Returns MGMT Strategy (Italy)
Returns MGMT Strategy (Italy)
www.emeraldinsight.com/0960-0035.htm
IJPDLM
37,7 The returns management process
in supply chain strategy
Diane Mollenkopf
568 Department of Marketing and Logistics, University of Tennessee,
Knoxville, Tennessee, USA
Received October 2006 Ivan Russo
Revised May 2007
Accepted May 2007
Department of Business Economics, University of Verona, Verona, Italy, and
Robert Frankel
Department of Management, Marketing and Logistics,
Coggin College of Business, University of North Florida, Jacksonville, Florida, USA
Abstract
Purpose – The purpose of this paper is to consider theory development related to returns
management within supply chain strategy. The marketing/logistics relationship relative to the returns
management process is investigated.
Design/methodology/approach – Grounded theory qualitative methodology. Managers in five
Italian firms, across marketing and logistics roles, at strategic and operational levels were interviewed.
Findings – Four key findings emerged: strong evidence exists that strategic goals and policies are
being implemented; cross-functional integration within the firms is broader than was expected; the
more integrated firms deal better with external factors influencing the returns management process;
and supply chain orientation – including forward and reverse supply chain flows – is linked to
effective returns management.
Research limitations/implications – Firms were pre-selected for participation, due to researcher’s
time constraints. Additionally, given the pan-European approach to many supply chains, this Italian
research needs to be replicated in other (western and eastern) European settings to determine the
robustness of the factors posited to be important to the returns management process. Finally, other
functional areas beyond marketing and logistics are involved in returns management, and will be more
formally incorporated into future research.
Practical implications – Returns management – increasingly being recognized as affecting
competitive positioning – provides an important link between marketing and logistics. The broad
nature of its cross-functional impact suggests that firms would benefit by improving internal
integration efforts. In particular, a firm’s ability to react to and plan for the influence of external factors
on the returns management process is improved by such internal integration.
Originality/value – Returns management has been under-represented in much of the logistics and
supply chain literature. This paper represents the first stage of an on-going research project aimed at
providing a theoretical framework for understanding the returns management process within a firm’s
supply chain strategy.
Keywords Returns, Supply chain management, Qualitative methods, Europe
Paper type Research paper
International Journal of Physical
Distribution & Logistics Management
Vol. 37 No. 7, 2007
pp. 568-592 Introduction
q Emerald Group Publishing Limited
0960-0035
Many companies have adopted and implemented supply chain initiatives, particularly
DOI 10.1108/09600030710776482 as they globalize their operations. Emphasis on managing business processes across
extended supply chains is growing (Lambert et al., 1998). One of these processes – Supply chain
returns management – focuses on the reverse supply chain, and effective management
can be complicated by the boundary spanning nature of this process within a firm and
strategy
across the entire supply chain (Rogers et al., 2002). Effective management is important
because returns can erode profitability for a firm and can impact relationships with
customers and end-users, as well as impact a firm’s reputation with stakeholders.
In this paper, we use the Rogers et al. (2002) definition of returns management as all 569
activities related to returns: avoidance, gatekeeping, reverse logistics, and disposal.
Long the forgotten step-child of logistics/supply chain managers, the strategic
importance of effectively managing returns is becoming increasingly evident as firms
seek to maximize the value they create for themselves and for customers. When firms
view returns as just a cost center or a regulatory compliance issue, they miss potential
value that can be created for themselves and their customers. Mollenkopf and Closs
(2005) point out this value can only be created by understanding the multi-functional
components of marketing, logistics, operations and finance/accounting functions
which actively engage in managing return products. But little is known about the
nature of these inter-functional relationships within firms as they relate to returns
management. On the marketing and logistics front, integration of these functional
areas has been studied extensively for forward supply chains (Bowersox et al., 1999;
Mollenkopf et al., 2000; Stank et al., 2001) and research interest is now developing
around various aspects of reverse logistics (Carter and Ellram, 1998; Fleischmann et al.,
2000; Rogers and Tibben-Lembke, 2001; Mollenkopf et al., 2005).
However, there has been limited attention to theory-based research in the returns
management arena (Jahre, 1995a; Carter and Ellram, 1998; Daugherty et al., 2001) and
the issue of functional integration has been largely ignored. Marketing strategy and
policy decisions can have a significant impact on the type and timing of product
returns, which would influence the nature and extent of reverse logistics activities a
firm would have to undertake. Yet the nature of the relationship between marketing
and logistics as related to returns management and subsequent reverse logistics
activities remains unknown. Thus, the current research seeks to better understand
linkages between marketing and logistics at both the strategic and operation levels
within firms as they deal with returns management. In trying to better understand the
nature of marketing and logistics involvement in returns management, we focus on
four specific research questions:
RQ1. What is the role of the returns management process in the firm’s overall
supply chain strategy?
RQ2. How are the marketing and logistics functional areas integrated into the
returns management process?
RQ3. What role does a firm’s supply chain orientation play in how it engages in the
returns management process?
RQ4. What external factors influence the returns management process within the
firm?
We employ a qualitative methodology, due to the exploratory nature of the research
itself. Our ultimate goal is to develop theory about the returns management process
within firms. As a first step, the focus of this research is returns management in
IJPDLM Western Europe, specifically within Italian firms. The Italian focus provides a useful
37,7 starting point due to the changing environment brought about by European economic
integration and a pan-European regulatory environment. This research setting
provides an opportunity to study both firm-level factors as well as external factors that
may influence how firms handle their returns management processes.
570 Background
Returns management in Italy was originally studied and approached as an accounting
or production quality issue (Corsani, 1930; Ardemani, 1944; Onida, 1951; Saraceno,
1978). In the 1970-1980s, the notion of returns management in Europe became an issue
related to sustainable development; recovery practices were mandated through
environmental legislation. EU legislation and its green policy approach created
sensitivity about products at the end of their life. Thus, reverse logistics came to be
seen as a problem of sustainable development (De Brito and Dekker, 2004). The
Northern European countries have a history of being involved in green issues,
primarily focusing on consumer-level issues of waste and packaging recycling (Jahre,
1995a, b; Anderson and Huge Brodin, 2005). Recent legislation now mandates that all
EU countries follow new legislative directives relating to packaging (Directive
99/31/EC), cars (Directive 00/53/EC), and electrical/electronic equipment (Directives
02/96/EC and 02/95/EC). These European policies stipulate that all member nations
follow green policies in terms of reuse, recycling and product recovery.
The European Commission has shown interest in the development of the reverse
logistics field by sponsoring international scientific projects through the European
working group on reverse logistics, RevLog (Thierry et al., 1995; Fleischmann et al.,
1997). This group has focused much of its efforts on issues such as inventory
management, particularly in a remanufacturing context (Kleber et al., 2002; Kiesmuller,
2003; Kiesmuller and Scherer, 2003) and issues of network design and product flow
management (De Koster et al., 2002; Kokkinaki et al., 2002). The RevLog research has
intensely focused on quantitative modeling of product recovery related issues.
In Italy, research has been limited to issues of sustainable mobility for urban transit
situations (Borghesi et al., 1997; Maggi, 2001) with some preliminary forays into supply
chain and reverse logistics issues (Dallari and Marchet, 2003). Yet, reverse logistics and
returns management issues have been absent from academic research and
management attention in Italy until very recently. This is primarily due to the small
size of 90 percent of Italian firms where the priority is forward logistics. However, due
to the new green laws being enacted across Europe and changing market opportunities
(Christopher and Peck, 2003; Borghesi, 2006) academic interest in reverse logistics and
returns management is now developing in Italy. The current research represents a
preliminary attempt to understand the returns management phenomenon from the
perspective of Italian managers.
More generally, returns management literature has roots in both the marketing and
logistics disciplines, with the early focus on reverse channels and reverse logistics,
respectively. One early attempt in the marketing literature by Stanton and Zikmund
(1971) focused on the role of the consumer in the reverse distribution channel for
waste materials, exemplifying marketing’s early focus on environmental issues
(Lavidge, 1970). The study of waste disposal was deemed a social marketing issue;
reverse channels of distribution were seen as a logical extension of the marketing
function, designed to bridge the physical and nonphysical gaps that exist between Supply chain
producers and consumers (Ginter and Starling, 1978). strategy
By the 1980s, the logistics literature focused on product flow “going the wrong way”
(Lambert and Stock, 1982), that is, the opposite way with respect to the traditional flow
(Murphy and Poist, 1989). In particular, Stock (1992) was the first to approach the issue
with a holistic view, trying to create an academic framework for understanding the
reverse flow, with emphasis on managing returns as a problem to be solved. Kopicki 571
et al. (1993) studied the opportunities created in the context of reuse, recycling and
disposal of product and packaging waste. Because of the different implications of the
reverse flow, they concluded that reverse logistics was becoming an important issue
with respect to waste reduction. These authors also observed that reverse flows need to
be managed differently than forward flows.
The changing regulatory environment also motivated academic research in the
1990s. Both American and European laws were becoming increasingly strict for
manufacturers (Cairncross, 1992), leading to a focus on environmental management
systems (Willits and Giuntini, 1994) across the phases of the product life cycle. Thierry
et al. (1995) focused on issues of product recovery in specific sectors, with particular
attention on cost savings associated with refurbishing activities. Other authors
addressed the relationship between reverse logistics and green logistics (Güngör and
Gupta, 1999; Geyer and Jackson, 2004). This stream of research centered around the
cradle-to-grave approach, considering the environmental impact of waste product or
packaging materials (Witt, 1986, 1993; Barry et al., 1993; Andel, 1995).
The emphasis on management practices has led researchers to examine the
profitability of returns handling systems (Andel, 1997). Rogers and Tibben-Lembke
(1999) surveyed American firms and found a growing emphasis of cost reduction in
managing return systems. Other researchers (Guide and van Wassenhove, 2003;
Dyckhoff et al., 2004) have focused their research on product recovery to reduce
production costs. Blackburn et al. (2004) recommend the need to make disposition
decisions as soon as possible in the returns process due to the time-sensitivity of most
returned goods. That is, the longer it takes to make the disposition decision on a
returned product, the lower the expected market value of that product when re-inserted
into the forward supply chain. This is supported by Rogers et al. (2002), who position
the returns management process as a part of a firm’s overall supply chain strategy.
They demonstrate the impact of returns management on economic value added and on
customer and supplier relationships. Their focus on returns avoidance, gatekeeping,
reverse logistics and disposal demonstrates the need to manage returns across multiple
functional areas and with firms across the supply chain. Shifting from merely a
cost-focus to enhanced customer service and financial performance clearly underscores
the strategic role of returns in a company’s supply chain activities.
Both Dowlatshahi (2000) and Carter and Ellram (1998) reported that the
preponderance of the literature on reverse logistics was general, practitioner
oriented and took the form of application cases specific to individual firms. Drawing
from the logistics, marketing and management literature, Carter and Ellram (1998)
proposed a model of the factors affecting a firm’s reverse logistics practices, including
both external and internal factors. Following their call for theory-based research,
Daugherty et al. (2001, 2002) provide some of the few theory-based approaches found in
the literature to date, focusing on resource and relationship commitments and their
IJPDLM impact on overall reverse logistics performance. But little is known about how
37,7 marketing and logistics managers integrate their decisions and processes with respect
to returns. The current research begins to address this issue.
Methodology
Because the phenomenon of returns management from a cross-functional perspective
572 has been previously unexplored, a qualitative research methodology was chosen. Such
an approach is appropriate for generating depth of understanding when a phenomenon
is poorly understood (Flint et al., 2002) and over which the researcher has limited or no
control. In seeking to understand the role of returns management within Italian firms, a
grounded theory approach was adopted (Ellram, 1996; Strauss and Corbin, 1998).
Grounded theory has its roots in social science, and is focused on understanding how
people perceive and interact within a dynamic world (Flint and Mentzer, 2000). This
approach has been adopted by other researchers studying phenomena in the
business-to-business context (Flint et al., 1997, 2002).
We used a modified theoretical sampling approach (Strauss and Corbin, 1998) due to
scheduling constraints faced by the research team. Firms deemed to be appropriate
candidates were pre-identified and invited to participate in the research. The invited
firms were known to one member of the research team, based on long-standing
relationships between his university and the relevant business community. Invitations
to participate were purposefully extended to firms across different industry sectors and
supply chain echelons with the expectation that such diversity would generate a breadth
of issues and perspectives. Invitations to participate were sequentially extended until
diversity in the sampling pool was achieved. In all cases, senior-level managers were
approached; five firms agreed to participate. Each senior manager coordinated the roster
of participants in his company, with guidance from the research team related to
identification of appropriate functional responsibilities. In all cases, interviewees were
influential decision makers involved in the returns management process.
In the end, the participant pool consisted of three manufacturing firms and two
distributors of international parent firms, representing consumer durable goods; auto
parts; books; pharmaceuticals; and transmission and propulsion systems for marine
applications. A total of 16 managers across the five companies were interviewed,
reflecting diversity along several dimensions such as function (marketing, sales,
logistics, spare parts, supply chain) and level (strategic and operational), tenure on the
job, organization size, industry, product lines and supply chain role. A brief description
of the participating firms is provided in Table I and a profile of the managers is
provided in Table II.
In lieu of formal bracketing interviews, each member of the research team wrote a
“bracketing essay” prior to conducting the interviews. Bracketing is a technique to
minimize researcher bias with respect to both content and interpretation of interview
subject matter (Briggs, 1986). The researchers reviewed the essays with each other so
as to sensitize themselves to any pre-conceived biases or expectations, and to maximize
objectivity during the interviews. Additionally, the essays provided a reflective
analytic framework during interpretation of the interview transcripts. In essence,
bracketing is a comparative technique to reduce interpretive bias, i.e. every effort was
made to ensure that the research team did not impose any pre-existing conceptions
relative to what the data revealed (Valle et al., 1978; Thompson et al., 1989).
Supply chain
Company Industry Supply chain
namea sector echelon Description strategy
Happy Household Manufacturer This multi-national (headquartered in Italy) operates
Home appliances in four different business sectors: heating, air
conditioning and air treatment, food preparation and
cooking, cleaning and ironing products
Revenues are approximately e1.4 billion (Italy)
573
Competition in the market is very intense based on
factors such as innovation, quality and price. One of
the main issues for this market is the growing power
of retailers, particularly in the UK and Germany.
Moreover, the consumer is becoming increasingly
sophisticated and demanding
Booksters Book Manufacturer This domestic firm is a large publisher of books and
publishing (publisher) magazines, serving three distinct channels: small
independent booksellers, hypermarket and
mega-stores
Revenues are approximately e1.6 billion (Italy)
Each channel presents different opportunities and
challenges and therefore must be managed very
differently, albeit with the same product in each
channel. In all three channels stock availability on the
retail shelf is critical
Little competition exists, but changes in the consumer
market and opportunities for developing new channels
will bring about environmental change in coming
years
KarPartz Auto spare Distributor This national distributor of auto parts/components for
parts an important multinational, also serves a small portion
of North Africa, but its main market is Italian car
dealers
Revenues are approximately e4.6 billion (Italy)
With the implementation of the pan-European block
exemption rule (2002), competition has increased,
principally because this firm lost its sole distributor
status
Pharmco Pharmaceuticals Distributor This Italian subsidiary of an international
pharmaceutical company engages in R&D, marketing,
manufacture and distribution of pharmaceutical and
healthcare products. The company serves two main
channels: hospitals and pharmacy
Revenues are approximately e34 billion (worldwide)
The firm operates in a public healthcare system that
imposes many constraints on providers
MarineWorld Marine Manufacturer This multinational company has headquarters in Italy
propulsion and Revenues are approximately e72 million (Italy)
transmissions The market is not competitive, but is very demanding
in terms of quality and performance of the product.
Yet the end consumer has no knowledge of who this
part manufacturer is Table I.
Profile of participating
Note: aPseudonyms are used to protect the identity of the firms firms
IJPDLM
Participant
37,7 pseudonym Organization Description
Davide Happy Home Supply Chain Director, male, age 45, ten years with firm;
responsible for global supply chain
Alberto Happy Home Export Service Manager, male, age 37, six years with firm,
574 previous experience as product manager
Luigi Happy Home Regional Sales Director Europe, male, age 40, 12 years with firm
in two different periods; export sales manager prior to current
position
Massimiliano Happy Home Logistics project Manager, male, age 35, eight years with firm;
directly involved in firm’s offshoring manufacturing activities
Stefano Booksters Physical Distribution Director, male, age 45, ten years with
firm, responsible for all inbound and outbound books coming
from the customers and from production
Fabio Booksters Sales Hardcover Line Director, male, age 50, 12 years with firm,
responsible for the sales people that work with book retailers
Alessio KarPartz Logistics Director, male, age 44, 15 years with firm, responsible
for more than 250 people, 90,000 items, four wagons per day
and 30 trucks every day
Francesco KarPartz Logistics Warehouse Manager, male, age 38, 17 years with firm,
responsible for more than 180 workers in the warehouse
Antonio KarPartz Spare parts Purchasing and Distribution Manager, male, age
37, 18 years with firm, sales manager for spare parts service
manager in the light commercial vehicles division prior this
position
Angelo Pharmco Supply Chain Management Director, male, age 38, two years
with firm, responsible for all the issues of Italian supply chain
(distribution to customers, dealing with customers both
hospitals and wholesalers, demand planning activities,
warehousing and distribution until the invoicing to the final
customer)
Chiara Pharmco Customer Service Manager, female, age 30, responsible for the
aspects related to customer master data management and
administrative problems (invoicing and pricing)
Michele Pharmco Trading Strategy Coordinator, male, age 45, responsible for
pricing, competitive bidding processes, projects and special
aspects of the hospital channel
Gabriele MarineWorld Operations Director, male, age 55, responsible for activities and
processes related to the manufacturing, assembly, logistics,
quality control, all the systems, safety environment and process
engineering
Pino MarineWorld Service Manager, male, age 36, responsible for training on the
new products and post-sale customer support through
worldwide service networks
Tiziano MarineWorld Sales Manager, male, age 34, manages three main customers;
responsible for the budget, for sales planning, pricing and new
product development
Matteo MarineWorld Logistics Manager, male, age 40, 22 years with firm, responsible
for production planning
Table II.
Profile of management Notes: All participants are key managers for their firms with decision-making power; pseudonyms
participants are used to protect the identity of the participants; some ages are estimates
Although the returns management process is an organizational – even a supply chain – Supply chain
phenomenon, we chose to focus on individual managers’ perceptions of the strategy
management process. Interviews were held individually with each participating
manager, and each interview lasted 60-90 minutes. The depth interviews were open
ended and discovery oriented, starting with a grand tour technique borrowed from
ethnography (McCracken, 1988). An interview guide that broadly identified topics of
interest was used to follow up the grand tour technique. These topics were identified 575
from previous research in returns management (Carter and Ellram, 1998; Rogers et al.,
2002; Mollenkopf and Closs, 2005). However, as the interviews progressed, new topics
were allowed to emerge as they were brought up by the interviewees. All interviews
were digitally recorded and transcribed verbatim, as were the debriefing discussions
held by the research team after each set of interviews. The debriefing sessions were
conducted because of the inability to code transcripts of each interview before
proceeding to the next participating company, as advocated by Strauss and Corbin
(1998). Thus, we attempted to solidify our perceptions and thoughts with respect to
what we were hearing as we went along. The debriefing discussions were used to guide
future interviews, particularly as new ideas arose. All interviews were conducted in
English with the exception of two conducted in Italian. The Italian transcripts were
then translated into English by a professional translator. The Italian member
of the research team provided additional validation when interpreting the meaning of
the translated interviews. Because we achieved information redundancy via the
modified theoretical sampling approach, we were comfortable that theoretical
saturation had been achieved.
To ensure rigor in the data collection and analysis, we employed two sets of
trustworthiness criteria appropriate for qualitative methodology. From interpretive
research we applied criteria related to credibility, transferability, dependability,
confirmability and integrity (Hirschman, 1986); from grounded theory we applied
criteria of fit, understanding, generality, and control (Strauss and Corbin, 1998).
Table III demonstrates that the data and analyses met these criteria.
Results
We focus the discussion of our results around four inter-related aspects that emerged
from the interviews: first, the role of the returns management process; second, the
nature and impact of cross-functional integration; third, supply chain orientation; and
fourth, external factors that influence the returns management process. Figure 1 shows
these aspects of the returns management phenomenon.
Functional
Integration
Strategic/ Supply
Operational Chain
Policies & Orientation
Practices
Figure 1.
External Factors A general model of the
returns management
process
580
Table IV.
IJPDLM
elements of returns
Summary of strategic
management processes
Happy Home Booksters KarPartz Pharmco MarineWorld
Strategic level
Determine RM goals and strategy
Increase customer loyalty through more open Yes Yes Yes
return policies
Protect marketing channels: pull product from Yes Yes Yes Yes N/A
customer shelves to refurbish/dispose, to ensure
product does not wind up being devalued in
secondary markets or inappropriate channels
Seek to improve profitability by keeping product Yes Yes Yes
“fresh” in the marketplace
Utilize asset recovery programs (for packaging Yes Yes
and delivery containers)
Adherence to legal/environmental compliance Yes Yes Yes Yes
regulations is strategically important
Develop avoidance, gatekeeping and disposition
guidelines
Guidelines seen to be integral to firm strategy Yes Yes Yes Yes Yes
Identify returns by type Yes Yes
Focus on returns avoidance Yes Yes Yes Yes
Focus on gatekeeping Yes Yes Yes Yes Yes
Develop returns network and flow options Haphazard Yes Yes Rarely used Rarely used
Develop credit rules Yes Yes Yes Yes Yes
Determine secondary markets No N/A Not yet N/A N/A
Develop framework of metrics Minimal Productivity-focused Yes Yes Yes
regard to its smaller customers (who have historically used returning goods as a Supply chain
mechanism to avoid paying for new products that they are interested in purchasing). strategy
Finally, the analysis of returns and measurement of the return goods performance
revealed that all the firms are very focused on cost reduction and asset reduction
metrics, but do not appear to be very aware or very intent on measurement with
respect to return goods’ impact on short- or long-term sales, except MarineWorld.
It should be noted that it is much easier to measure the cost components that the firms 581
do focus on, rather than on sales impact. MarineWorld is the only company that
performed analysis with respect to future returns avoidance, or set goals to improve
future performance. Table V summarizes these findings at the operational level.
Section summary. While the returns management process is not considered a
priority in the five firms, there is strong evidence that there are significant strategic
goals and policies in place, not just an operational mind-set. It is also clear in Tables IV
and V that returns management strategies and operational activities are incomplete at
all firms. This probably relates to the non-prioritization of the returns management
process. It also indicates that the strategic goals and policies related to returns
management occur primarily in relation to other supply chain and/or logistics
initiatives that carry a higher priority internally (e.g. focus on customer loyalty or
customer service). Thus, what returns management successes these firms are enjoying
occurs in spite of the low prioritization of returns management itself.
Cross-functional integration
The degree and depth of logistics-marketing integration within each of the firms varies
considerably. Three of the firms exhibit high levels of cross-functional integration, but
for very different reasons. We would expect to see high levels of integration at the two
firms for whom returns were a “normal part of operations.” Indeed, KarPartz scores
high on integration because it recognizes that service to the dealers – which relies upon
marketing and logistics working together – is the firm’s competitive differentiator.
The legal environment in Europe recently changed the face of competition in this
industry, causing KarPartz to lose its sole-distributorship status in Italy. Thus, the
importance of service as a differentiator is becoming increasingly clear as prices begin
to drop in the marketplace. The returns management process, which is an integral
component of the service offering, is therefore benefiting as well. KarPartz is very
customer focused (both dealer and end consumer), and the firm’s efficiency is achieved
without sacrificing service. However, well this integration plays out through the firm’s
service performance, we note that the integration mindset appears to exist only at the
senior level of the firm, not at the operational levels. Likewise, at Booksters, integration
is strong due to a good working relationship between marketing and distribution
managers, which has not always existed. In fact, Booksters is the only firm that
explicitly stressed the strong personal working relationships of people across functions
as a key reason why integration has improved so much in the last five years.
Pharmco is the third firm that exhibits high levels of integration, although the
coordination between logistics and accounting is what stands out most prominently.
This integration exists for two reasons. First, the firm experiences significant financial
exposure due to the long cash-to-cash cycles which exist in this business model.
Second, compliance with Sarbanes-Oxley has further increased the integration between
logistics, and accounting (and marketing, as well).
37,7
582
Table V.
IJPDLM
elements of returns
management processes
Summary of operational
Happy Home Booksters KarPartz Pharmco MarineWorld
Operational level
Process return request Marketing Marketing Marketing Customer service Marketing
Determine routing Yes Yes Yes Yes Yes
Receive returns Process varies by Established, varies by An established, An established, manual An established, manual
country channel manual process process process
Select disposition Refurbishing or scrap Recycles Multiple Destroys, under control Negotiate options with
disposition of government authority customers
options
Credit Inconsistent across Well established, but Well established Well established Well established
customer/supplier markets; often flexible with smaller
contentious customers
Analyze returns and Focus on cost reduction Focus on cost/asset Focus on cost Focus on cost reduction Focus on sales impact,
measure performance reduction reduction improvement and returns
avoidance
At the other end of the integration spectrum are Happy Home and MarineWorld. Supply chain
Happy Home exhibits a clear lack of marketing-logistics-spare parts integration. strategy
This situation is primarily created because there is poor sales visibility across the firm.
The problem is now recognized as such, and is reflected in an increasing awareness of
the importance of those internal customers who manage spare parts activities. There is
also poor integration between marketing and logistics for product flows. The logistics
manager at the firm was the only mid-level manager who acknowledged the need for 583
marketing and logistics to “talk to each other.”
The issue of integration at MarineWorld is puzzling. The firm is very focused on the
end-user and highly collaborative with its channel dealers. Conversely, the firm is very
internally focused around a production mentality. There is very little visibility or
sharing of information across functions despite the use of SAP systems. Logistics is
primarily a plant-based activity that revolves around production planning. There is no
upstream/downstream awareness in the logistics function. Likewise, the marketing
function is primarily a sales function, which sees no need to get involved in production
planning decisions. Thus, the level of marketing-logistics integration is very low in this
firm.
Section summary. One generally thinks of the returns management process as
primarily a physical flow, but Pharmco, KarPartz, and Booksters point out the equally
important task of managing financial/administrative flows in the returns management
process. It would appear that marketing-logistics integration, using returns
management as a proxy, is best achieved when visibility of information is high and
strong personal relationships are able to support the information exchange. This is
consistent with the logistics literature relating to integration (Mollenkopf et al., 2000;
Daugherty et al., 2002).
Managerial implications
Managers can take away several relevant points from this preliminary research. First,
they should monitor and respond to the external factors which influence returns.
As customer, competitive and regulatory environments continue to change, returns are
an increasingly important component in managing “green” issues, consumer
protection issues, and perhaps most importantly legislative issues. Moreover, these
external factors impact physical flows, information flows and financial flows in the
IJPDLM supply chain – the scope of such impact is quite broad. Second, effectiveness of returns
37,7 management seems to be enhanced when functional areas within the firm coordinate
their strategic and operational activities. Among the participating companies,
those with higher levels of functional integration appear to be more adaptive and
pro-active in managing returns. Thus, managers need to actively pursue the
breakdown of functional silo-ism when it comes to returns management. Third,
586 managers need to integrate their reverse supply chain with the activities and processes
in their forward supply chains. We saw evidence that managing returns can impact
product design to minimize return volume or to make the product conducive to further
processing (e.g. refurbishment), can help protect marketing channels, and can add to
supply chain efficiencies.
Functional
Integration
Awareness of
External Factors Strategic
Policies/Practices
Customer markets Effectiveness of
Competitive Returns Management
environment Process
Operational
Regulatory
Policies/Practices
environment
Figure 2.
Supply Chain
A proposed causal model
Orientation
of effective returns
management
Supply chain
Research proposition Description
strategy
1 Strategic policies and practices are positively associated with the
effectiveness of a firm’s returns management process
Operational policies and practices are positively associated with the
effectiveness of a firm’s returns management process
Strategic policies and practices are positively associated with operational 587
policies and practices
2 Functional integration is positively associated with the effectiveness of a
firm’s returns management process
Functional integration moderates the relationship between strategic and
operational policies and practices and the effectiveness of a firm’s returns
management process (alternative proposition)
3 Supply chain orientation is positively associated with the effectiveness of
a firm’s returns management process
Supply chain orientation moderates the relationship between strategic and
operational policies and practices and the effectiveness of a firm’s returns
management process (alternative proposition)
4 Awareness of external factors (customer, competitive and regulatory
environments) is positively associated with a firm’s strategic policies and
practices
Awareness of external factors (customer, competitive and regulatory
environments) is positively associated with a firm’s operational policies
and practices Table VI.
Awareness of external factors (customer, competitive and regulatory Propositions for future
environments) is positively associated with the effectiveness of a firm’s research (as shown in
returns management process Figure 2)
Furthermore, our focus on Italian firms may in itself be limiting. Given the
pan-European approach to many business practices, especially related to supply chain
management, this research needs to be replicated in other national settings within
western and eastern Europe to determine the robustness of the factors posited to be
important to the returns management process. This is especially critical because
returns management research and practice in Italy are still new and underdeveloped.
Much can be learned by comparing results in Italy with practices in other European
settings, such as The Netherlands or Scandinavia, where reverse logistics and
sustainability issues are much more advanced in both practice and research. Ideally,
this research will be extended beyond the horizons of Europe. For example, the
external factors discussed in this paper may have very different influences on returns
management in other parts of the world. Other factors may be even more important.
In this research, we focused primarily on the logistics-marketing interface to
understand returns management, but clearly other functional areas are involved.
Accounting/finance was particularly important for at least one of our firms. What role
does it play in other firms? What other functional areas should be considered to better
understand the returns process? Future research needs to further explore other
functional linkages to develop a better understanding of integration as it relates to
returns management.
We focused our efforts on single firms, and while we were able to ascertain their
perceptions of broader supply chain issues related to returns, we still know very little
IJPDLM about the returns management process across the supply chains within which these
37,7 firms operate. Future research could take a broader supply chain approach and study
the returns management across firms. For example, collecting data from the customers
and suppliers (at multiple tiers) of our focal firms should provide an extended
understanding of returns management issues across the supply chain. Our focus on
functional integration would then become a study of interorganizational integration.
588 Following the previous suggestion, we note that as supply chains continue to
globalize, the impact on returns must be considered, and management processes need
to be put in place to manage across the globally extended supply chain. For example,
one of the firms we interviewed recently offshored some manufacturing activities to
Asia; subsequently, it noted an unexpected decline in product quality, with a
subsequent increase in return products. Alternatively, another company is on the verge
of outsourcing production to Asia, but stated that they expect no changes in product
quality to ensue. Is this because the managers at the second company are simply naı̈ve,
or do they have better processes in place to ensure that product quality is maintained
and therefore, subsequent returns can be avoided? More importantly, the literature on
supply chain globalization has not considered the impact that globalization will have
on returns. Not only may quality issues cause an increase in return rates, but also
returns avoidance will likely become more challenging for firms dealing with extended
supply chains. The lead time involved in global supply chains may also create
problems with respect to supplying replacement and spare parts. Thus, the issues
related to globalization represent a rich area for future research on returns
management.
Finally, future research needs to more specifically explore the role of returns
management in firms’ corporate social responsibility (CSR) initiatives. Although CSR
was not a major topic of discussion with our participants, awareness of CSR was
evident. As firms continue to develop and implement CSR programs, returns
management as part of supply chain strategy may become increasingly important.
Future research needs to be able to capture and assess the link between CSR and
returns management.
Conclusion
Our purpose in this research was to develop an understanding of the linkage between
functional integration and the way a firm manages its returns process. While
we focused our attention on marketing and logistics integration, we discovered that
other functional areas need to be incorporated into such research. Additionally, we
identified several other factors that influence the returns management process; there
may be more factors we have not yet discovered. Based on this work, we posit a
preliminary theoretical model to guide future returns management research. The
model needs to be further developed, but we believe theory will become an increasingly
valuable tool to manage return flows within supply chains.
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