REVERSE LOGISTICS AND THE TRIPLE BOTTOM LINE

LARONA

MOLEJE

[Type the author name]

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Table of Contents INTRODUCTION ............................................................................................................................................. 2

REASONS FOR RETURN ................................................................................................................................. 4

MANUFACTURING RETURNS .................................................................................................................... 4

DISTRIBUTION RETURNS ........................................................................................................................... 4

CUSTOMER RETURNS ................................................................................................................................ 4

DRIVERS OF RL .............................................................................................................................................. 4

CLOSED LOOP SUPPLY CHAIN MANAGEMENT .............................................................................................. 5

SOCIAL RESPONSIBIITY AND REVERSE LOGISTICS ......................................................................................... 6

ECONOMIC PERFORMANCE ...................................................................................................................... 7

SOCIAL PERFORMANCE ............................................................................................................................. 7

ENVIRONMENTAL PERFORMANCE ........................................................................................................... 8

COMPETITIVE ADVANTAGE ........................................................................................................................... 9

TANGIBLE COMPETITIVE ADVATAGES ...................................................................................................... 9

INTANGIBLE COMPETITIVE ADVATAGES ................................................................................................... 9

REFERENCES ............................................................................................................................................ 10

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INTRODUCTION The term “triple bottom line” (TBL) was allegedly coined by John Elkington in

1994 Sarre & Treuren (2001).

Elkington’s consultancy company,SustainAbility,which he founded in

1987,gives a big picture describtion of TBL,as well as an accounting concept.

“The triple bottom line (TBL) focuses corporations not just on the economic

value they add but also on the environment and social value they add-and

destroy. As its narrowest, the term “triple bottom line” is used as a framework

for measuring and reporting corporate performance against economic, social

and environmental parameters. As its broadest, the term is used to capture the

whole set of values, issues and processes that companies must address in

order to minimize any harm resulting from their activities and to create

economic ,social and environmental value. This involves being clear about the

company’s purpose and taking into consideration the needs of all the

company’s stakeholders-share-holders, customer, employees, business

partners, governments, local communities and the public.” (SustainAbility

website 2014)

Fig 1,The triple bottom Line Concept(source; The Triple Bottom Line: Does It All

Add Up)

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Logistics is defined by the Council of logistics Management as, “The process of

planning, implementing, and controlling the efficient, cost effective flow of raw

materials, in-process inventory, finished goods and related information from

the point of origin to the point of consumption for the purposes conforming to

customer requirements.”

Reverse logistics includes all of the activities that are mentioned in the

definition above. The difference is that reverse logistics encompasses all these

activities as they operate in reverse. Therefore, reverse logistics is “the process

of planning, implementing and controlling the efficient, cost effective flow of

raw materials in the process-inventory, finished goods, and related information

from point of consumption to the point of origion for the purposes of

recapturing value or proper disposal.” Rogers and Tibben-Lembke (1999,pg 2)

The attention to reverse logistics is relatively new in the history of logistics and

supply chain management. The US Army did their first study of reverse

logistics operations in 1998.The US army defined reverse logistics as : “The

return of serviceable supplies that are surplus to the needs of the unit or are

unserviceable or in need of rebuilding or remanufacturing to return the items

to serviceable status” Rommet et al. (2004).The first commercial study of

reverse logistics was conducted the same year by Dr. Dale Rogers and Dr. Ron

Tibben-Lembke

However Blumberg (2005) states that the idea of Reverse logistics has been

around atleast since the industrial age when merchants recognized that old

clothing ,rags and linen could be reproduced and used to produce new textile

products.

The reverse logistics process is illustrated in figure 1.

Fig 1.Representation of a reverse logistics process.Source: Lacenda

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REASONS FOR RETURN According to Blumberg (2005), products are returned or discarded because

either they do not function properly or because their function is no longer

needed. Three groups of returns are manufacturing returns, distribution returns

and customer returns.

MANUFACTURING RETURNS

Manufacturing returns are here defined as all those returns for which the need

for recovery of components or products is identified during the production

phase. Examples include; raw material surplus, quality control returns,

production leftovers.

DISTRIBUTION RETURNS

Distribution/supply returns refers to all those returns that are initiated during

the distribution phase. It refers to product recalls, commercial returns, stock

adjustment and functional returns.

CUSTOMER RETURNS

The third group consist of customer returns i.e those returns initiated once the

product has reached the final customer. Again there are variety of reasons to

return products, viz; end of user returns, warranty returns, service returns

DRIVERS OF RL The motivations of the business community for applying reverse logistics

practices can be divided into two categories: proactive or reactive. Some

proactive incentives for adopting reverse logistics management practices by

manufactures would be cost savings, a better profile, to gain competitive

advantage and improve environmental performance; reactive motivations would

be legislative factors that also explain business’ decision to adopt reverse

logistics practices in their daily operations. Gonzalez-Torre et al.(2004)

According to surveys done by Rogers and Tibben-Lembke (2001) and Carbone

and Moatti (2008),the first motivation for establishing reverse logistics is the

desire to improve customer service and satisfaction. A second main

motivation concerns the existing environmental regulations and the need for

manufactures to comply with the growing number of take-back policies

Carbone & Moatti,(2008);Dowlatshahi,(2005);Kumar & Putnam,(2008).However

some authors believe that legal constraints might not be the only

environmental driver of reverse logistics implementation Schatterman (2010)

argued that some “companies have already adopted a ‘green attitude’ and thus

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see in reverse logistics a means to reduce their environmental foot print.”

Finally the last main driver that emerged from the literature concerns economic

perspectives.(Leite,2003) asserts; many companies use reverse logistics to

recapture economic value to increase competitiveness.

According to the RevLog Group (an international working group for the study of

reverse logistics, involving researchers at various universities worldwide under

the coordination of Erasmus University of Rotterdam, Holland),the main

reasons causing firms to make bigger efforts to improve reverse logistics are;

1) Environmental legislation, which forces companies to take back their

products and take proper care in their treatment

2) Economic benefits of using products that return to the production

process, instead of the high costs of correct disposal of trash.

3) Growing public environmental awareness.

Figure 2; Driving forces of RL implementation: adapted from De Brito and

Dekker (2002)

CLOSED LOOP SUPPLY CHAIN MANAGEMENT Closed-loop supply chain management embraces both forward and backwards

supply chain management actions. Krikke(2003). Closed-loop supply chain

management embedding reverse logistics principles, developed in the 1980’s,it

was first implemented in the electronics industry. Until this time the typical

process for repair of a product or a piece of equipment was to make corrections

in the field.,i.e (fix and replace)

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CLSCs concept is a single system derived from the combination of traditional

forward supply chain activities and reverse supply chain activities. The

advantage of CLSC is the potential to increase the environmental performance

of industrial operations to new standards.

Figure 3; A basic model of a closed loop supply chain management (The Triple

Bottom Line: Does It All Add Up,2004)

SOCIAL RESPONSIBIITY AND REVERSE LOGISTICS Corporate Social Responsibility (CSR), comprises actions required by law but

furthering social good and extending beyond the explicit, transactional interest

of an organization (M.E Williams and Segal,2001).CSR is often to frame

company attitudes, strategies and relationships with stakeholders(Jenkins

2004),while addressing ethical values, economic wellbeing and compliance.

Social accounting aims to access the impact of an organization on company on

people both inside and outside. Issues often covered are community relations,

product safety, training and education initiatives, sponsorships, charitable

donations of money and the employment of the disadvantaged groups.

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ECONOMIC PERFORMANCE

The financial aspect of social responsibility, under the TBL approach, is one of

the three basic aspects. To measure this aspect various indicators have been

proposed regarding reverse logistics. For example, Weeks et al.(2010).

Economies with the use of returnable packaging or recycling of materials for

production have brought increasingly gains that stimulate new initiatives.

Blumberg (2005).Better value of products could be captured,i.e products that

have failed in primary markets could be sold in secondary markets to help

recover the costs. Through integration of forward and backward logistics;

Closed loop supply chain management companies are able to cut on

transportation cost

SOCIAL PERFORMANCE

Social impact of a company can be measured by the employee and customer

satisfaction (Markley and Dans,2007 pg 764) and also labour practices,

community impacts, human rights and product responsibility(Suits and

Webber 2006,pg 13).In essence a sustainable enterprise will make decisions

with regard to the community and their workers with the intention of

contributing towards the growth of the society. Social accounting aims to

access the impact of an organization on people both internally and externally.

In their study, Helms & Hervani (2010) concluded RL can benefit health and

safety when it is combined with process modifications and material

substitutions that generate environmental improvements. For example, the

development of returns process in reverse logistics can be supported through

the use of reusable containers. Reusable containers offer significant safety

advantages, such as elimination of box cutting, staples and broken pallets,

reduces injuries: standardized sizes and weights of packaging components

reduce back injuries. Sarkis and Persely (2007) asserts Motorola had a 58%

reduction in pallet-related injuries due to use of reusable container

Connet (2006) added that a practical example of the role of community

advantages from reverse logistics occurs in various communities throughout

the world that have implemented zero-waste programs. These programs require

recycling and RL networks to keep materials within the consumer cycle.

Similarly RL activities can greatly benefit charities with used products sales.

Shah and Sarkis (2003).

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ENVIRONMENTAL PERFORMANCE

Environmental indicators are based on waste management reduction,

elimination of influences on biodiversity and emissions impact minimization.

Dixon et al.(2005).Every human enterprise generates environmental impact to

a greater or lesser extent in its implementation and in its operation. Among the

environmental impacts,some are:

Urbanistics projects

Landfills, processing and disposal of toxic residues

Transmission lines for electricity

Roads, railways, ports, airports etc

A sustainable supply Chain meets the needs of the present without

compromising the ability of future generations to meet their own needs

Brundtland (2011).Sustainable development is about ensuring a better quality

of life for everyone, now and for generations to come.

Sustainable supply chain management refers to all forward process in the

chain, like procurement of materials, production and distribution, as well as

the reverse process to collect and process returned used or unused products

and/or parts of products in order to ensure a socio-economically and

ecologically sustainable recovery. The World Business Council for Sustainable

Development (2000).

RL eases pressure on the harvest of raw materials and reduces the related

environmental degradation associated with raw materials extraction and

processing. In addition, the lack of landfilling availability and the rising landfill

tipping fees and trash collection fees to households, may initiate a movement

by consumers away from products that cannot be recycled, further aiding

community economic and environmental development.()

RL is necessary for the completion of the industrial eco-cycle, product

stewardship, and the extension of products’ and materials’ life, or “closing-the-

loop”. RL from the environment perspective supports environmentally sound

practices such as recycling, remanufacturing and reclamation. The basic

principle is that lengthening of a product’s or material’s life typically has

environmental benefits.(Murphy and Poist 2010,Richey et al. 2005)

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COMPETITIVE ADVANTAGE The constant changes in consumer behavior and the arrival of new competitors

constitute a major threat to organizations. The global competition forces

companies to develop strategies to maintain their competitive

advantages.(Porter,2012).For companies to remain competitive it is necessary

to embrace tools and activities that distinguish them from their competitors.

Reverse logistics could be one of such cases.

According to Souza(2009),reverse logistics has a strategic importance for the

competitive cost saving in organizations. Properly and thoroughly executed

reverse logistics programs can significantly improve a firms bottom-line

performance. Jayaraman and Luo (2007).Companies that treat reverse logistics

as an important strategic agenda and have well developed reverse logistics

systems in play, may gain tangible and intangible competitive advantages.

Jayaraman and Lou (2007).

TANGIBLE COMPETITIVE ADVATAGES

Indeed, for many firms, the recovery of value from used products provides a

good return on investment. For example, producing greener products could

lower future liabilities, insurance rates, and customer disposal costs. By

offering “green” products, companies can attract and retain environmentally

conscious customers and employees. Proactive companies could influence the

formation of new legislation and avoid taking costly last-minute actions.

Jayaraman and Lou (2007).

INTANGIBLE COMPETITIVE ADVATAGES

Intangible benefits include the growing perception of physical products as part

of physical products as part of a service package that would enhance the

pleasure and comfort of using the products. Philanthropy and goodwill returns

can significantly improve a corporate image and increase and increase market

share.

Capital accessibility, when considering investments in a company, investors

increasingly are focused on its accomplishments regarding to the society and

environment. Thus an increasingly number of investment funds are managed

according to the principles of socially responsible investments. Agnes Boljevic

(2010),so socio-environmental friendly companies place themselves at a great

competitive advantage in as far as capital accessibility goes

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REFERENCES

Jayaraman, V., & Luo, Y. (2007). Creating competitive advantages through new

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McGonagle, J. J., & Vella, C. M. (2002). Bottom line competitive intelligence.

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Meade, L., Sarkis, J., & Presley, A. (2007). The theory and practice of reverse

logistics. International Journal of Logistics Systems and Management, 3(1), 56-

84.

Sarkis, J., Helms, M. M., & Hervani, A. A. (2010). Reverse logistics and social

sustainability. Corporate Social Responsibility and Environmental

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Kumar, S., & Putnam, V. (2008). Cradle to cradle: Reverse logistics strategies

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De Brito, M. P., Dekker, R., & Flapper, S. D. P. (2005). Reverse logistics: a

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Nikolaou, I. E., Evangelinos, K. I., & Allan, S. (2013). A reverse logistics social

responsibility evaluation framework based on the triple bottom line

approach.Journal of Cleaner Production, 56, 173-184.

Henriques, A. (2004). The triple bottom line, does it all add up?: Assessing the

sustainability of business and CSR. London: Earthscan.