Integrating supply chains: is

supply chain collaboration really

happening?

Mohammad Zahasher Hossain

University of Tasmania

Word Count : 2466

Abstract

In response to increasing volumes of returned products, firms are establishing programs to

guide the reversal of flows in the supply chain, i.e., reverse logistics (Daugherty, Autry &
Ellinger 2001). Most of the supply chain management (SCM) researches focus on the forward
flow that transforms raw materials to final products, from suppliers to end customers
(Prahinski & Kocabasoglu 2006). The reverse material movement from end customers to
suppliers has received much less attention (Rogers & Tibben-Lembke 2001; Stock, Speh &
and Shear 2002). This report briefly discusses the reverse logistics process in the supply chain
and importance of efficient management of reverse flow in the supply chain. Various
elements of collaboration in the supply chain have been discussed. Finally this report
examines whether collaboration is actually taking place in reverse flow process of supply
chain or not. One of the largest PC maker in the world DELL has been selected in this
respect.

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Mohammad Zahasher Hossain
Table of contents

Abstract ...................................................................................................................................... ii
Table of contents ....................................................................................................................... iii
Introduction ................................................................................................................................ 1
Reverse logistics and its importance .......................................................................................... 1
Collaboration theories in Supply Chain ..................................................................................... 2
Actual occurrences of collaboration in Reverse Logistics ......................................................... 5
Conclusion .................................................................................................................................. 7
References .................................................................................................................................. 8

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Mohammad Zahasher Hossain
Introduction

Reverse logistics is part of a broader supply chain management process called returns
management (Cooper, Lambert & Pagh 1997). According to Reverse Logistics Executive
Council (n.d.), reverse logistics is 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. This report discusses the importance of efficient return
management in terms of profitability, compliance to government legislation, value creation
etc.

There seems to be increased attention on collaborative efforts in forward flow supply chains
in the last decade based on the assumed premise that closer inter-firm relationships and
enhanced information exchanges do improve the quality of decision-making, reduce
uncertainty, and consequently improve supply chain performance (Whipple & Russell, 2007).
Collaboration is a very broad and encompassing term and when it is put in the context of the
supply chain it needs yet further clarification (Barratt 2004, p. 30). This paper identifies main
elements of supply chain collaboration and its relation with reverse logistics process. Finally
this paper focuses on battery recall of DELL in the year 2006 and attempts to identify whether
collaboration had existed in the recall process or not.

Reverse logistics and its importance

In todays competitive retail environment, patrons often choose one retailer over another
based on the retailers returns policy (Skinner, Bryan & Richey 2008). Products are returned
for a wide range of reasons including defects or damage, customer dissatisfaction, and,
especially in the business-to-business context, lower than projected sales (Barsky & Ellinger
2001). Rogers and Tibben-Lembke (1999) reported that return rates are very much industry-
specific and cited rates of returns that range from 3 per cent to as high as 50 per cent. In a
paper published in Harvard Business Review, Stock, Speh & Shear (2002) mentioned that:

Product returns, long the bane of industries like publishing, pharmaceuticals, and food
retailing, have become an increasing burden for makers and sellers of almost every

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Mohammad Zahasher Hossain
 kind of goodThere are many reasons for this trend-the rise of electronic retailing,
the increase in catalogue purchases, more self-service in stores, a lower tolerance
among buyers for imperfection-but few companies are doing the best job of dealing
with it. The experience of companies that handle returns well, however, suggests that
this process, commonly referred to as reverse logistics, shouldn't be viewed as a costly
sideshow to normal operations. Rather, the process-which may include the
remanufacturing, refurbishing, recycling, reuse, or disposal of goods-should be seen as
an opportunity to build competitive advantage.

Returns management includes all activities related to returns flow, reverse logistics, effective
gatekeeping, and even returns avoidance (Rogers et al. 2002). Reverse
logistics encompasses the traditional logistics activities of transportation and inventory
management, but its focus shifts to getting product back from customers rather than moving
product to customers (Mollenkopf & Closs 2005). Reverse logistics is critical to overall
corporate success and it can be used as a competitive strategy, a profit centre, an asset
recovery hub, and a tool to improve customer satisfaction (Li & Olorunniwo 2008; Ritchie et
al. 2000). Stock, Speh & Shear (2002) cited an example of VOLVO that the company set up
such sophisticated operations for salvaging and dismantling cars that it actually generated
revenues through them: Metals, plastics, and other items were sold for scrap, and parts that
could be remanufactured or offered for sale as used were resold in the secondary market.
They also argue that, return handling, if done right, can enhance relationships with consumers
and supply chain partners. Reverse Logistics also has broad impacts on environment and
human health (Rogers & Tibben-Lembke 1999). Many countries have strict laws on
disposition of certain wastes and some companies are doing voluntarily as part of green
initiatives.

Collaboration theories in Supply Chain

Collaboration is defined as occurring when two or more independent companies work jointly
to plan and execute supply chain operations with greater success than when acting in
isolation (Simatupang & Sridharan 2003). It is also defined as diverse entities working
together, sharing processes, technologies, and data to maximize value for the whole group and
the customers they serve (Foster & Sanjay 2005, p. 31). Collaboration can also be defined as
a relationship between independent firms characterized by openness and trust where risks,

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Mohammad Zahasher Hossain
rewards, and costs are shared between parties (Sandberg 2007). According to Singh & Power
(2009), these definitions are very broad, and it can be difficult to differentiate this term with
other similar terms such as cooperation and coordination. Cooperation, coordination and
collaboration are different concepts because each one involves different levels of trust and
commitment (Spekman, Kamauff & Myhr 1998). Golicic, Foggin & Mentzer (2003) argues
that collaboration connotes a higher magnitude of relationship between or among firms while
coordination and cooperation are lower levels of relationship magnitude. Collaboration allows
for synergy to develop among partners and encourages joint planning and real-time
information exchange (Whipple & Russell 2007). Collaborating firms share responsibilities
and benefits by establishing a degree of cooperation with their upstream and downstream
partners in order to create competitive advantage (Spekman, Kamauff & Myhr 1998).

According to Barratt (2004, p.32):

There are a variety of forms of potential supply chain collaboration, which can be
divided into two main categories: first, vertical: which could include collaboration
with customers, internally (across functions) and with suppliers; and second,
horizontal: which could include collaboration with competitors, internally and with
non-competitors, e.g. sharing manufacturing capacity

Most existing corporate cultures are not capable of supporting collaboration either internally
or externally (Barratt & Green 2001; Ireland & Bruce 2000). Barratt (2004) argues that one of
the major supporting elements of collaboration is a collaborative culture which is made up of
a number of elements such as trust, mutuality, information exchange and openness &
communication. Supply chain collaboration assumes a fair amount of trust amongst the
partners (Simatupang, Wright & Sridharan 2004). Trust refers to the extent to which supply
chain partners perceive each other as credible and benevolent (Ganesan 1994; Doney &
Cannon, 1997). This is also true for the reverse chain, especially since RL process is also
heavily demand driven that is, the downstream customers make the final decision in orders
and returns (Olorunniwo & Li 2010). Trust has numerous antecedents, including open
information sharing, commitment, clear expectations, and follow through (Fawcett et al.
2007). There have to be mutual benefits arising from collaboration (Ellram & Edis 1996;
Sparks 1994). There must also be mutual risk sharing and respect for the other trading partner
(Boddy et al. 1998; Crewe & Davenport, 1992; McIvor & McHugh 2000).

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Information, particularly the transparency and quality of information flows, plays an
important part in many accounts of supply chain developments and both of the following
assumptions: first, intermediation is a potential barrier to greater transparency in supply chain
because it acts as a source of information asymmetry and impactness; and second, that
intermediation necessarily raises costs and frequently constitutes a non-value adding activity
(Popp, 2000). Mason-Jones and Towill (1997) argue that "information enrichment", i.e.
immediate sharing of marketplace data throughout the chain is not merely desirable, but
obligatory. One important aspect of information sharing as it relates to collaboration is the
delineation of the kind of knowledge, explicit or tacit, that results from the exchange of
information (Whipple & Russell 2007). The type of information shared typically include
production planning, inventory levels/turns (e.g. in VMIs), fill rate, forecast accuracy,
promotion performance, price levels and pricing, sales data, and on-time delivery (Sandberg
2007; Whipple & Russell 2007). Such information exchange enhances operational efficiency
in RL (e.g. speedy RMA and product tracking) and provides greater supply chain visibility,
which can in turn lead to cost reductions, improved in-stock performance, increased sales, and
improved customer satisfaction of the returns turnaround process (Olorunniwo & Li 2010).
Rather than single points of contact there is a need to develop broad interfaces between
organisations, potentially to overcome the lack of internal communication, to create an
atmosphere whereby innovative thinking is encouraged and supported (Barratt & Green
2001), and to avoid the situation whereby with single points of contact, and one person leaves,
the whole relationship between the two organisations could be jeopardised (Frankel et al.
2002). From both an internal and external viewpoint of collaboration, a culture of openness
and honesty is needed (Hogarth-Scott, 1999, Spekman et al. 1998; Stank et al. 1999b).

Another issue to consider is the "information" decoupling point (Mason-Jones and Towill,
1999). This is in effect the furthest point to which information on real final demand penetrates
(Christopher and Towill, 2000). Collaboration offers the potential to push this as far as
possible upstream in the supply chain (Christopher and Towill, 2000). Further, collaboration
is not just about developing close information exchange based relationships at an operational
level of activity, but also needs to be implemented at tactical and strategic levels in the
organizations across the supply chain (Barratt 2004). Fawcett et al. (2007) emphasizes that
information technologies will play a critical role in determining the success of an
organizations SC Collaboration efforts. However Barratt (2004) argues that supply chain
collaboration does not need to be based on technology & the key is for there to be a shared

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Mohammad Zahasher Hossain
understanding of what supply chain partners are collaborating over, clearly defined processes,
and a clear understanding of the information required to populate such processes.

A potential danger of internal collaboration is that organisations could achieve internal

integration, and have simply created a larger albeit organisational silo (Barratt and Green,
2001). Internal collaboration must be married with external collaboration, in terms of
developing closer relationships, integrating processes and sharing information with customers
and suppliers. In other words internal integration must be aligned with the drivers and
constraints of the rest of the supply chain (Barratt, 2002). In terms of external collaboration,
Barratt (2004) mentioned a number of potential opportunities for vertical supply chain
collaboration which include on the downstream side of the supply chain: customer
relationship management (CRM); collaborative demand planning (which includes
collaborative forecasting, CPFR, etc.); demand replenishment; and shared distribution.

Actual occurrences of collaboration in Reverse Logistics

Product recalls are a form of return that are usually initiated because of safety or quality issue
(Rogers et al. 2002). They require more upfront planning than most other return types, and
this planning is central to managing them effectively (Smith et al. 1997). Reverse logistics is a
very heavily IT-driven process because of the need to provide for and improve visibility into
the goods in motion throughout the reverse supply chain (Li & Olorunniwo 2008).
Information technology and effective communications play a central in the management of
product recalls (Rogers et al. 2002). Product recalls do not frequently happen in an
organization and therefore managing the reverse flow is not straightforward like forward
supply chain.

DELL, the world's largest computer maker initiated a recall on 2006 soon after it learned the
Sony-manufactured batteries could overheat, leading to fires (Hoffman 2006). The recall
affected batteries of about 4.1 million certain Inspiron, Latitude and Precision mobile
workstations and XPS units shipped between April 2004 and July 18, 2006 (CBS Interactive
2012). Many companies would have a short time to establish the infrastructure to handle such
a wave of returned goods, said Ralph Blakley, director of client solutions at PFSweb, a third-
party provider of reverse logistics services that has worked with DELL in the past (Hoffman
2006).

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The company made the recall process visible to customers and cooperated with the U.S.
Consumer Product Safety Commission to assure regulatory compliance and public awareness
(Hoffman 2006). Dell established separate phone lines and a web site
(http://www.dellbatteryprogram.com/) for the recall which contained factual information of
the affected batteries such as illustration of part number of the batteries, means to identify the
affected batteries. This process required tremendous amount information flow through
DELLs massive IT network such as EDI (Electronic Data Interchange) & ERP (Enterprise
Resource Planning). EDI is a set of standards for exchanging computer-readable information
among organizations; ERP is an information system integrating all facets of an organization
on a common database (Li & Olorunniwo 2008). The website was accessible globally and
through Dells supports webpage all over the world.

Sony, the manufacturer of the lithium ion batteries for DELLs laptop, had assisted DELL
associated with the recall through financial assistance and sharing of engineering data (CBS
Interactive 2012). Informatively SONY was the major suppliers of battery products for other
brands as well. The level of trust that existed between DELL and SONY though their long
term and reliable partnership helped DELL to go ahead with the massive recall. According to
CBS Interactive (2012), the first pictures of exploding laptops were posted in June, and the
company had moved fairly quickly to investigate whether or not the problems were isolated or
more widespread. Therefore it can be submitted that a level of trust and respect for the
partners and mutual sharing of risk existed between DELL and SONY. At the same time it
created a value for the customer and confidence level of the customers on DELL was
maintained.

If not handled well, a large recall of products because of safety or health issues can quickly
degenerate into an embarrassing and costly public relations and product-handling nightmare
(Dibenedetto 2007). DELL had handled this successfully through efficient management of its
supply chain network, reverse logistics in particular. Most manufacturers, especially in the
retail segment, have procedures in place to handle the normal flow of returned or expired
goods. "But it gets harder in the case of a huge recall," said Diane A. Mollenkopf, assistant
professor of logistics at the University of Tennessee (Dibenedetto 2007). Dibenedetto (2007)
suggested that companies caught up in a huge recall might have to set up, in effect, a new or
hybrid supply chain to handle the products coming back if they can't be absorbed into the
usual stream of expired, damaged, or out-of-season merchandise returning through the normal
supply chain.

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Mohammad Zahasher Hossain
Conclusion

Reverse logistics is a complex process encompassing an entire reverse product life cycle & in
order for the customers to be fully satisfied with the returns outcome, the process has to be
robust and customer-focused (Li & Olorunniwo 2008). Whatever way returns are handled,
companies are more likely to benefit if they utilize the information that comes back with them
are discussed (Andel 2004). Li & Olorunniwo (2008) argues that collaboration built on high-
quality information sharing is essential to superior RL performance and that the companies
could strive to develop well defined collaborative objectives, establish joint performance
measures, share risk and reward with partners, extend trust between partners, and construct
alliance with partners. Once a successful relationship is established this can be taken further
to integrated process building in the supply chain and most particularly in reverse logistics.

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Mohammad Zahasher Hossain
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