Academic journal article Journal of Managerial Issues

Enhancing Product Recovery Value in Closed-Loop Supply Chains with RFID

Academic journal article Journal of Managerial Issues

Enhancing Product Recovery Value in Closed-Loop Supply Chains with RFID

Article excerpt

The downstream movement of goods from the manufacturer to the retailer for sale to consumers is referred to as a forward supply chain. When consumers return their purchases to the retailer for a refund, a repair or a recall, an upstream movement of goods occurs from the retailer to the manufacturer. This upstream movement of product returns is termed a reverse supply chain (often called reverse logistics) (Tibben-Lembke and Rogers, 2002). Closed-loop supply chains refer to the integration of both forward and reverse supply chain activities (Guide et al., 2003).

Closed-loop supply chains are a key component of sustainable business operations and they have begun to receive increased attention from both practitioners and academicians. This interest is driven by legislative environmental regulation for companies that operate in the European Union and by economic factors for companies in the United States. Additionally, companies exporting to Europe will also have to abide by these laws and adjust their business practices to be environmentally friendly (Guide et al., 2003).

For U.S. manufacturers, product returns have expanded from a limited volume of high-value goods to a large variety of low-value goods, due to shorter product life cycles and lenient return policies at retailers (Tibben-Lembke and Rogers, 2002; Guide et al., 2003). Rogers and Tibben-Lembke (2001) estimated overall customer returns for general merchandise in the U.S. to be approximately 6% of sales, which in 1999 would have been over $38 billion worth of returned goods. These proliferations of product returns have increased costs for manufacturers since they typically must credit the retailer and then determine the most cost-effective way to dispose the returns (Blackburn et al., 2004). It should be noted that recovered parts and components often can be used to reduce production costs and to provide a cheap source of parts for service repairs (Toffel, 2004). Furthermore, the Supply Chain Council has identified the management of product returns as one of five key supply chain processes (SCOR, 2005). Hence, the development of effective and efficient, strategically managed closed-loop supply chains is becoming more important to practitioners.

Chopra and Meindl state "Information is crucial to supply chain performance because it provides the foundation on which supply chain processes execute transactions and managers make decisions" (2004: 482). To be useful in aiding supply chain decisions, information must be accurate, accessible in a timely manner, and be of the right kind (Chopra and Meindl, 2004). A relatively new information-sharing technology being utilized in the supply chain is radio frequency identification (RFID). Radio frequency identification is a data acquisition and storage method, which promises numerous supply chain benefits: improved speed, accuracy, efficiency and security of information sharing across supply chain (Jones et al., 2004). Additional benefits realized are: (1) reduced storage, handling and distribution expenses, (2) increased sales through reduced stock outs, and (3) improved cash flow through increased inventory turns and improved utilization of assets (Karkkainen, 2003).

The major drivers behind RFID implementation are retailers such as Wal-Mart and the U.S. Government. In January 2005, Wal-Marts' top 100 suppliers were required to tag all pallets and cases they shipped to Wal-Mart distribution centers. The next top 200 suppliers were to tag all pallets and cases by January, 2006 and all suppliers by the end of 2006 (RFID Journal, 2004). Other early retail adopters of RFID technology include The Gap, Woolworth's, Prada, Benetton, and Marks & Spencer (Wilding and Delgado, 2004c). The U.S. Department of Defense required its 43,000 suppliers to put RFID tags on pallets, cases and on any single item with a cost of more than $5,000 beginning January 1, 2005 (Collins, 2004a). In addition, the U. …

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