Reverse Logistics and Outsourcing
REVERSE LOGISTICS AND OUTSOURCING 2
Review the Case Study #1 document and the Alpha Prime Electronics Organizational Power Point. The
paper should be 3-5 pages in length addition to the cover page and reference section. You must include
at least two peer reviewed sources that are both cited and referenced.
At a minimum, your paper should address the following points:
- Given the organization, would you consider outsourcing the reverse logistics function? Show your
calculations to justify your decision. Include direct and indirect costs in the calculation.
2a. If you chose to outsource, explain which company would you select? Defend why you would use a
particular company.
2b. If you chose not to outsource, explain how you would better organize the groups currently addressing
the reverse logistics functions.
- Explain the new reverse logistic process, map out the new revere logistic process and defend the
process that you are proposing. In particular, make sure that you explain how you will be improving the
damaged and non-damaged returns processes. - What other changes would you make to the organization? Why? Support your reasoning?
- Discuss and address other considerations with regards to reverse logistics.
Reverse Logistics and Outsourcing
Reverse logistics is an emerging field that is creating business opportunities in the
supply chain industry. Reverse logistics is a new field that enhances customer satisfaction and
creates competitive advantage. Therefore, reverse logistics is becoming an integral component of
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business operations in the supply chain industry. This is because reverse logistics is associated
with products after the point of sale in order to optimize or make more efficient aftermarket
activities. The reverse logistics process allows companies to maximize the return movement of
products from their final destinations for the aim of capturing value and ensuring proper
disposal. As a logistics manager, it is essential to establish effective reverse logistics approaches
that improve cost savings and efficiencies related to reclamation, redistribution and product
disposal (Govindan & Soleimani, 2017). Both insourcing and outsourcing of reverse logistics
become an integral component of the decision-making process. It is essential to evaluate both
insourcing and outsourcing regarding cost, efficiencies and lead-time. This ensures that the
company makes an accurate decision depending on the facts from the activities of the company.
Outsourcing versus In-sourcing
In sourcing is the business process of performing production within an
organization’s operational infrastructure. However, outsourcing is the practice of enlisting help
outside the organization from companies not affiliated with the organization in order to complete
particular tasks. The main variation between in sourcing and outsourcing is the approach in
which work is divided among various departments for strategic objectives in reverse logistics. A
company can restructure its design to assign departments to handle product returns or reverse
logistic process instead of hiring outside company to handle reverse logistics services (Govindan
& Soleimani, 2017). Outsourcing is a cost-cutting measure used by companies to save costs;
however, it affects jobs ranging from customer support to production as well as technology and
the head or back office. The cost comparison for outsourcing and insourcing are as provided in
the table below.
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In-sourcing
Activity Duration Cost Per Unit Units Total Cost
Testing 3 5 36,750 183,750
Repair 6 7 36,750 257,250
Admin and Shipping 12 5 36,750 183,750
624,750
Outsourcing
Activity Duration Cost Per Unit Units Total Cost
Testing 36,750 –
Repair 36,750 –
Admin and Shipping 36,750 –
Cost- Company 1 15 36,750 551,250
Cost- Company 2 11 36,750 404,250
The calculations show that the company will save cost by outsourcing as
compared to insourcing. By outsourcing from company 1, Alpha Prime electronics will save total
cost of $73,500 and $ 220,500 by outsourcing from company 2. By insourcing the reverse
logistics services, the company will have to restructure and improve the departmental operations
in order to meet the increasing product returns. The insourcing process will be more expensive
for the company. However, many people in reverse logistics might lose their jobs. There will
also be other overhead costs such as training employees, restructuring and buying materials for
handling reverse logistics processes. The cost related to the insourcing is different to the cost
related to outsourcing. This is because in sourcing is more expensive for an organization as a
result of implementing new procedures to start a different division of the organization
(Zarbakhshnia, Soleimani & Ghaderi, 2018).
Outsourcing
Alpha Prime electronics should choose company 1. This is because it will reduce
the processing period to one or two weeks as compared to company 2. Company 1 will reduce
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the cost of reverse logistics cost by $73,500 and improve the position of the company in their
market niche. The company will be able to save cost and achieve more efficiency in reverse
logistics. Besides, the company employees can concentrate in other sectors that will improve
performance and create a competitive advantage in their market. This will enhance customer
satisfaction and assure them of proper handling of returns. It is also essential to train key
personnel in the reverse logistics in order to ensure proper handling and accurate handling of
reverse logistics systems. Therefore, the location of the company 1 is also strategic as compared
to company 2. This will provide fast and efficient reverse logistics processes for the company.
Redesigning Reverse Logistics
Redesigning of the reverse logistics unit will take different format because of the
change in the process. The company will be using 3PL services to operate its reverse logistics
processes. The handling of both damaged and no-damaged products will be dealt with using the
services of the outside company. Together with the company initial structure design, the design
of the reverse logistics will be as presented in the following chart.
The reverse logistic chart
Brand and Product
Owner
Product Distributor
Outside Processing
End Customer/
Service Provider
3PL
Brand and Product
Owner
Product Distributor
Outside Processing
End Customer/
Service Provider
3PL
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The 3PL service provider will deal with the handling of damage and non-damaged
products in order to ensure that product return is handled efficiently. The end customer call will
ensure that product problem are recorded in time and channeled to a 3PL service provider in
order to ensure that products returns are handled effectively. The outsourcing process will then
be integrated with the Alpha Prime Electronics Organizational Chart to ensure effective
communication and processing of damaged and non-damaged products. The 3PL will
communicate with internal staff and stores selling the product to end-users and inform the
organizations about the reasons for product return. The design will also have trained staff that
will handle the external communication and warehouse or receiving centers.
Changes to the Organization
The company will make significant changes in its reverse logistic department as
employees will be deployed in other departments since the third party will handle the operations
of reverse logistics. The company will have to change its organizational chart to incorporate a
3PL service provider for reverse logistic services. The reverse logistics manager will assign
trained people to handle reverse logistics process and create a reliable team that will be
responsible for planning and executing reverse logistic services (Li, Ying, Chin, Yang & Xu,
2018). The company will also change its handling of data and create a real-time database that
will inform the management about the possible product returns and reasons for returning
products to Alpha Prime Electronics. The company should establish processes that will capture
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the complex array of issues in reverse logistics department and ensure best-in-classes practices,
tools, and procedures that will successfully avoid and handle product returns or recalls.
Conclusion
Establishing and sustaining reverse logistics is a significant challenge for many
organizations in supply chains. Thus, other consideration of establishing reverse logistics should
involve both outsourcing and insourcing. It is essential to consider if returned inventory demands
additional handling or value-added services that will be completed in-house and if the supply
chain in place has limited reverse logistics capabilities or fewer partners who have specialized
services to handling process of reverse logistics. Also, it is also important to consider if the
company is mainly focused on growing its sales and efficiency of the forward supply chain.
These considerations will allow Alpha Prime Electronics to select the best option that will be
best suited for its reverse logistics design. However, insourcing can provide more control, but
outsourcing to 3PL will offer much-needed services and the ability to focus on the forward
supply chain.
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References
Govindan, K., & Soleimani, H. (2017). A review of reverse logistics and closed-loop supply
chains: a Journal of Cleaner Production focus. Journal of Cleaner Production, 142, 371-
384.
Li, Y. L., Ying, C. S., Chin, K. S., Yang, H. T., & Xu, J. (2018). Third-party Reverse Logistics
Provider Selection Approach Based on Hybrid-Information MCDM and Cumulative
Prospect Theory. Journal of Cleaner Production.
Zarbakhshnia, N., Soleimani, H., & Ghaderi, H. (2018). Sustainable third-party reverse logistics
provider evaluation and selection using fuzzy SWARA and developed fuzzy COPRAS in
the presence of risk criteria. Applied Soft Computing, 65, 307-319.
