Today’s consumer lifestyle is supporting shorter product life, with fast replacement and disposal. Mobile phones are replaced after one or two years of usage, supported by related contracts and fast release of new product versions. But with limited resources, a new economic thinking is required: A shift from linear to circular economy. Within this concept, the journey from manufacturer to customer is becoming only the first of several loops in a product’s lifecycle, as it returns for repair, upgrade, refurbishment, resale and ultimately for dismantling and recycling.
There are several factors driving this change. First of all, “Producer Responsibility” legislation, like the EU’s WEEE directive, puts the onus on manufacturers to collect and responsibly dispose of their products at end of life. Secondly, there are new business models. The growing importance of service-based products, from aircraft engines rented by the hour to cloud-based computing, creates an incentive for manufacturers to find ways to extend service life and reduce the operating and maintenance costs of their products while they are in customers’ hands. Finally, more companies are tackling the challenge of decoupling growth from resource use by incorporating ‘circular economy’ ideas into their businesses.
Whatever the motivation, this changing relationship between manufacturers and their products has significant implications for logistics, calling for new reverse logistics capabilities that allow companies to recover products from customers. “In combining our logistics capabilities, sustainability expertise and engagement with our customers, DHL can play a major role in enabling a Circular Economy,” confirms Katharina Tomoff, Vice President Shared Value at Deutsche Post DHL Group.
Reverse logistics is the topic of a new white paper developed by Cranfield University, UK, in collaboration with DHL. The report identifies that different categories of products will demand different reverse logistics models. At one end of the spectrum are high volume products with a relatively low residual value, like mobile phones and other consumer electronic devices, where extended producer responsibility regulations are often the primary driver of the reverse logistics process. Here the challenge will be minimizing the cost of recovery.
At the other extreme are advanced industrial products, like medical or high-end ICT equipment, which are likely to retain significant value for manufacturers. Products in this category will use dedicated reverse logistics chains, with the manufacturer controlling the process from the end customer and sustaining product value by informed decisions regarding reuse, refurbishment, remanufacture or recycling.
Cranfield is world-leading in its contribution to global innovation. With its emphasis on the aerospace, agrifood, defense and security, environmental technology, leadership and management, manufacturing and transport systems sectors, it has changed the way society thinks, works and learns.
Sustainable manufacturing at Cranfield is concerned with developing sustainable solutions by adopting a systems approach.
Circular economy thinking is integrated within postgraduate design, technology and management programs, with academic leads in each case. As part of this work, Serhan Alshammari, researcher at Cranfield School of Aerospace Transport and Manufacturing, developed the Reverse Logistics Maturity Model.
Right first time
The report identifies several key success factors for reverse logistics. First, networks will need to be highly optimized to keep costs under control. Consolidating activities with competitors or service providers to maximize return volumes will be important, especially for items with low residual value. Networks will need to be adapted to suit the physical, market and regulatory requirements of different regions.
Second, transparency will be key to efficiency. Companies will need to consider reverse logistics requirements throughout their product design, manufacturing, and marketing activities, for example. They’ll need forecasting and inventory control systems for returning items so they can redeploy or resell them quickly.
DHL’s commitment to circular economy:
- Member of the Ellen MacArthur Foundation’s CE100, a global platform to accelerate the transition to a circular economy
- DHL aims to position logistics as an enabler for a circular economy, supporting their customers’ agenda
- Solution offering supporting return of products, such as DHL Envirosolutions and the Electroreturn service for customers in Germany
- With its GoGreen program, DHL also implemented measures that support a more circular approach for logistics, such as increasing the share of renewables
Third, new sorting and next lifecycle capabilities will be needed to improve the reverse logistics flow. Finally, companies will need new partnerships. They can significantly benefit from collaboration with their logistics provider and companies across different industries to handle reverse product flows.
“Understanding the maturity of reverse logistics and related requirements is crucial to scale-up Circular Economy solutions of companies across different industries,” says Peter Ball, Professor of Operations Management, University of York, until recently with Cranfield University. To support companies in these efforts, the report includes a comprehensive Reverse Logistics Maturity Model, a self-assessment tool that allows them to evaluate the current maturity of their strategy, their tactical capabilities and performance across the full reverse logistics cycle. — Jonathan Ward
Published: April 2016