Analysis of third party reverse logistics provider using interpretive structural modeling

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Abstract

Due to growing economic environment and the introduction of new technologies in marketing, another topic of great interest to logistics today is the use of contract or third party services. In the complicated business world, the company is involved in reuse, recycling, and remanufacturing functions using a third party logistics provider which has an impact on the total performance of the firm. In the development of the reverse logistics concept and practice, the selection of providers for the specific function of reverse logistics support becomes more important. After scanning the surplus of literatures, it was concluded that multiple dimensions and attributes must be used in the evaluation and selection of 3PRLP.

The attributes play an important role in selecting a third party reverse logistics provider (3PRLP). Interpretive structural modeling (ISM) methodology is adopted in this model, which can be used for identifying and summarizing relationships among specific attributes for selecting the best third party reverse logistics provider among the ‘n’ 3PRLPs.

Introduction

The term supply chain represents the complete set of activities involved in marketing, planning, purchasing, full manufacturing, distribution, delivery process, and reverse logistics. Nowadays, the supply chain plays a vital role in the value creation process. Supply chain management recognizes the importance of, and focuses effort on, achieving tight integration between the various links of the chain. To be efficient, a supply chain must exploit modern productivity techniques and approaches, for example JIT purchasing, economic batch sizes, strategic inventory, reverse logistics, third party logistics, etc.

Logistic management is termed as the detailed process of planning, implementing, and controlling the efficient, cost effective flow and storage of materials and products, and related information within a supply chain to satisfy demand (CLM, 2004), and logistics is recognized as the key enabler that allows a company to increase and maintain its competitive advantage and ensures maximum customer satisfaction (Drucker, 1962).

Reverse logistics is the process of moving goods from their typical final destination to another point, for the purpose of capturing value otherwise unavailable, or for the proper disposal of the products (Rogers and Tibben-Lembke, 2001, Dowlatshahi, 2000). Reverse logistics is practiced in many industries, and its effective use can help a company to compete in all streams of advantages. Many situations exist for the product to be placed in a reverse flow, such as commercial returns, warranty returns, end-of-use returns, reusable container returns, and others (Du and Evans, 2008).

According to Andel (1997), effective reverse logistics is believed to result in several direct benefits, including improved customer satisfaction, decreased resource investment levels, and reductions in storage and distribution costs (Autry et al., 2000). Many manufacturers and retailers recognize the importance and consider the outsourcing of reverse logistics (Du and Evans, 2008).

3PRLP selection and evaluation is one of the most critical activities that commits significant resources and impacts the total performance of the firm. The attributes involved in the selection and evaluation process may vary depending on the type of product considered, and these attributes are often in conflict with one another. To enhance 3PRLP selection, the proposed 3PRLP attributes are grouped into seven main attributes such as third party logistics services (3PLS), reverse logistics functions (RLF), organizational role (OR), user satisfaction (US), impact of use of 3PL (IU3PL), organizational performance criteria (OPC), IT Applications (IT), and 35 sub-attributes as shown in Table 1.

The proposed attributes which aid in evaluating 3PRLP are interesting and become the objective of the building of a new model using ISM. It can be used for identifying and summarizing relationships among a specific variable that defines a problem or an issue and provides us with a means by which order can be imposed on the complexity of variables (Sage, 1977). The insight from the model would help supply chain managers in strategic planning to select the best 3PRLPs.

After the introduction, the remainder of this paper is organized as follows. The literature review is given in Section 2. Section 3 describes the problem, and Section 4 presents a solution methodology. The application model (case study) is discussed in Section 5. The result analysis and conclusion of the paper is presented in the final section.

Section snippets

Literature review

Many business groups have recently defined logistics for the private sector. All of these definitions of logistics focus on the organization of services and supplies and the movement of goods from one point to another. Aghazadeh (2003) states that “logistics is the process of strategically managing movement and storage of material or products and related information from any point in the manufacturing process through consumer fulfillment.”

Over the last decade, companies only considered the

Problem description

This paper describes a case study from a company in the tire industry that aims to show how it may choose a third party reverse logistics provider as a partner from n possible providers. The aim of the company is to select the third party reverse logistics provider that best satisfies the goal, the seven attributes that the company is trying to satisfy, and also the 35 sub-attributes. In order to select the 3PRLP, the company should identify the attributes and sub-attributes and their

Solution methodology

ISM is primarily intended as a group learning process, but can also be used individually. The ISM process transforms unclear, poorly articulated mental models of systems into visible, well-defined models useful for many purposes (Sage, 1977, Kannan et al., 2010). In this process, a systematic application of some elementary notions of graph theory is used in such a way that theoretical, conceptual, and computational leverage are exploited to explain the complex pattern of contextual

Application of model to the case illustration

The objective of this research study is to illustrate the interactions between the attributes for the 3PRLP development using ISM. The model has been applied to a tire manufacturing company in the southern part of India and the company planned to improve the quality of the returned product. Instead of purchasing the used product from the single 3PRLP, the company planned to purchase it from the best 3PRLP out of ‘n’ alternative 3PRLPs.

Result and analysis

The attributes hindering the selection of 3PRLP considerably challenges both the managers and policymakers in industries. Some of the major attributes have been highlighted here and put into an ISM model to analyze the interaction between the attributes. These attributes are used for the success in the selection of 3PRLP. The driver-dependence diagram shown in Fig. 6 provides some valuable insights into the relative importance and the interdependencies among the attributes as follows:

  • An OPC is

Conclusion

A growing number of companies have begun to realize the importance of implementing integrated supply chain management since they are under pressure for filling customers' orders on time as well as for efficiently taking back returned products from customers after the sale. 3PRLPs are playing an increasing role in supporting such integrated supply chain management using sophisticated information systems and dedicated equipment. Thus, the objective of this work is to analyze the interaction among

Acknowledgments

The first author is supported by a Grant from Forsknings- og Innovationsstyrelsen for “The International Network programme” (1681448) and the third author is supported by a Grant from National Science Fund for Distinguished Young Scholars (71025002) and National Key Basic Research Program of China (973 Program, 2011CB013406).

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