Gilvan C. Souza

Reverse Supply Chains for Commercial Returns

The flow of product returns is becoming a significant concern for manufacturers. Typically, these returns have been viewed as a nuisance, resulting in reverse supply chains that are designed to minimize costs. These minimum cost reverse supply chains often do not consider product return speed. The longer it takes to retrieve a returned product, the lower the chances that there are financially attractive reuse options. Unlike forward supply chains, design strategies for reverse supply chains are unexplored and largely undocumented. The most influential product characteristic for reverse supply chain design is the marginal value of time. Responsive reverse supply chains are the appropriate choice when the marginal value of time for products is high, and efficient reverse supply chains are the proper choice when the marginal value of time for products is low. Product returns and their reverse supply chains represent a potential value stream and deserve as much attention as forward supply chains.

Time Value of Commercial Product Returns

Manufacturers and their distributors must cope with an increased flow of returned products from their customers. The value of commercial product returns, which we define as products returned for any reason within 90 days of sale, now exceeds

Closed‐Loop Supply Chains: A Critical Review, and Future Research*

100 billion annually in the United States. Although the reverse supply chain of returned products represents a sizeable flow of potentially recoverable assets, only a relatively small fraction of the value is currently extracted by manufacturers; a large proportion of the product value erodes away because of long processing delays. Thus, there are significant opportunities to build competitive advantage from making the appropriate reverse supply chain design choices. In this paper, we present a network flow with delay models that includes the marginal value of time to identify the drivers of reverse supply chain design. We illustrate our approach with specific examples from two companies in different industries and then examine how industry clockspeed generally affects the choice between an efficient and a responsive returns network.

Supply Chain Coordination for False Failure Returns

In this article, I present a review and tutorial of the literature on closed-loop supply chains, which are supply chains where, in addition to typical forward flows, there are reverse flows of used products (postconsumer use) back to manufacturers. Examples include supply chains with consumer returns, leasing options, and end-of-use returns with remanufacturing. I classify the literature in terms of strategic, tactical, and operational issues, but I focus on strategic issues (such as when should an original equipment manufacturer (OEM) remanufacture, response to take-back legislation, and network design, among others) and tactical issues (used product acquisition and disposition decisions). The article is written in the form of a tutorial, where for each topic I present a base model with underlying assumptions and results, comment on extensions, and conclude with my view on needed research areas.

Multiperiod Remanufacturing Planning With Uncertain Quality of Inputs

False failure returns are products that are returned by consumers to retailers with no functional or cosmetic defect. The cost of a false failure return includes the processing actions of testing, refurbishing (if necessary), repackaging, the loss in value during the time the product spends in the reverse supply chain (a time that can exceed several months for many firms), and the loss in revenue because the product is sold at a discounted price. This cost is significant and is incurred primarily by the manufacturer. Reducing false failure returns, however, requires effort primarily from the retailer, for example informing consumers about the exact product that best fits their needs. We address the problem of reducing false failure returns via supply chain coordination methods. Specifically, we propose a target rebate contract that pays the retailer a specific dollar amount per each unit of false failure returns below a target. This target rebate provides an incentive to the retailer to increase her effort, thus decreasing the number of false failures and (potentially) increasing net sales. We show that this contract is Pareto improving in the majority of cases. Our results also indicate that the profit improvement to both parties, and the supply chain, is substantial.

New-Product Strategy and Industry Clockspeed

In this paper, we consider production planning when inputs have different and uncertain quality levels, and there are capacity constraints. This situation is typical of most remanufacturing environments, where inputs are product returns (also called cores). Production (remanufacturing) cost increases as the quality level decreases, and any unused cores may be salvaged at a value that increases with their quality level. Decision variables include, for each period and under a certain probabilistic scenario, the amount of cores to grade, the amount to remanufacture for each quality level, and the amount of inventory to carry over for future periods for ungraded cores, graded cores, and finished remanufactured products. Our model is grounded with data collected at a major original equipment manufacturer that also remanufactures. We formulate the problem as a stochastic program; although it is a large linear program, it can be solved easily using Cplex. We provide a numeric study to generate insights into the nature of the solution.

Closed-loop supply chains : new developments to improve the sustainability of business practices

We study how industry clockspeed, internal firm factors, such as product development, production, and inventory costs, and competitive factors determine a firms optimal new-product introduction timing and product-quality decisions. We explicitly model market demand uncertainty, a firms internal cost structure, and competition, using an infinite-horizon Markov decision process. Based on a large-scale numerical analysis, we find that more frequent new-product introductions are optimal under faster clockspeed conditions. In addition, we find that a firms optimal product-quality decision is governed by a firms relative costs of introducing new products with incremental versus more substantial improvements. We show that a time-pacing product introduction strategy results in a production policy with a simple base-stock form and performs well relative to the optimal policy. Our results thus provide analytical support for the managerial belief that industry clockspeed and time to market are closely related.

Note: An Application of the EOQ Model with Nonlinear Holding Cost to Inventory Management of Perishables

A Commentary on Closed Loop Supply Chains Mark Ferguson and Gilvan Souza STRATEGIC CONSIDERATIONS Strategic Issues in Closed Loop Supply Chains with Remanufacturing Mark Ferguson Environmental Legislation Regarding Product Take-back and Recovery Atalay Atasu and Luk van Wassenhove Product Design Issues Bert Bras TACTICAL CONSIDERATIONS Designing the Reverse Logistics Network Necati Aras, Tamer Boyaci, and Vedat Verter Product Acquisition, Grading, and Disposition Decisions Moritz Fleischmann, Michael Galbreth, and George Tagaras Production Planning in Remanufacturing Gilvan Souza Analyzing the Market for Remanufactured Products Ravi Subramanian INDUSTRY CHARACTERISTICS AND CASE STUDIES Examples of Existing Profitable Practices in Product Take-back and Recovery Mark Ferguson, Gilvan Souza, and Beril Toktay Reuse and Recycling in the Movie Industry Charles Corbett Reverse Supply Chain in Hospitals: Lessons from Three Case Studies in Montreal Rajesh Tyagi, Stephan Vachon, Sylvain Landry, and Martin Beaulieu INTERDISCIPLINARY RESEARCH ON CLOSED LOOP SUPPLY CHAINS Interdisciplinarity in Closed-Loop Supply Chain Management Research Vishal Agrawal and Beril Toktay Empirical Studies in Closed-loop Supply Chains: Can We Build a Greener Mousetrap? Stephan Vachon and Robert Klassen Conclusion and Future Research Directions Mark Ferguson and Gilvan Souza

Good buy? Delaying end-of-life purchases

Abstract In this note, we consider a variation of the economic order quantity (EOQ) model where cumulative holding cost is a nonlinear function of time. This problem has been studied by Weiss [Weiss, H., 1982. Economic order quantity models with nonlinear holding costs. European Journal of Operational Research 9, 56–60], and we here show how it is an approximation of the optimal order quantity for perishable goods, such as milk, and produce, sold in small to medium size grocery stores where there are delivery surcharges due to infrequent ordering, and managers frequently utilize markdowns to stabilize demand as the product’s expiration date nears. We show how the holding cost curve parameters can be estimated via a regression approach from the product’s usual holding cost (storage plus capital costs), lifetime, and markdown policy. We show in a numerical study that the model provides significant improvement in cost vis-a-vis the classic EOQ model, with a median improvement of 40%. This improvement is more significant for higher daily demand rate, lower holding cost, shorter lifetime, and a markdown policy with steeper discounts.

Performance of static priority rules for shared facilities in a remanufacturing shop with disassembly and reassembly

Abstract We study the effects of delaying an end-of-life buy. Manufacturers sometimes are required to place a final, end-of-life buy for a component that the supplier will no longer provide. The manufacturer performs a newsvendor analysis with the possible result of significant expected overage and underage costs. If the decision can be delayed, the expected overage and underage costs can be reduced. We model the effects of a delay of the final purchase under various scenarios of remaining demand. We contrast the manufacturing benefits with the costs incurred by the supplier and show that the supplier, who benefits greatly from the end-of-life buy, likely will require an incentive to enact a delay. Our results provide an insight to the observation of increasing numbers of end-of-life buys and provides a framework for analysis as manufacturers strive to cope with the issue.