Reverse Logistics: Strategy to achieve total customer

satisfaction and enhancing competitive performance.

Project Guide: Prof. Rajesh Kumar
Rupesh Kumar Tiwari
M.Tech. 4
th
Semester
Industrial Engineering &
Management
Contents
Introduction to Concept development and importance of reverse
logistics.
Literature Review (Salient points)
Problem statement
Research question & objective
Sample design & data collection
Measurement scale and questionnaire development
Data analysis & Interpretation
Conclusion
Limitations












Concept Development and
Importance of Reverse Logistics
Resources are scarce in nature and we got limited
disposal capacities.
Some times it is economical to reuse the product
rather going for its disposal.
Growing environmental concern and population
emphasizes the reuse of products and materials.
It is only in the recent past need to investigate
logistics aspects of product recovery and unsold
merchandise have been acknowledged.

Concept Development and Importance
of Reverse Logistics Continued---
To remain competitive and differentiated,
organizations across the world are showing speed and
reliability in offering services such as:
Replacing defective product
Repairing of used product
Refurbishing the return product
Calling back sub standard or harmful product
Disposing off product waste
All these services add to competitiveness of the
organization by increasing the value of the products
and providing clean environment to society. This led
to a development of concept Reverse Logistics.
Evolution and definition of
Reverse Logistics
Like any other concept the reverse logistics is also kept
continuously evolving over the period of time.
The new concept of reverse logistics is different from traditional
concept as process of recycling product. The new definition is
comprehensive and wider in scope.
Reverse logistics is defined as The process of planning,
implementing, and controlling the efficient, cost effective flow of
raw materials, in-process inventory, finished goods and related
information from the point of consumption to the point of origin
for the purpose of recapturing value or proper disposal (Dale &
Ronald, 1999)

STORES PRODUCTION
WAREHOUSE
SUPPLIERS
RETURNS
REVERSE LOGISTICS FLOW
CUSTOMERS
DISPOSAL
REPAIRS
Literature Review
Companys management needs to keep close eye over some
thing which take away the potential profit, dissatisfy the
customers and put a drain over the firms scarce resources (Carter
and Ellram 1998; Blumberg 1999; Dowlatshahi 2000; Rogers and
Tibben-Lembke 2001; Mason 2002).
Increased competition in todays globalized world and shrinking
technological life cycle is the prime driving force making
companies to think about some differentiating factors such as
reverse logistics as an performance enhancing strategy with
regards to customer satisfaction in particular (Richey, Chen et al.
2005)
Some of the organizations are gone to the extent of using reverse
logistics process as a tool to ensure total customer satisfaction by
customers needs and wants are listen and cared for its entire life
cycle (Mason 2002).
Benefits of Reverse Logistics
Improved customer contentment and retention.
Enhance revenue and profitability of organization.
Improved effectiveness of the organization, which led to
significant improvement in the productivity of the
organization.
Improved time bound sensitivity towards listening to the
voice of the customers.
Results in anticipation of needs and wants of the customer
much ahead before actually they could actually realize it .
Drivers of Reverse Logistics
Drivers of Reverse Logistics:
Some of the companies are going for reverse logistics
by recognizing the great value of it, some of them
doing it because they have to and some are socially
motivated to do so. By and large the main driving force
behind Reverse logistics can be categorized as follows-
---
Economic Profit
Environmental rules and regulations
Corporate social responsibility

Dimensions of Reverse Logistics
The field of reverse logistics is so vast that cut across
several functions of the organization.
Researchers are focussing on holistic view of the
reverse logistics and their research work wrap entire
process of reverse flow.
There can not be any universal definition of reverse
logistics. Definition of reverse logistics vary company
to company and largely dependent upon how the
company is going to exploit process of reverse logistics
for value addition.
Frame Work of Reverse Logistics
The nature of reverse logistics is quite different from
conventional logistics. The following are the prime
characteristics of reverse logistics (Daniel Zavala, 2001).
We do not know and predict accurately when the product is
likely to be returned or disposed.
Random and wide variety of return product with uncertain
quality.
Return flow will depend upon the end users.
Because of uncertainty of returned mercantile, its planning,
routing, scheduling and processing become difficult.
Potential value of returned mercantile is uncertain and we need
to maximize the value of returned asset.
Returned assets need to be sold in the secondary market but, its
demand is uncertain and pricing become difficult.
Problem Statement
In a competitive open market situation, the meaning
of customer satisfaction is to exceed the customer
expectations.
In the era of cut throat competition where the
differentiation is fast becoming a rare commodity,
Reverse Logistics can be a big differentiation factor to
stay ahead in the business and achieve total customer
satisfaction.
How the reverse logistics can be instrumental in
achieving total customer satisfaction.

Research Question & Objective
Statement of Research Problem/Opportunity:
To find out relationship between the reverse chain
performance and customer satisfaction and testing its
validity.
Research Objective:
Whether reverse chain performance is instrumental in
achieving total customer satisfaction or not?
Research Hypothesis:
Reverse chain performance leads to total customer
satisfaction.
Sample Design
Convenient Sample
Sample frame consist of members of Automotive After
Market Industry Association of India, third party
reverse logistics providers in India and the end users of
the product
My sample consists of diverse elements of targeted
population so that the quantum of biasness is
mitigated to some extent.
Data Collection
In order to understand the underlying construct of
proposed concept, its beneficial to rely more on
primary data and make use of it.
Questionnaire administered survey seems to me a
better choice because of its versatility.
Survey provides you with sufficient information to
understand outlook, behaviour and expectations of
the respondent.
Questionnaire Development
Quality of research is by and large dependent upon the quality of
questionnaire design. Questionnaire for the purpose of research
will be developed after carefully reviewing the literature available
to me.
Online self administered questionnaire will be sent to all the
respondents chosen from the sample selected .
All the closed ended questions are developed using simple
english and minimum of fuss with almost same wording in order
to capture maximum response and information from the
respondents.
In order to understand underlying construct of the concept
undertaken, I found 31 important variables. Based on these 31
variables questionnaire will be developed.

Measurement Scale
Five points likert scale ( Where 1= Totally disagree and
5= Totally agree) will be used to gather and measure
information collected from the respondents.
Five point likert scale is well balanced and easy to
administered. Respondents need to express his or her
degree of agree ness and disagree ness from the
options given in the questions
Content Validity
According to Blumberg et al. (2005), content validity of a
measuring instrument is the extent to which it provides
adequate coverage of the investigative questions guiding the
study.
Generally speaking, if the items contained in the measurement
scale are representative enough to the study goal we are
interested in.
Constructs and measurement scales in this study are almost
entirely based on the previous literature.
Because of the extensive study, these items have been proved to
be representative to the constructs, thus the overall content
validity is ensured.

Data Analysis
Data collected during the course of research will be
entered, edited and analyse using SPSS-19.
Factor Analysis is used for data reduction and finding
the latent variables.
Development of a model which explain the
relationship between reverse chain performance and
customer satisfaction.
Testing the signification and statistical validity at 95%
confidence interval or 5% level of significance.
Sr. No. Description of the variables
V1 We are prepared to devote people and resources to the reverse logistics activities we conduct with this customer.
V2 Consistency of return procedure
V3 It is convenient to contact and reach return service personnel.
V4 We tell the truth to our supplier
V5 Filling out return form is easy for me
V6 We appoint contact person to process information for product recovery
V7 Offer meaningful guarantee to our customer
V8 We trust that this customer will understand any problems we have that we share with him/her
V9 My company aims to preserve the relationship. We have with the customers indefinitely.
V10 There are direct computer-to-computer links with key suppliers
Sr. No Description of the variables
V11 We can count on this customer taking into consideration the way his/her
decisions and actions affect us
V12 We incur lower compliance costs with environmental regulations due to
our returns handling method
V13 Variety of options available to me for returning product.
V14 We respond quickly towards the customers return needs
V15 Availability of collection centers
V16 We compensate our customer if new product sent to replace the returned
product does not arrive on time.
V17 We use advanced information systems to track and/or expedite
shipments
V18 We recognize our returns policies to be liberal
V19 Inter-organizational coordination is achieved using electronic links
V20 Our strategy for dealing with returned merchandise improves our cost
position relative to our closest competitors
V21 We use information technology-enabled transaction processing
Sr. No. Description of the variables
V22 Real-time information
V23 Duties, authority, and accountability for reverse logistics are
documented in policies and procedures
V24 We address reverse logistics issues mainly with technologies we have
developed
V25 We are realizing cost savings because of our reverse logistics activities
V26 Reverse logistics program evaluations in our firm are based on written
standards
V27 Preparing the product for return is easy
V28 Handle the return without customer intervention
V29 Written procedures and guidelines are available for most reverse
logistics related work situations
V30
Relationship with the supplier
V31 Overall Satisfaction
Result of the survey(Summary)
Sr. No.
1% 2% 3% 4% 5%
V1 9 23 30 18 20
V2 0 23 32 34 11
V3 0 13 44 29 14
V4 3 19 43 26 12
V5 0 9 32 46 13
V6 27 20 4 29 20
V7 7 22 31 27 13
V8 9 25 25 33 8
V9 11 23 31 34 11
V10 25 28 2 36 9
V11 11 20 27 36 19
V12 0 18 27 36 19
Result of the survey continued----
Sr. No. 1% 2% 3% 4% 5%
V13 0 7 30 44 19
V14 9 25 27 24 15
V15 4 21 32 28 15
V16 7 24 20 33 16
V17 10 37 12 28 13
V18 2 11 31 51 05
V19 14 21 30 25 10
V20 0 15 33 45 7
V21 18 27 9 26 20
V22 18 21 10 20 31
V23 8 11 41 31 9
V24 0 23 36 14 25
Result of the survey continued----
Sr.No. 1% 2% 3% 4% 5%
V25 0 19 29 45 7
V26 7 19 37 22 15
V27 0 10 51 36 3
V28 0 39 21 26 14
V29 4 12 45 28 11
V30 32 15 6 10 37
V31 11 23 24 27 15
1. Least Agree
2. Somewhat Agree
3. Agree Moderately
4. Agree to a Great Extent
5. Strongly Agree
Factor Analysis
Total variance explained
Extraction Method: Principle component analysis
Component Extraction Sums of Squared Loadings
Total
% of
Variance
Cumulative
%
1 16.348 54.494 54.494
2 6.059 20.195 74.689
3 2.982 9.941 84.630
4 2.060 6.867 91.497

Factor Analysis continued---
Factor Analysis continued---
Rotated component matrix
Factor Analysis continued---
Rotated component matrix
Factor Analysis continued---
Rotated component matrix
Factor Analysis continued---
The null hypothesis that the population correlation matrix is an
identity matrix is rejected by Bartletts test of sphericity. Thus the
factor analysis may be considered as an appropriate technique for
analyzing the correlation matrix.
Several considerations are involved in determining the number of
factors that should be used in the analysis. In this study eigen value is
used as a basis for determining the number of factors. The factors
having Eigen value greater than 1 are retained. The other factors are not
included in the model.
If percentage of total variance is taken into consideration these 4 factor
extracted to gather explain 91% of total variance.It is recommended
that the factors extracted should account for at least 60% of the
variance. These four extracted factors are also having eigen value more
than one. Hence the extracted factors assumed to be stable.


Factor Analysis continued---
Factor 1 accounts for 54.494% of total variance.
Factor 2 accounts for 20.195% of total variance.
Factor 3 accounts for 9.941% of total variance.
Factor 4 accounts for 4.874 % of total variance
Interpretation of the solution is often enhanced by a
rotation of the factors. Rotated component matrix often
achieves simplicity and enhances interpretability. It also
helps in determining clear factor and variables correlation.

Factor Analysis continued---
Factor 1 has high coefficient of correlation for variables
V1: (We are prepared to devote people and resources to the reverse logistics activities we
conduct with this customer)
V8: (We trust that this customer will understand any problems we have that we share with
him/her)
V11: (We can count on this customer taking into consideration the way his/her decisions and
actions affect us)
V28: (Handle the return without customer intervention)
V7: (Offer meaningful guarantee to our customer )
V15: (Availability of collection centres)
V14: (We respond quickly towards the customers return needs)
V9: (we have with the customers indefinitely.)
V16: (We compensate our customer if new product sent to replace the returned product does
not arrive on time.)

If these variables are observed they are centered on the category of performance
based on service quality and service recovery issues hence this factor can be safely
labeled as service quality & recovery factor. This factor explains 54.494 % of total
variance. This suggests that while measuring performance of reverse logistics service
quality and recovery issues could be one of the prime determinants of reverse
logistics performance.
Factor Analysis continued---
Factor 2 has high coefficient of correlation for variables
V26 : (Reverse logistics program evaluations in our firm are based on
written standards).
V23 : (Duties, authority, and accountability for reverse logistics are
documented in policies and procedures)
V29: (Written procedures and guidelines are available for most reverse
logistics related work situations)
V2 : (Consistency of return procedure)


These variables when observed they can be centered on the category of
performance related to importance of standardization of reverse logistics
process. This factor contributes in explaining 20.195 % of variance, which
makes this factor as second most important issues in measuring reverse
logistics' performance . This factor can be labeled as Standardization of
reverse logistics process.
Factor Analysis continued---
Factor 3 has high coefficient of correlation for variables
V5 : (Filling out return form is easy for me)
V13 : (Variety of options available to me for returning product.)
V3 : (It is convenient to contact and reach return service personnel.)
V27 : (Preparing the product for return is easy)
V4 : (We tell the truth to our supplier)

These variables on observation can be club together to indicate that
customer's involvement analysis is considered important before measuring
reverse logistics' performance. So this factor can be labeled as "customer's
involvement". It explains 9.941% of total variance, and it forms third most
important factor in our study.
Factor Analysis continued---
Factor 4 has high coefficient of correlation for variables
V24: (We address reverse logistics issues mainly with technologies we
have developed)
V12: (We incur lower compliance costs with environmental regulations
due to our returns handling method)
V18: (We recognize our returns policies to be liberal)
V25: (We are realizing cost savings because of our reverse logistics
activities)
V20: (Our strategy for dealing with returned merchandise improves our
cost position relative to our closest competitors.)

These variables together explain reverse logistics strategy formulation, while
measuring reverse logistics' performance. This factor can be termed as
reverse logistics' strategy. This accounts for 6.867% of variance.
Proposed conceptual model--
Service Quality &
Recovery
Standardization of
reverse logistics
process
Customer's
involvement
Reverse logistics'
strategy
Customer
Satisfaction
Customers
Loyalty
Multiple Regression Analysis---
R R Square Adjusted R Square
.966 .934 .931
Model Summary
Multiple Regression Analysis
continued---
Model Summary
Model
Sum of
Squares df
Mean
Square F Sig.
1 Regression 21.537 4 5.384 333.917 .000(a)
Residual 1.532 95 .016
Total 23.069 99

a Predictors: (Constant), X4, X1, X3, X2
b Dependent Variable: Y

Multiple Regression Analysis
continued---
Model Summary
Mode
l
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B
Std.
Error Beta
1 (Constant) .074 .106 .698 .487
X1 .528 .020 .749 26.907 .000
X2 .217 .022 .277 9.792 .000
X3 .179 .019 .256 9.507 .000
X4 .097 .020 .135 4.952 .000

a Predictors: (Constant), X4, X1, X3, X2
b Dependent Variable: Y

Coefficient
Multiple Regression Analysis
continued---
To understand the relationship between customer's satisfaction and
performance of the reverse logistics process and its statistical significance,
regression analysis has been done. In regression analysis the four factors
extracted are taken as independent variables and customer's satisfaction as
dependent variable. Statistical veracity of the model has been tested using
5% level of significance.
It can be observed that p value =.000, which is less than .05. Hence the
proposed regression model is highly significant. The value of adjusted R-
square is 93%, means regression model explain 93% variation and only 7%
is unexplained. Since the value of adjusted R-square and R-square is almost
same, hence the phenomenon of multicollinearity is ruled out and no
interaction amongst the independent variables.
Multiple Regression Analysis
continued---
The proposed regression model can be framed as-

Y=.074+.528*X1+.217*X2+.179*X3+.097*X4
Y= Overall customer satisfaction
X1= Service quality and recovery
X2= Standardization of reverse logistics process
X3= Customer's involvement
X4= Reverse logistics strategy
Conclusion
With the help of factor analysis 30 variables is reduced to 4 factors. The
four extracted factors are service quality and recovery followed by
Standardization of reverse logistics process, Customer's involvement and
Reverse logistics strategy.
It is evident from the model, service quality and recovery is the most
important factor in explaining overall customer satisfaction followed by
Standardization of reverse logistics process, Customer's involvement and
Reverse logistics strategy.
Regression model developed to explain customer satisfaction is found to
be highly significant with p value of 0.000. Regression model is
developed taking customer satisfaction as dependent variable and 4
extracted factors as independent variable.
The explanatory power of the regression model is also very high with
almost negligible interdependency and interaction amongst the
independent variable.
Hence the proposed hypothesis reverse chain performance leads to total
customer satisfaction is valid and hold true.

Limitations & scope of future work
Since the research is based on qualitative data and it is quantified using
suitable measurement scale. Measuring qualitative data has always been
a difficult task for majority of researchers worldwide. At the same time
the majority decision variable in industrial engineering and
management are qualitative in nature. The conversion of qualitative data
into quantitative can be questioned.
The sample size chosen is 100 because of the resource and time
constraints; hence it is difficult to generalize the findings of the research.
The linear relationship amongst the explained and explanatory variables
can be questioned and need some further analysis.
Apply multi objective optimization taking two conflicting objectives of
cost minimization and maximization of customer satisfaction using
some evolutionary algorithm.