Assessing and Optimizing the Reverse Logistic Process Using Computer Aided Modelling Techniques

Diplomarbeit von Martin Bonev

Introduction:

As the world population is growing continuously and emerging markets are expanding, natural recourses are being used even more intensively. Because of the scarcity of natural resources, industry faces a changing business environment. Due to government regulations, companies nowadays must handle not only in terms of efficiency, but also of sustainable development and new market opportunities. Thus, with the progression of the logistics sector in recent years, supply chain management and especially the concept of reverse logistics have become more important for both, industry and science. By utilizing reverse logistics, companies aim at maximizing their product revenue while reducing the costs of product returns. Accordingly, implementing an effective concept of reverse logistics, while manufacturing environmentally friendly products, has become a strategic issue. In order to meet the requirements, companies are confronted with the problem of reducing the uncertainties regarding the quality, quantity and timing of the product returns. In this context, a high level of uncertainty leads to a strong increase in complexity compared to the traditional forward supply chains. Using modern computer aided modelling techniques such as system dynamics, helps to counteract this complexity since they not only enable a better understanding of the dynamic behaviour of such complex systems but also allow an improved estimation of the impact of a changing environment and management decisions.

This thesis contributes towards an improvement of the strategic decision making process in the field of reverse logistics by providing a generic simulation model which can be used to analyse the influence of different environmental and economical policies with respect to prevailing market conditions. To achieve this objective, the following approach is proposed:

In Chapter 2, the theoretical foundation of reverse logistics is characterized forming the framework for the subsequent analytical approach concerning the appropriate model development. For this purpose, first, an overview of the state of the art concerning the processes and influencing factors within the field of reverse logistics is provided. This is achieved by describing the theoretical background of the topic, including a characterization of the impact of individual reverse logistic activities on each other and on their environment. Afterwards, current challenges and trends when managing product returns are discussed with a particular focus on the major role of uncertainties on the reverse logistic environment.

Based on the gained results, Chapter 3 reconsiders the present conceptional formulation in a systematic manner which requires the application of assistant system dynamics methods for studying reverse logistic processes. Thereafter, current approaches introduced in literature are reviewed in order to clarify the prerequisites of the proposed modelling procedure. In Chapter 4, the defined procedure is employed and, consequently, the individual steps of the system dynamics modelling methodology are outlined. The described methodology considers the objectives for the model development in accordance with the specific practises and techniques characteristic of the research group on site. Finally, in Chapter 5, the achieved results are presented in reference to the formulated task definition.

Table of Contents:

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Chapter 2.1.6.1, Collection:

The reverse logistic process beginns with the collection phase. It comprises all activities centered on gathering used products, leftovers or by-products and transporting them to some location where further examination and processing is done. Collection may include locating such products, puchasing, transportating and storing them at collection points. Furthermore, collection activities may, to some degree, be necessitated by legislation. In some countries in Western Europe for instance, there is an obligation to manufacturies for 100% collectoin of white goods. Moreover, at this point of the reverse logistic system companies have to deal with a high degree of uncertainty concerning not only the location from where the products need to be collected but also their quantity and the time of their arrival (see chapter 2.4). Such uncertainties need to be carefully concidered when it comes to planing and contorlling collection processes.

2.1.6.2, Inspection:

After the products have been collected, in the inspection phase they are further examined. Here, the quality of products plays a major role, since it determines whether a product, or parts of it, will be reused, remanufactured, recycled or disposed. Therefore, the inspection phase results in splitting the flow of used products according to the appropriate processing, which is to follow afterwards. In general, the required physical inspection involves a lot manual work. Remote operating and control has been applied only in some cases, mainly those relating to computing equipment and electronics. Since the decision for the following activities is set at this point, it is important to identify the optimal solution for further processing by evaluating the alternatives concidering the implied pollution. Thus, sometimes inspection is also called selection and seperation, which underlines its dividing character. The activities involved with inspection are disassembly, shredding, testing, sorting and storiging [Fle00]. Finally, it should be noted that uncertainties regarding the retruned products strongly affect the reverse flow for the inspection part as well.

2.1.6.3, Remanufacturing:

Remanufaturing involves a series of activities, which are necessary to bring back the used product to an ‘as new’ condition. Reyes et. al elaborates on the process of remanufaturing: according to him, the discarded product is first completely disassembled;then the usable parts are cleaned, refurbished and brought into inventory. Here, the on-demand disassembling requires extensive sotrage capacity and strongly varies in yields and throughput time. Therefore, companies have to be prepared for uncertainties in the remanufacturing phase. Next, the product is reassemled and the necessary new parts are added. Remanufacturing thus consists of disassembling, cleaning, overhauling and replacement. Since new parts might be added in the course of the process, the remanufactured product may in the end have a better performance and a protracted expected lifetime than the origal new product. Such a reverse logistic process is typically applied in the automotive, electronics and tire manufacturers industry. Especially in the automotive inductry, a high potential for remanufacturing activities exists. The Automotive Parts Rebuilders Association (APRA), for inastance estimates that worldwide in the automotive industry alone, 155,000 railroad cars (or a train 1,100 miles long) could be filled annually by the raw materials saved by remanufacturing. However, uncertainties have to be concidered here as well. There is no preset succession of production steps and the operation that needs to be done at this point strongly depend on the product condition, which is known only after testing. Furthermore, as operations are often done simultaniosly, a capacity problem might occur since product components could require the same repair equipment at the same time.

2.1.6.4, Reuse:

The process of reusing products takes places when the returned products are in such a good condition that they can be utilized almost immidiately either for the original or for an alternative market. Typical examples for reused returned products are glass bottles, containers and most leased or rented equipment. However, the reuse process can also be extended to all cases of end-of-use returns. The returned products are usually reused without being subjected to any repair processes. Extreme examples for that are all worn out products that are directly reused for second-hand markets like Amazon and EBay.

2.1.6.5, Recycling:

During the recycling process, the products are disassembled and grinded. Their material is separated into homogeneous components. Afterwards the material is treated to acquire the quality required for further use, like paper pulp or glass. Another example of recycling can be found in the automotive industry where the recycling process usually consists of two stages, dismantling and shredding. In the first stage, the dismantling, the cars arrive at the dismantling facility either directly from customers or from car dealers. Here, reusable and particular valuable components, such as batteries, are removed. Subsequently, tires and fluids are removed and the remaining body is further transported to the shredding processor. After that, the components are separated into ferrous, nonferrous and non-metallic materials. The recycling process is similarly conducted for other products. In the case of white goods, e.g. washing machines, the product is first dismantled. The components are then separated, according to their material properties and grinded or shred afterwards. Finally, in the recycling process uncertainties play a major role again since the quality and quantity of the returned products cannot be predicted reliably. Therefore, the limited recycling capacity has to be considered when dealing with planning and optimization issues of recycling processes. Moreover, separating processes can differ depending on each returned product. Some older washing machines, for instance, have different construction and consist of variable components, which make the process of disassembling and separating more complex. Despite all the difficulties with recycling, it has been applied widely in industry. For example, most of the metals in discarded cars, which make about 75% of the weight of a car in average, are recycled in countries like Germany, the United Kingdom and the United States.

2.1.6.6, Disposal:

Returned products need to be disposed in case none of the above mentioned options can be conducted due to technical or economical reasons., In the inspection phase, for example, products can be rejected either for remanufacturing or for reuse, if they are in a too severe condition for being further reused or if they cannot be remanufactured due to excessive repair costs. Another example would be outdated products that neither have market potential nor can be recycled properly. Consequently, disposal may involve transportation, land filling and incineration activities.