REVIEW OF THE LITERATURE
3.1. Introduction
3.1.3. Closed – loop supply chains
Chapter 3 – Packaging in the supply chain: Review of the literature
74 friendly way of doing business have developed initially in a regional level and afterwards in the EU. Logistics is called to give solutions to a range of problems (procurement of raw materials, design and manufacturing of new products that do not downgrade the environment etc.), finding at the same time methods and ways in a try to avoid increased and hidden costs.
In addition, the new economic conditions and the expansion of individual domestic industries to foreign and bigger markets, creates new problems for logisticians who are now forced to find solutions to new issues such as the kind of the packaging and its individual characteristics (shape, size, color, type) that best fit in a country’s culture. The labeling of products is another challenge, since new social conditions which dominate in the EU, require from companies to create products easily identifiable from every EU resident.
75 phase, the user phase and the end-of-life phase. In this very last phase, the product is losing its identity while some of its parts or materials are being transformed or further reused. They further argue that each of the above phases has its own characteristics and the companies are those who decide if they want to create a reverse channel (closed-loop) or not.
Guide and Wassenhove (2009) give a valuable definition:
“Today we define closed-loop supply chain management as the design, control, and operation of a system to maximize value creation over the entire life cycle of a product with dynamic recovery of value from different types and volumes of returns over time.”
In the same manner, according to Gutowski et al. (2011) and Kleindorfer et al.
(2005) some activities firmly connected with close-loop supply chains such as that of remanufacturing of some products (e.g. refrigerators or other electrical appliances) except for being environmental friendly are also cost effective for the consumers since the remanufactured products are generally sold at lower prices compared to the brand new products. As Guide and Wassenhove (2009) state, re-manufacturing operations need specific factors to be addressed in order to be economically effective. This means that the products should be available in the right quantities and at the right time while the market should be positive to absorb them after being reprocessed. Kleindorfer et al. (2005) further note that since the collection of materials or products from the supply chain requires human hands, the process may positively affect unemployment by reducing it, especially in the under developed countries.
Savaskan et al. (2004) state that there is an increasing trend where manufacturers are establishing adequate structures in order to collect, remanufacture and distribute these (remanufactured) products in the market in parallel with their usual manufacturing operations. Refurbished or remanufactured products are usually upgraded to a high quality level almost equivalent to that of new products in order to be sold again in the market. As described by Ginsburg (2001) a typical example is that of XEROX which decided to start taking back the damaged copier machines from its customers in order to repair and sell them again to the market or use any spare parts that could be retrieved from them. The same situation applies to other products as well, such as toner cartridges where the companies are willing to pay the shipping charges or even reimburse a small amount for the empties. In the same manner, Guide et al. (2003) clearly cite that in order to operate in a more environmental friendly way, the companies should design and operate their forward
Chapter 3 – Packaging in the supply chain: Review of the literature
76 and reverse supply chains in such a way that allows them “to take advantage of all types of product returns”.
However, there is a serious argument concerning the economic effects of remanufacturing. Majumder and Groenevelt (2001) discuss the issue and provide a different approach concerning the comprehension of the strategies of the manufacturers. The main idea of the discussion is what happens in case that the remanufactured product becomes more attractive when compared with the new products. Since the remanufactured item is of equivalent quality but of lower price compared with the new products there is a serious conflict on whether the consumer is going to buy the new or the refurbished item. A major problem is that in many cases very soon after a new product arrives, local remanufacturers appear creating a leak to the closed-loop supply chain, since a big volume of the used products never return to the original manufacturer but instead are being reprocessed by these local stores.
Although closed-loop supply chains include a number of elements that should be included in their optimal design, there are a number of issues that should be considered before proceeding with any changes in the current supply chains.
Certainly a closed-loop supply chain include a number of advantages for a company such as its sustainable (environmental friendly) operation. However, on the other hand problems should also be considered since they decisively influence a company’s performance. One of the most important problems appear to be the irregularities that result in the market between the new and the remanufactured products where their equivalence concerning quality and the significantly lower price of the latter. This is a puzzling issue for the competition.
In any case, all partial details should be taken into consideration before proceeding with any changes. At last it should be noted that as Quariguasi et al.
(2010) state, by creating a closed-loop supply chain establishing all those actions that are relevant to a reverse flow of products or materials does not necessarily convert a supply chain into one that is sustainable. According to their view, sustainability can only be achieved if the main activities of the supply chain are economic, social and environmentally driven.
A schematic representation of a closed loop supply chain is presented below in Figure 3.1.
77
Figure: 3.1. - Represantation of traditional and closed loop supply chain.
Reproduced by Author. Adopted by: Sundar Raj, T., Lakshminarayanan, S., & Forbes, J. F.
(2013). Divide and conquer optimization for closed loop supply chains. Industrial and Engineering Chemistry Research, 52(46), 16267-16283. doi:10.1021/ie400742s