Differences between European and North American Reverse Logistics Network Structures

1
Differences between European and North American
Reverse Logistics Network Structures

• Markus Biehl
• Schulich School of Business, YorkU
• Leo Macdonald
• Ivey School of Business, UWO

McGill Symposium on Closed-Loop Supply Chains
September 16, 2005
2
Why Reverse Logistics?

• RL the process of planning, implementing and
  controlling backward flows of raw materials,
  in-process inventory, and finished goods, from a
  manufacturing, distribution or use point, to a
  point of recovery or point of proper disposal
  (de Brito and Dekker, 2004, p. 5)
• RL may offer several advantages over the option
  of always discarding cores (e.g., Autry et al.,
  2000 Minner, 2003)
• Vast differences between forward and reverse
  logistics (Guide et al., 2004 Rogers and
  Tibben-Lembke, 2001)

3
Literature on RL NW Structures

• de Brito et al. (2002) comprehensive review of
  RL cases
• network structures,
• relationships among parties,
• inventory management planning and control of
  activities, and
• use of information technology in RL.
• Fleischmann and colleaguestypical structures of
  RL networks
• bulk recycling,
• remanufacturing, and
• reuse.

4
Existent Literature
5
Existent Literature Limitations

• Fleichmann et al.s classification based
  predominantly on European cases studies
• But European setups may be motivated in part by
  extensive take-back legislation (packaging, cars,
  WEEE)
• Question also true for North America (NA) where
  take-back legislation is lacking?
• Environmental legislation targeted at product
  recovery affects either directly or indirectly
  the proportion of cores collected (Georgiadis and
  Vlachos, 2004).
• Legislation (or lack thereof) might affect
  variables that drive NW structures

6
RL NW Structures in Europe
reuse networks can be seen as a hybrid between
recycling and remanufacturing networks
7
Expected Differences

• Environmental legislation targeted at product
  recovery affects either directly or indirectly
  the proportion of cores collected (Georgiadis and
  Vlachos, 2004).
• Directly, regulators may require manufacturers to
  take back the packaging or products after their
  useful lives.
• Indirectly, governments may impose penalties for
  the improper disposal of waste or products, and
  raise the cost of properly disposing of cores,
  thus making RL a more attractive option.

8
EU versus NA Legislation

• Europe direct regulation that makes
  manufacturers responsible for taking back
• all consumer and transport packaging
• a wide range of consumer goods (cars, household
  appliances, electronics, )
• NA comparable regulations do not exist
• Environmental regulation resides either at the
  state (provincial) or municipal level
• Manufacturers not made directly responsible for
  recovering cores

9
Research Question

• How do we expect the presence of mandatory
  recovery regulation to affect RL NW structures?

10
Direct Effects on NW Structure

• Fleischmann et al. (2000)
• (1) supply uncertainty,
• (2) the value of the core, and
• (3) the presence of OEMs.
• affect the structure of a RL NW

11
Supply Uncertainty

• Supply chain theory uncertainty structurally
  decreases with an increase in volume (e.g.,
  Simchi-Levi et al., 2002)
• Fleischmann uncertainty with high-volume
  operations (recycling) not a factor, but
  prevalent in remanufacturing
• Anecdotal evidence (e.g., Linton et al., 2004),
  e.g., mandatory recovery of cars in EU
• Negative effect of supply volume on supply
  uncertainty Negative effect of mandatory
  recovery on supply uncertainty

12
Value of Cores

• Value of a core the residual economic value of
  the product.
• Refrigerators vs. disposable cameras
• Mandatory recovery
• Absence gt take back only if economically
  beneficial
• Presence gt tip the scale towards products more
  difficult products (e.g., consumer electronics)
• Mandatory Recovery has a negative effect on the
  value of cores collected by manufacturers.

13
Presence of OEMs

• Duales System Deutschland industry organization
  charged with recovering low-value cores on behalf
  of manufacturers (Barry et al., 1993)
• OEMs will get involved only when its
  economically marginally beneficial (e.g., in the
  case of higher-value recyclables)
• Mandatory Recovery (MR) may have a positive
  effect on the presence of OEMs.
• The effect of MR on the presence of OEMs is
  stronger for high value cores than for low value
  cores.

14
Intermediary Variables

• Parameters to define a RL NW design
• (1) degree of centralization,
• (2) flat vs. multi-level,
• (3) new vs. extension of existing, and
• (4) open vs. closed loop NWs.
• Also, presence of branch cooperation captured.
• Recall NWs defined by bundles of parameter
  values that make up their typical structure
• Recycling, newly established, flat, open loop,
  with branch coopn.,
• Remfg decentralized, existing NWs, multi-level,
  closed loop, without branch cooperation

15
Branch Cooperation

• Bundles expected to be similar, with a few
  differences in NA
• Collection of low-value recyclables is left to
  municipalities, high value cores by manufacturers
• If the cores valuable, little or no branch
  cooperation necessary (used in Europe to increase
  recovery volumes for low-value cores to achieve
  economies of scale)
• Due to the collection of only higher-value cores
  (or high-volume, medium-value cores) little or no
  branch cooperation takes place in NA RL
  operations.

16
Centralization, New vs. Existing NWs

• OEMs are directly involved in recovery operations
  they tend to use their existing networks, rather
  than establish new ones.
• Lack of a legal structure that makes national
  recovery mandatory gt localized recovery,
  centered in large citiesgt less likely to
  require the set-up of separate intermediate opns
  gt allows for a centralized inspection and remfg
  process
• The combination of mandatory recovery in NA and
  its impact on intermediate variables are expected
  to result in predominantly
• centralized RL operations involving
• the extension of existing NWs

17
Number of levels

• Not a function of the network structure
• All levels could be performed at one site (flat
  NW) or at different sites (complex NW)
• Unlikely to be directly / indirectly affected by
  mandatory recovery
• No difference expected between Europe and NA

18
Summary
19
Methodology

• Shaky literature base, often anecdotalgt solid
  theory building necessary
• Fleischmanns approach case-based
• Case based, theory building approach
• Survey instrument based upon the characteristic
  factors of RL networks and the above hypotheses.
• Complemented with publicly available data and
  site observations

20
Methodology
21
Results Overview
22
Results Overview
23
Results Discussion

• No incident in which recovery was mandatory in NA
  
• OEM involvement high in NA
• Only two exceptions across all NW types (auto
  parts remanufacturer, auto recycler)
• Particularly interesting w.r.t. recycling
  NWsOEMs involved in NA, only occasionally in EU

24
Results Discussion

• Value of cores higher in NA
• NA recyclers left low-value recyclables alone
  while collecting higher-value recyclables such as
  IT components, cars, or electronic parts
  themselves.
• In two cases (cars, carpets), recycling was
  combined with the reuse of parts or components ?
  somewhat mixed results
• Proposition 1The lack of mandatory recovery
  increases the average core value recovered by
  industrial organizations.

25
Results Discussion

• Higher core values in NA gt strong OEM presence
  in NA even in the absence of mandatory recovery
• Respondents indicated in all but one case that
  economics was the primary driver for implementing
  the RL operations
• Indirect economic benefits also mentioned, such
  as
• improved customer satisfaction or
• Improvement of the sale of replacement products.
• Proposition 2The lack of mandatory recovery
  leads to a decreased OEM involvement since only
  higher value cores will be collected by OEMs.

26
Results Discussion

• EU recycling NWs involved branch cooperation, NA
  cases showed a complete lack thereof
• Consistent with Proposition 2 relationship
  between the operators economic motives and the
  lack of branch cooperation
• Proposition 3The collection of only
  higher-value recyclables in NA makes recovery
  operations economically feasible and branch
  cooperation unnecessary.

27
Results Discussion

• Recall
• NA operations predominantly centralized, with the
  extension of existing NWs.
• Other NW characteristics consistent with
  Fleischmann et al.s (2000) results.
• Strongly supported by results
• Proposition 4The lack of mandatory recovery in
  NA results in the use of predominantly
  centralized RL operations, involving the
  extension of existing NWs.

28
Results Discussion

• Supply Uncertainty
• NA NW structures not impacted by supply
  uncertainty
• Both rec and remfg NWs exhibited fairly low
  degrees of uncertainty
• Uncertainty managed carefully in remfg NWs
  through measures to ensure economic success
  (economic incentives, inventory procedures)
• European cases indicate supply uncertainty in
  remfg NW and lack thereof in recycling NWs gt
  more likely attributable to collection volume
  than structural uncertainty
• Proposition 5There is no significant direct
  relationship between uncertainty and the NW
  setup.

29
Conclusions

• Sketchy clues from literature mostly confirmed
  by case data
• Case data augmented motivations reasons for
  differences between EU NA NW structures
• NA examples of mixed-mode RL operations not
  reported in EU studies
• Recg firm separated reusable parts before
  recycling the remaining material
• Remfg firm recycled non-salvageable components to
  gain additional economic value.

30
Limitations

• Case research gt results cannot be generalized
• No optimal NW structures prescribed

31
Further Research

• Large-scale research of RL operations to
• explore the relationships between our and
  additional variables, with focus on results not
  solidly established so far
• explore the role of volume on RL operations and
• validate or refute case findings.
• Sample European and NA RL operations
• Role and impact of the TBL, green marketing and
  sustainable manufacturing on RL operations
• Important motivator in absence of regulation?

32

• Questions?