Close Loop Supply Chain

Most developed countries have environmental regulations prescribing the responsibilities of manufacturers, generators and users of chemicals to properly dispose of chemical wastes.

Regulatory drivers exist in Europe, the US and Japan, dictating the prevention of waste and to promote the recovery of waste for reuse, remanufacturing or recycling of materials including electronic equipment and batteries, chemical products, glass, paper, plastics, and heavy metals. Europe in particular is leading the way in its drive to reduce automotive end-of-life, electronic and packaging waste in its landfills by requiring manufacturers and distributors to ‘‘take-back’’ the environmentally hazardous products and packaging for recycling or reuse. This producer responsibility is driving companies to put plans in place for product returns, recycling and for redesigning their products and packaging to meet these requirements in order to participate in the European marketplace.

Additionally, as third world countries develop and consumption increases, raw materials will be in short supply (steel, aluminum, copper and oil). New commodity markets will develop to extract these commodities from end-of service life products.

There has been a long history of steel, aluminum and copper recycling in the US and around the world. Recycling of these materials is market driven due to their value. Global prices of steel have risen sharply in the past several years as China’s economic growth has surged. Iron ore prices have raised significantly in past years (19% in 2004, 71% in 2005 and 19% in 2006, respectively) and the availability of steel scrap is in short supply. Steel is the world’s most recycled material and it is cheaper to recycle steel scrap

than to mine virgin ore. Approximately half of the steel produced is recycled through the steel-making process.

The automotive and appliance industry substantially drive and rely on recycled steel. These two segments report nearly 100% recycling rates. Steel can be recycled and reused over and over again

When producers are made responsible for the extended end-of-life phase of products, they have more motivation to facilitate other members of the supply chain, the users, and the stakeholders of end-of-life processing. They have the opportunity to make the process more effective and cost efficient. The regulated/socialist waste management approach to paying for recycling is very different from the recycling for profit point of view.

Closed-loop supply chains and competition

Remanufacturing also forms the foundation for closed loop supply chains. In some industries, experience has shown that if there is a used item market then that market may compete with the original manufacturer’s market and its supply chain. As OEMs compete for market share they may coordinate their supply chain and reverse logistics to maintain their market share by facilitating the refurbishing, remanufacturing or recycling of the products. This has occurred in the automobile, copy machine and printer toner industries. As the competition increases, the OEM may manufacture less and the OEM is motivated to find ways to increase the competing re-manufacturer’s cost of remanufacture. This is often done by increasing the opponent’s costs and by making it more difficult to the competitor to obtain OEM returns and to collect end-of-life product. The OEM begins to compete more on the remanufactured products. Competition may derive additional environmental benefits because the competitors often react by increasing the durability of the product or they may give the product multi-lifecycles in order to increase remanufacturing and associated profits. This impacts the entire OEM supply chain and must be carefully managed

Some of the literature available today has begun to highlight future services associated with reverse logistic needs. It is expected that some companies will outsource reverse logistics in the supply chain. The reverse supply chain is often more complex than the forward supply chain models, so expertise and specialization are demanded. Often the third-party service provider is selected based on its ability to respond to the complexity and randomness of the reverse supply chain. Information systems and physical infrastructures are also key factors in the success of the reverse supply chain. Several sources identified opportunities for reverse logistic services. Typical service needs of the reverse logistics chain include—customer service, depot repair, end-of-life manufacturing, IT management, recycling, refurbishing/screening, replacement management, returns authorization, spare parts management, transportation, warehousing and warranty management. Of particular note, manufacturers are interested in outsourcing field service support infrastructures such as call center services, field swaps, parts repair and screening for refurbishment/ remanufacturing.