company reduce the cost of operation as well as improve the performance in the market through concentrating on the good and services which are more likely to win the consumers in the limited market environment.
As a result, the company will have a competitive advantage since the cost of producing commodities that are bringing little or no returns will be eliminated. The specification is also a good way to ensure that the company’s dominance. Coca-Cola Company has dominated the beverages industry since the company has been concentrating on the sales of the soft drinks such as Coke Soda, Sprite, Fanta, among others (Coca-Cola, 2018: 1). The Coca-Cola Company had ventured into other practices such as selling fast foods and other branded commodities such as key holders, wallets, among others. Additionally, the company through the application of reverse logistics discovered that the used bottles for the coke brand are more compared to other products. Therefore, the concentration of the company developed along this line and most of the advertisements in the commercials have been focused on the major brands under this company.
However, if the company does not use reverse logistics, they cannot acquire enough information concerning the performance of the commodities in the market. This can make the organization to put more emphasis on the products that are not doing well in the market. However, acquiring enough information on the market will ensure that the company adopts supply chain management strategies that are helping to ensure that the competition is reduced and the organization has the ability to venture in the new markets through expanded revenue accumulation.
Reverse Logistics Common Practice
In order to make reverse supply management and logistics more efficient, a company has to have a deep understanding of areas of the business that is affected by recycling and returns. Measures and efforts should be employed to ensure that the component contributes to a positive stride (Govindan, and Popiuc, 2014: 3). To make the profit and ensure that the consumer attain maximum satisfaction, there are areas that the company needs to consider, and they include;
• Repairs and warranties which is a crucial area for the customer as there is need to inform them on the safety of the returned good. A company should have a number of ways to communicate with their customers such as creating a website or have a help desk as this will relieve their concern.
• Measurement of performance of goods particularly related to reverse supply chain e.g., checking on the sale of the returned goods, the percentage of returns, the growth or decline of returns year after another, the rate of asset utilization among others.
• Reason for return. The company must also find the reason for return. This will help to prevent processing of dishonest or stolen goods delivered. The company should therefore carry out analysis of the root-cause of good returned for processing. This is a key area in understanding business based on reverse logistic implication and coming up with strategies to close loop-holes for such good.
• Tractability is another key area that trace the flow of return to prevent mixing with items that are forward flowing.
• Company’s finance is another area and in order for the company to add value and profit, it should manage its finance issues to avoid causing bad relationship with customers, distributors as well as retailers. The companies should also check on taxes paid on return goods
• Optimization of logistics such as partnering with other parties that differ from them like in transporting goods makes increase logistic efficient on reverse-flow items. This makes it capable of improving its profit.
Returned goods may be disposed of through various ways and the option or choice of deposing used should not only focus the profit but should consider other factors such as the satisfaction of the consumer and the image of the brand (Prahinski, and Kocabasoglu, 2006:6 These options include
• Remanufacturing or repair. Damaged goods or items that have not lost their identity are repaired and taken back to the market. However, there are factors that should be considered such as the cost the company uses to repair the item, the cost of transporting the repaired item as well as the market price of the refurbished commodity (Blackburn, et Al., 2004: 2). However, the company should identify remanufactured items from brand image to avoid posing risk. This is because consumers consider this item inferior. To avoid this, the company can give such item an image that appear more positive.
• Recycling. Recycling helps in recovering materials that are used to produce another new product. In this part the original identity of the item is lost. Factors such as the value to be reclaimed, the cost of transportation among others are considered. Recycling of some items e.g. electronic products brings out economic sense as such product minimizes the cost of mining and extracting metals.
• Discount sale. Companies may sometime sell returned goods on heavy discount. However care should be taken to avoid poisoning the customer perception on the brand image of the item and some may feel disappointed for paying less for same item.
• Energy regeneration. There are items that are not advisable to recycle such as food products. The company may use organic waste to generate renew energy through anaerobic digestion.
Screening of Retuned Goods
As mentioned above, one of the practices involved in the management of supply chain through the application of reverse logistics is the screening of goods. This practice ensures that the company has acquired enough information concerning the defective goods which are returned to the organization although they were previously in the markets. Screening of goods also enables the organization to improve on the goods before supplying them to the markets (Menachof, et Al., 2009: 148). A good example is a company that is dealing with selling o fast foods but the application of return logistics has enabled the collection of waste foods from the customers for proper management and disposal. These products can be screened so that the organization will understand the type of foods which are being disposed of frequently.
In a mixture of different foods which are packaged and supplied as a single commodity, the screening enables the organization to have a clear and vivid image of the market consumers and their preferences (Menachof, et Al., 2009: 146). Therefore, the company will take remedies and ensure that the supply of the commodities which are highly wasted is minimized (Billington, 1998: 24). On the other hand, the company can increase the supply of the materials which are highly consumed by the customers.
That is one of the strategies that reverse logistics can help an organization develop a competitive advantage. Understanding the customer’s needs is vital if the company is looking forward to maintaining their customers and at the same time attract more consumers. If a company does not understand what consumers need and preferences, the other companies that are dealing with the same consumer might take that advantage to provide precise services and commodities preferred by the consumers (Bowersox, 1999, 553). Many organizations have lost their market dominance after the consumers are not satisfied with the products being supplied.
Other companies have incurred losses for manufacturing surplus commodities and keeping them in the warehouse after the supply chain becomes extremely slow due to lack of ready markets (Al-Mashari, and Zairi, 2000: 31). The effects of such activities have been fatal for many companies which have dropped in the ranking or even lost the consumers’ trust altogether. Reverse logistics can, therefore, aids the company to provide the commodities that are best for the particular markets. The demand and supply which defines the nature of the supply chain in the organization can be affected by diverse situations.
The company can ensure that demand for the products is maximized through the application of reverse logistics and strengthening the noted weaknesses which influenced the return of goods previously supplied to the consumers in the markets. If the company is able to learn the market and treat the diverse situations appropriately, its competitive ability will be improved.
In conclusion, each and every company needs to maintain its customers and attract new customers. This is because the customers are the main source of profit in every company. A company creates a competitive advantage which helps it to outdo their competitors. While creating a competitive advantage the company must make sure that it is customers prefer their goods more than alternative goods.
Reverse logistics is one of the strategies used by most of the companies worldwide nowadays. This involves the companies are much involved in reuse and recycling of their used products. In the collection and recycling procedures, this reduces the production cost of most of the companies as fewer resources are needed to revalue products compared to production of new products. Reverse logistics have different practices which involve remanufacturing of products retuning of defective goods recycling and reuse of products.
Shad Dowlatshahi, (2000) Developing a Theory of Reverse Logistics. Interfaces 30(3):143-155.
Touboulic, A. and Walker, H., 2015. Theories in sustainable supply chain management: a structured literature review. International Journal of Physical Distribution & Logistics Management, 45(1/2), pp.16-42.
Vural C, 2015, Sustainable Demand Chain Management: An Alternative Perspective for Sustainability in the Supply Chain.
Liz Lowe, 2017, Sustainability and recycling: how the Coca-Cola system is fighting waste with sustainable packaging.
Coca-Cola Company, 2018, Sustainable Packaging.
Gabriela Cecilia Stănciulescu, 2011, Importance of Reverse Logistics for Retail Acts, The Bucharest Academy of Economic Studies Romani.
Güldem Elmas and Fevzi Erdoğmuş, 2011, The Importance of Reverse Logistics, International Journal of Business and Management Studies
Fleischmann, M., Bloemhof-Ruwaard, J. M., Beullens, P., & Dekker, R. (2004). Reverse logistics network design. In Reverse Logistics (pp. 65-94). Springer, Berlin, Heidelberg.
Govindan, K., & Popiuc, M. N. (2014). Reverse supply chain coordination by revenue sharing contract: A case for the personal computers industry. European Journal of Operational Research, 233(2), 3-5.
Blackburn, J. D., Guide Jr, V. D. R., Souza, G. C., & Van Wassenhove, L. N. (2004). Reverse supply chains for commercial returns. California management review, 46(2), 2.
Prahinski, C., & Kocabasoglu, C. (2006). Empirical research opportunities in reverse supply chains. Omega, 34(6), 5-7.
David A. Menachof, Brian J. Gibson, Joe B. Hanna, Anthony E. Whiteing, (2009) “An analysis of the value of supply chain management periodicals”, International Journal of Physical Distribution & Logistics Management, Vol. 39 Issue: 2, pp.145-165.
Dr. Rajiv Aserkar, Nihar Kumthekar and Shivani Aserkar, 2014, Investigating the Link between Supply Chain Performance and Brand Performance, International Journal of Humanities and Social Science.
Billington, C., Lee, H. L., & Tang, C. S. (1998). Successful strategies for product rollovers. Sloan Management Review, Sparing, 23-30.
Lee, H.L.(1996). Effective inventory and service management through product and process redesign. Operations Research 44 (1), 151-159.
Bowersox, D.J., Stank, T.P., Daugherty, P.J (1999). Lean launch: managing product introduction risk through response-based logistics. Journal of Product Innovation Management 16, 557-568.
Al-Mashari, M., Zairi, M. (2000). Supply chain re-engineering using enterprise resource planning (ERP) systems: an analysis of SAP R/3 implementation case. International Journal of Physical Distribution and Logistics Management 30 (3/4), 26-31.
Mohamed, K. S. & Omwenga, J. (2015). Supply chain risks mitigation strategies adopted by manufacturing firms in Kenya: A case of Coca Cola Company (K). International Academic Journal of Procurement and Supply Chain Management, 1 (4), 45-65
Did you find any useful knowledge relating to reverse logistics within SCM in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.