A systems approach for forward and reverse logistics design. Maximising value from customer involvement

Author:Ayham A.M. Jaaron, Chris Backhouse
DOI:https://doi.org/10.1108/IJLM-07-2015-0118
Pages:947-971
Publication Date:14 Nov 2016
A systems approach for forward
and reverse logistics design
Maximising value from customer involvement
Ayham A.M. Jaaron
Industrial Engineering Department, An-Najah National University,
Nablus, State of Palestine, and
Chris Backhouse
School of Mechanical and Manufacturing Engineering,
Loughborough University, Loughborough, UK
Abstract
Purpose There is significant potential for adding value by involving customer in the design process
and delivery of logistic services. In order to add value to the overall logistic system, the purpose of this
paper is to apply an integrated systems approach for the design of forward and reverse logistics
services in order to build a self-organising service that can maximise efficiencies and in particular
reduce reverse logistics costs.
Design/methodology/approach Two exploratory case studies were conducted in the logistics
systems of housing repair and maintenance sector in the UK. Data were collected using semi-structured
interviews, observations, and documented evidence.
Findings The findings of the cross-case analysis suggests that systems approach expressed as the
Vanguard Method (Seddon, 2008) has a direct impact on enhancing forward logistics performance and
reducing reverse product flows by nourishing three dimensions for learning from demand-driven
analysis; capturing customer clean information, demand predictability and categorisation, and failure
demand analysis.
Research limitations/implications Findings from exploratory case studies cannot be easily
generalised. Hence, further case studies are needed to enrich the findings, and to facilitate their
industrial applications. Further, the paper explores the utilisation of the Vanguard Method only in the
area of housing repairs and maintenance logistics services. It would be valuable for future studies to
further investigate the utilisation of the Vanguard Method in other logistics services settings.
Originality/value The paper demonstrates an important dynamics of how logistics services can
incorporate customer demands into the logistics design process.
Keywords UK, Demand management, Customer requirements, Information exchange,
Supply chain management, Reverse logistics
Paper type Research paper
1. Introduction
With the recent global wave of service-sector growth, logistics activities have become a
vibrant industry to support service organisations (Yu, 2010; Lin and Pekkarinen, 2011;
Eichengreen and Gupta, 2009). To ensure gaining sustainable competitive advantage
and customer satisfaction, a service organisation may choose to set up its own forward
logistics function, hire a third-party logistics service provider, or use a combination of
both (Piplani and Saraswat, 2012). However, many researchers have reported that
logistics industry is not among the most developed industries even in developed
countries, and that it lacks innovation in finding solutions for ever evolving customer
requirements (Chapman et al., 2002; Mena et al., 2007; Lin and Pekkarinen, 2011;
Dowlatshahi, 2012). Arguably, this is due to the fact that logistics industry is
The International Journal of
Logistics Management
Vol. 27 No. 3, 2016
pp. 947-971
©Emerald Group Publis hing Limited
0957-4093
DOI 10.1108/IJLM-07-2015-0118
Received 22 January 2015
Revised 20 July 2015
26 September 2015
30 October 2015
Accepted 31 October 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0957-4093.htm
947
Forward and
reverse
logistics
design
considerably a mature industry where changes are ev olutionary rather than
revolutionary (Mena et al., 2007). Varying and fast-evolving requirements from their
customers have driven logistics service providers to monitor customer expectations; to
ensure they are constantly meeting and exceeding these expectations. Consequently,
offering value-added services such as returning products have become critical success
factor to logistics service providers (Min and Ko, 2008). However, product returns,
being an essential part of the reverse logistics activities (Lee et al., 2012; Zhang et al.,
2013), have recently become a significant concern for most organisations including
service firms. They are viewed as an unavoidable cost of inefficient forward logistics,
minimising any chance of increasing benefits or cost savings (Dowlatshahi, 2012; Min
and Ko, 2008). Reverse logistics, in this sense, usually reduce organisationscurrent
assets as it lowers returned products inventory value, and it lengthens order cycle time
due to reshipping of ordered items. It also causes organisations to lose sales and thus
sales revenues (Min and Ko, 2008). Several products may return into the supply chain
of a company if it is different from the one ordered by customer or due to dissatisfaction
with functionality. A product may also be returned due to forward logistics
imperfection in packaging or shipping or simply due to customer incorrect information
and human errors (Guide et al., 2006; Piplani and Saraswat, 2012). As of 2003, the
amount of reverse product flows was found to be 12 per cent of the total products sales
in the USA (Toktay, 2003). Recently, this has become even worse as Bernon et al. (2009)
explained that many firms in the UK experience up to 30 per cent product returns by
their customers, and that the total cost of retail reverse logistics is valued at six billion
British pounds every year. Also, Min et al. (2005) indicated that handling product
returns can comprise up to 4.5 per cent of the total logistics cost alone in the USA.
Despite these alarming facts, most organisations do not give attention to return
merchandise until things get out of control (Min and Ko, 2008).
As reflected by the work of Jayaraman et al. (1999), the optimal solution for the
logistics services problems is dependent on finding a suitable design of both forward
logistics and reverselogistics of products in a closed-loop system. A closed-loop logistics
system is where products first flow outbound to a customer (i.e. forward logistics), and
then those same productsare returned back to provider (i.e.reverse logistics) ( Jayaraman
et al., 1999). This viewis also shared by Lin and Pekkarinen (2011) who explained that it
is only through effective closed-loop logistics service design and offering high-quality
service variety to customers that forward logistics industry can better understand
customer requirements and reduce returned products. Theauthors further indicated that
proper closed-loop logistics service design tools are urgently needed to provide various
customised services to satisfy and retain current customers; similar to manufacturing
companies who strive to provide and manage product variety (Pil and Holweg, 2004).
Consequently, according to Choy et al. (2008), essential pillars for designing a
successful forward logistics service function, that is capable of learning from returned
products, are listening to customer wantsand then translating these wants into logistics
service design.
However, while the customer involvement in the process of logistics service design
is of paramount importance to reduce reverse product flows and increase efficiency of
forward logistics (Olhager, 2010; Lin and Pekkarinen, 2011; Rollins et al., 2011), there
seems to be scarcity in the current literature of efficient models of operation that can
involve customer demands and wants into the design process of logistics service.
In fact, majority of logistics service models have extensively focussed on
environmental aspects of reverse l ogistics network such as recycling, reuse,
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