Quality in Inverse

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INDUSTRIAL ENGINEER – VOLUME 43: NUMBER 03

Recovering and exploiting value in used products at the end of their use is an issue that attracts firm from a large variety of industry sectors. One of the determinants of the profitability of related operations is the configuration of the process for the quality assessment and classification of used products. Industry has paid increased attention to exploiting the value that remains in products after the end of their life or use by customers. Firms from various industrial sectors engage in activities that decrease waste generations, energy, and material consumptions. Some of the things that drive this ongoing trend are the increased legislation requiring producers to be responsible for the proper disposal of end-of-life product, the potential profitability that can be achieved through products or material exploitation. The return rate increases also because of end-of-lease returns, returns of unsold products and the collection of reusable containers. Thus, original equipment manufacturers (OEM) have increased motivation to broaden their activities to include used product recovery processes.

Typically, the reverse part of a closed-loop supply chain includes procedures such as collection, classification, transportation, disassembly, inspection, value recovery and redistribution. There are OEMs that operate their own reverse supply chains, motivated by the prospect of achieving considerable savings by the simultaneous management of both forward and reverse flows and the intention to preserve a certain degree of confidentiality regarding their products’ technological features. The most common closed-loop supply chain configuration is the one with a subcontractor-operated reverse channel, which allows OEM to focus on their core competence of manufacturing new units.

In some market sectors, OEMs compete with each other and independent manufacturing firms to acquire used products in order to increase the volume of highly profitable remanufactured products processed. In sectors with intensive competition, firms take out patents to prevent recovery of their own products by competitors and motivate consumers to return used products, usually by providing refunds. In every closed-loop supply chain operations and profitability, determining the suitable recovery action according to product condition is an important decision. Usually, the product type and its market characteristic play an important role in selecting the appropriate recovery process.

Establishing a procedure to assess the quality of returned, used products is an issue that has important implication on closed-loop supply chain operations and profitability. Compared to the conventional forward supply chains, quality assessment can be more crucial in closed-loop supply chains given the highly volatile quality of used products and the difference in handling and processing different quality categories. Information regarding the quality condition of returns can be very important for the efficient management of a closed-loop supply chain. Availability of timely and accurate quality information facilitates the selection of proper handling and recovery options, eliminates waste of efforts on practically useless units, and thus provides significant cost savings.

Once a company decides to establish a classification procedure, it must deal with some closely related issues that have important implications on the efficiency of their closed-loop supply chains. This includes determining the exact number of classes that will be used for returns classifications and the selection of the sorting method employed.

It is not unusual to find closed-loop supply chains of similar products that have adopted completely different classification schemes both from a technological and an organizational point of view. This results in significant differences in key operational characteristic, including sorting accuracy and fixed or variable sorting cost. The following are the most commonly used approaches for assessing the quality of returned used products in closed-loop supply chains. Each approach has it benefits and shortcomings.

1. Complete disassembly and inspection

This is considered as the most accurate method and can be implemented in nearly every type of product. Unfortunately, many empirical researchers point out that disassembly of used products, apart from being time-consuming and expensive is highly unpredictable in terms of duration and products part yield, and rarely can be implemented in decentralized locations since it requires specialized equipment and experienced personnel. The concept of “design for disassembly” may prove very useful in alleviating some of these disadvantages, consequently increasing the advisability of disassembly.

2. Development of special inspection test

Products specific testing methods usually result from long-term research-efforts. In general, such specially designed methods are expected to provide relatively accurate results without requiring product disassembly. However, the development of such tests can be time- and money- consuming, and thus it is worthwhile only for products that are expected to be in the market for relatively long time period without significant modifications in their basic characteristics.

3. Usage data recording

The basic idea is that this techniques record a number of important usage parameters, which upon receipt of the return products can be used to evaluate each unit’s quality. Data recording is considered one of the most technologically innovative solutions for evaluating the quality of returned goods in a closed-loop supply chain. The most important advantage of this method is that because of its ease of use, it can be performed away from the central facility.

4. Visual examination

In a number of closed-loop supply chain, the responsibility for returned products quality evaluation is assigned to the firm that is responsible for collecting used products. In many cases, classifying returned products is based on subjectively evaluating a number of characteristics, and the collection facility is paid more for better quality of returns. Considering those two factors, sorting via visual examination can be more prone to errors than other methods, especially when dealing with increased product complexity. Therefore, in practice, a second quality assessment procedure is necessary, even though much of the total cost has been incurred due to the classification errors during visual examination.

Quantifying the cost
When significant grading errors are expected, closed-loop supply chain managers face the challenge of quantifying the cost of returned product misclassification, so they can evaluate alternate suppliers and also specify necessary initiatives to motivate them to improve their grading accuracy. The cost that a closed-loop supply chain bears because of inaccurate classification is associated with the poor sorting accuracy and large difference in the attractiveness of sequential quality classes.

It is worth, noting that, one cannot fail to notice the complete absence of sampling inspection implementation in closed-loop supply chains. Even though the increased uncertainty that characterizes the quality of returned items makes it necessary for through product inspection could be an alternative that yields economic benefits for the industry.