Hidden potentials in open-loop supply chains for remanufacturing

• Pages: 1125-1146
• DOI: https://doi.org/10.1108/IJLM-10-2017-0278
• Published date: 13 July 2018
• Date: 13 July 2018
• Author: Matthias Kalverkamp
• Subject Matter: Logistics,Management science & operations

Hidden potentials in open-loop

supply chains for

remanufacturing

Matthias Kalverkamp

Cascade Use Research Group, Department of Business Administration,

Economics, and Law, Carl von Ossietzky Universitaet Oldenburg,

Oldenburg, Germany

Abstract

Purpose –The circula r economy grows in pop ularity in sustaina bility-oriented e nvironments.

Remanufacturing contributes to circularity though it faces challenges regarding reverse supply chains

(SCs). Literature focusses on closed-loop supply chains (CLSCs) for reverse flows of products. However,

alternative SCs and different market actors provide used components (cores) for remanufacturing through

“open-loops”. The purpose of this paper is to investigate the influence of independent actors on core supply

and how especially middlemen implement supplier relationship management to address supply shortages in

automotive remanufacturing.

Design/methodology/approach –The study follows a qualitative research approach to compare

remanufacturing SCs in Europe and North America. The analysis aims to identify managerial leverage to

reduce supply shortages.

Findings –Reduction of information asymmetries and transaction costs is crucial for “open-loop supply

chains”to compete with more integrated CLSCs. The study identifies an e-procurement solution that

addresses these issues and helps to increase the supply through “open-loops”. Furthermore, regulation may

hinder or facilitate supply.

Research limitations/implications –It needs to be further investigated to what extent e-procurement and

supplier relationship management can reduce shortages. Middlemen who can collaborate with the research

would provide further research opportunities.

Practical implications –If supplierrelationshipmanagementadapts to the requirementsof remanufacturing,

it can increase the supply potential through “open-loop”SCs.The e-procurementsolution could serveSCs beyond

automotive remanufacturing. Policy makers need to revise legislation hindering these SCs.

Originality/value –The study provides novel findings regarding independent actors, their supplier

relationship management and their potential to reduce shortages in independent SCs for remanufacturing.

Keywords North America, Reverse logistics, Europe, Buyer–supplier relationships, Sourcing and supply,

Supply chain innovation, Supplier management, Qualitative interviews

Paper type Research paper

Introduction

The idea of a circular economy grows in popularity in sustainability-oriented industry

environments. The awareness of environmental impacts and the growing material demand

(EC, 2015) persuadeindustries to seek for alternativesto linear business models. Accordingly,

businesses shift their focus towards sustainability objectives such as those described by the

triple bottomline (Elkington, 1994). The reuseof products can contribute tosustainability due

totheresidualvalue,thatis,conservedwhenreused(Thierryet al., 1995). Although case

dependent, reusecan therefore lower environmental impacts. One particular reuse strategy in

the circulareconomy is remanufacturing, whichexperiences a growing interestfrom industry

and policy alike (EC, 2015; Ellen MacArthur Foundation, 2013), inter alia, because of the

business-oriented case of additionalvalue-added lifecyclesand its regional demand for labour. The International Journal of

Logistics Management

Vol. 29 No. 4, 2018

pp. 1125-1146

© Emerald PublishingLimited

0957-4093

DOI 10.1108/IJLM-10-2017-0278

Received 27 October 2017

Revised 15 February 2018

7 May 2018

28 May 2018

Accepted 7 June 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0957-4093.htm

The author was financially supported by the German Federal Ministry of Education and Research

(BMBF) in the Globaler Wandel researchscheme (Grant No.: 01LN1310A)and by the German Academic

Exchange Service (DAAD) with funds from the Federal Ministry of Education and Research (BMBF).

1125

Hidden

potentials

in OLSCs

Despite positive market projections, the automotive remanufacturing industry faces

challenges and often claims supply and transparency issues (ERN, 2015; Weiland, 2012). In

terms of supply, used components, from both vehicle repairs and end-of-life vehicle

dismantling, are the key resources for automotive remanufacturing. These used components

are called “cores”. Through a manufacturing-like process, remanufacturers turn cores into

components (spare parts) of a quality comparable with or even exceeding original new

components (APRA Europe, 2014; USITC, 2012). Literature and experts identify various

issues related to the supply with cores, for example, availability, quality and identification of

cores as well as lead time (Atasu et al., 2008; ERN, 2015; own results). Only a few of the

raised issues relate to the demand for remanufactured components (e.g. Steinhilper, 2012),

although “customer recognition”seems a challenge for remanufacturing (Atasu et al., 2008),

for example, in Europe (ERN, 2015). Despite similarities to the challenges of raw material

sourcing, such as material scarcity or quality, remanufacturing supply chains (SCs) are

distinct from traditional material SCs. Most importantly, the unpredictability increases

overall because of many factors: for example, the greater number of potential sources (the

customer becomes the supplier), the different timings of product returns, and the great

variety of usage patterns during the actual use phase (APICS, 2014; Sundin and Dunbäck,

2013). While traditional raw material SCs may manage potential quality issues through a

certain level of excess inventory (Chopra and Sodhi, 2004), excess inventory in the

remanufacturing SC not only challenges financial performance but can rapidly become

obsolete because demand patterns are based on the (initially) unknown failure rate of the

component. In addition, the distribution over time of new product sales and of return and

disposal of the product or its components has only a limited overlap, which significantly

reduces the period of (economically) feasible core acquisition and remanufacturing

(Östlin et al., 2009). In remanufacturing SCs, the complex interconnections between various

characteristic challenges of traditional SCs lead to even greater uncertainty. These

characteristics change the understanding of procurement strategies, for example, multiple

sourcing for remanufacturing is not a means to reduce supply risks or to exploit

the competitive environment amongst the suppliers but it is necessary and almost

inevitable. Nevertheless, remanufacturing SCs can learn from traditional SC management to

overcome some of these supply challenges.

The challenges that remanufacturing faces in its reverse SCs for cores are usually

addressed with closed-loop supply chains (CLSCs). The actors in CLSCs maintain special

relationships to coordinate the SC activities. However, there seems to be a gap in the

procurement processes of remanufacturers that may not be as easily tackled with industrial

economics-related research approaches as supposed in predominant CLSC research (Atasu

et al., 2008). For example, alternative SCs for cores exist, complementing the supply of cores

(primarily relying on a CLSC; Östlin et al., 2008), or independent remanufacturers establish

alternative SCs parallel to an original equipment manufacturer (OEM)-dominated CLSCs for

the same component. This study analyses independent actors and their relationship

management in SCs for cores to evaluate the actors’potential to reduce supply shortages.

Especially complex reverse logistics relationships in SCs, being significantly less integrated

than CLSCs, motivate to investigate this gap further.

Remanufacturing SCs

Circular flows of products are crucial for remanufacturing, though circularity adds

complexity to SC management. Closing the loop from the end-of-use/-life to new product

lifecycles imposes great challenges on procurement (Östlin et al., 2008). Businesses and SCs

that intend to close the loop face issues such as the identification of sources (Guide and

van Wassenhove, 2009), balancing supply and demand (Daniel et al., 2000) or operational

issues in reverse logistics and lead time (Östlin et al., 2008). Literature concentrates on

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