Since the publication of this story, the Supply Chain Research Center has been undergoing an administrative transition and is not currently active. For further information, please contact Dr. Basheer Khumawala at firstname.lastname@example.org
In business, not much attention has been paid to how best utilize an inevitable and historically unprofitable piece of the supply chain puzzle: returns, especially of high-dollar items like office equipment or specialized machinery that come back slightly damaged.
Many businesses simply assume a loss instead of looking for ways to recover added value, said Dr. V. Daniel R. Guide, Jr., an associate professor of operations and supply chain management in the Smeal College of Business at Pennsylvania State University. Guide spoke at a C. T. Bauer College of Business Supply Chain Research Center event in April that drew from industry and academic circles.
If businesses look at the phenomenon at all, it’s typically an afterthought, said Guide, whose research has centered on how businesses can create closed-loop supply chains through reusing or remanufacturing products returned by customers. But several factors should cause businesses to take a fresh look at how to deal with items that are returned to the supply chain, he said: Consumers have become heavily invested in where discarded items end up (i.e., outrage at the dumping of computer parts in China), and are demanding recycled products. Additionally, the government is offering a growing number of incentives for businesses to reduce waste and consumption of natural resources.
Although the environment may stand to benefit when businesses take a more focused look at how to reuse and remanufacture parts, the focus of his work is on the profitability of doing so, said Guide.
“This is not about environmentalism. It’s a business proposition, a way to create a value stream, not just a waste stream,” said Guide, who has worked with companies ranging from Hewlett-Packard to Pitney-Bowes and whose research has been supported by grants from the Carnegie Bosch Institute and the National Science Foundation.
Guide said returns are a “huge underground of U.S. industry.” Already, companies like Kodak have figured out ways to recycle disposable camera parts again and again. But it’s not always possible or profitable. For many companies, the likelihood that parts with their name on it will be used to build new products that they have no control over eliminates any desire to sell parts for remanufacturing. In some instances, it can cost companies more to build with reprocessed parts. And sales teams typically worry about the possibility that reprocessed items, sold by third party vendors will “cannibalize new sales,” Guide said. But that isn’t the case, he said, since the top companies and corporations that purchase new items are separate and distinct from the market for reprocessed goods (smaller businesses).
Many times, companies that could profit from remanufacturing set up other roadblocks for themselves, Guide said. Eighty percent of people trade in their cell phones for a newer model within a year’s time, he said; yet an industry executive told him that reprocessing parts could never be profitable. Meanwhile, a company called Recellular has proven the executive wrong, capturing 5 percent of the world’s cell phone market by selling refurbished and used cell phones and other personal electronics, Guide said.
Supply chains that take back products from customers and recover added value by reusing the product or components are in a critical phase of their evolution as manufacturers react to market forces that are pushing sustainability into the spotlight, Guide said.
That has created a unique opportunity for those who study supply chain dynamics. “When I look at the stream of research, for once we’re ahead of industry,” he said.
Guide is mentoring Aejaz M. Khan, MS Industrial Engineering ’03, a Bauer doctoral student who is writing a series of papers on creating profitability with closed loop supply chains. His focus is on the economics of product reuse and its impact on reverse supply chain design, remanufacturing operations and warranty fulfillment.
Guide’s talk was coordinated by Dr. Basheer Khumawala, John & Rebecca Moores Professor and Chair of Decision & Information Sciences Department.
By Julie Bonnin
About the University of Houston
The University of Houston, Texas’ premier metropolitan research and teaching institution, is home to more than 40 research centers and institutes and sponsors more than 300 partnerships with corporate, civic and governmental entities. UH, the most diverse research university in the country, stands at the forefront of education, research and service with more than 35,000 students.
About the Bauer College of Business
The C.T. Bauer College of Business has been in operation for more than 60 years at the University of Houston main campus. Through its five academic departments, the college offers a full-range of undergraduate, masters and doctoral degrees in business. The Bauer College is fully accredited by the AACSB International – the Association to Advance Collegiate Schools of Business. In August 2000, Houston business leader and philanthropist Charles T. (Ted) Bauer endowed the College of Business with a $40 million gift. In recognition of his generosity, the college was renamed the C.T. Bauer College of Business.