Reverse Logistics Network Design [Fle01], [Gog98], [FleOO]

The design of a reverse logistics network is critical as economic viability of recovery can depend heavily on logistics costs, to the extent that they may negate the financial and environmental benefits of recovery. The decision as to the optimal design of the reverse logistics network is dependent on different factors [Gog98], [FleO 1 ]:

• The form of reprocessing (remanufacturing, recycling and reuse)

• The owner of the recovery process (original equipment manufacturers - OEM -

Design for Reverse Logistics Networks for Mandated Product Take-Back

An important group of reverse logistics networks concerns supply chains established in response to environmental product take-back legislation. A typical example is the national electronics recycling network in the Netherlands [RL03],

In such cases OEMs are held responsible for keeping their products out of the waste stream at the end of life. While OEMs are legally and financially responsible for product take-back and recovery, the execution is typically outsourced to logistics service providers and specialised recycling companies.

The corresponding reverse logistics network design very much focuses on low-cost collection. Typically, the solutions found are those involving drop-locations, possibly in co-operation with municipal waste collection, where customers can hand in their products, which are then stored and shipped for further processing once a certain volume has accumulated. The test and grade operation does not appear to play a prominent role in these systems. Products may be roughly sorted by product category at the collection side, partly for administrative reasons. Further separation of material fractions occurs during the recycling process.

Design for Reverse Logistics Networks for Remanufacturing

Another important class of reverse logistics networks concerns remanufacturing, with the goal of recapturing value added from used products. Two cases can be identified here: closed-loop supply chains managed by OEMs and specialised remanufacturers.

OEMs managed systems

One typical example is IBM [1BM01], The focus in such cases tends to be on the business market, due to higher product values and closer customer relations, which facilitate product monitoring during the entire life cycle.

Typically, OEM-managed closed-loop chains encompass multiple sorts of used product flows, from different sources and with different motivations, such as end-of-lease returns, ‘old-for-new’ buy-backs, and take-back as an element of customer service. In view of these heterogeneous product flows the testing and sorting operations play an important role, in order to maximise the value recovered. Coordination issues are also important in the OEM-managed networks. Not only inbound and outbound flows of used products need to be coordinated but also recovery and original manufacturing, which may partly substitute each other. Hence, reverse logistics networks typically need to be embedded in a larger overall solution and this adds to the complexity of logistics decision-making.

Specialised remanufacturers

Automotive remanufacturers, industrial equipment remanufacturers, and tyre retreaders are some of the numerous examples of specialised remanufacturers [Ayr97], The main characteristic of such systems is a prominent trading and brokerage function. The business is strongly opportunity driven, seeking an optimal match of supply and demand. Furthermore, it is worth emphasising that profit maximisation rather than cost minimisation is the dominant decision criterion.

The brokerage character of dedicated remanufacturing chains is also reflected in the corresponding logistics networks. Rather than adding some collection infrastructure to an existing logistics network, remanufacturing companies need to design an integral network panning all the way from supply to demand. In particular, the location of the actual manufacturing site naturally relies on both the supply sources and customer locations.

Careful management of the supply side is vital to ensure availability of the right recoverable products. In order to optimally support this task, the corresponding inbound network requires a high degree of flexibility and responsiveness. The testing and sorting operation plays an important role. As remanufacturers, in general, have little means to monitor products during the initial part of the life cycle the state of an incoming product is only known after visual inspection. Consequently, location of this operation is an

Chapter 3. Logistics Related to Products Take-Back

Design for Reverse Logistics Networks for Recycling

Systems driven by the recovery o f material value through recycling form another class o f closed-loop supply chains with distinctive characteristics. Above all, material recycling chains are characterised by fairly low profit margins and the need for high investments for specialised recycling installations and equipment. The combination of high investment costs and low margins obviously calls for high processing volumes.

This reasoning is directly reflected in the structure o f the corresponding logistics networks. Typically, one observes a highly centralised network relying on one, large scale recycling facility. Testing and sorting in a strict sense appear not to be very relevant for material recycling. Instead, often some pre-processing operation to enhance transportation efficiency will be found. Shredding and combustion may substantially reduce transportation costs for the bulk of collected EOL products.

Design for Reverse Logistics Networks for Reuse

Another type of network can be found in systems of directly reusable products. In this case timing of returns is reported to be an important element o f uncertainty.

Reusable items requiring only minor processing steps such as cleaning and visual inspection can be expected to lead to a rather flat network structure comprising all the processes in one location. Moreover, a fairly large number of reuse cycles and absence of other processing steps makes transportation a major cost component. This may be a

reason for a decentralised network with depots close to customers locations.

Availability and service aspects point to the same direction.