Improving profitability and customer service through better management of reverse logistics processes in the UK retail sector

Research impact case study by Professor John Cullen.

A delivery truck with ligh trails

Research at the University of Sheffield has led to the development of a Reverse Logistics Toolkit that enables companies in the retail sector, together with members of their supply chain, to improve management of the flow of surplus or unwanted products returned by customers. Companies using the toolkit have seen a reduction in returns of up to 40 per cent, a significant figure given that total UK retail returns have been valued at around £6 billion per annum. The toolkit has enabled companies to reduce costs, improve service provision and reduce transport movements.

Underpinning research

Ten years ago reverse logistics was becoming more recognised as an important discipline within supply chain management. However, there was limited reference to managerial processes for reverse logistics in the literature and even less on the possibilities of using strategic management accounting techniques alongside other managerial disciplines to improve the management of reverse logistics processes. Consequently, Professor John Cullen has undertaken research to understand these processes and investigate ways of improving bottom line performance, customer service, and reduced transport movements.

Professor Cullen’s empirical research has focused on supply chain accounting and the management of reverse logistics. In May 2005, he began a collaborative research project, with Mike Bernon from Cranfield University, which aimed to develop a practical toolkit that would help managers to more efficiently and effectively manage their reverse logistics processes. The Department for Transport (DfT), funded the interventionist research project as part of its Sustainable Distribution agenda. There was also some additional funding provided by the Chartered Institute of Management Accountants (CIMA). Professor Cullen’s specialist expertise in supply chain accounting enabled the integration of supply chain accounting, supply chain management and reverse logistics management.

The interventionist nature of the research meant that the Reverse Logistics Toolkit was developed through intensive interaction at 13 workshops/industrial forums with managers from around 40 companies connected to the UK retail sector.

The final Reverse Logistics Toolkit was published in 2008. It is an electronic diagnostic and performance improvement tool which enables companies to audit their returns management activities and identify, as compared with best practice using a traffic light system, where opportunities exist to reduce costs and waste and improve customer service. A key driver of the toolkit was the need to understand costs and value creation across the supply chain. Consequently, the researchers have incorporated management accounting techniques such as quality costing, opportunity costing, activity based costing, and the balanced scorecard approach into the toolkit to improve both diagnosis and performance management.

Alongside the toolkit, the research outputs have provided a conceptual framework which highlights opportunities for future research in reverse logistics, they have provided a real step forward theoretically by combining the theoretical knowledge of researchers with the practice knowledge of managers engaged in reverse logistics processes and also provided one of the first papers that has systematically and empirically explored supply chain integration in the reverse supply chain processes as opposed to forward supply chain processes.

Impact

The case demonstrates economic, commercial and organisational impacts. The research findings were used by the Department for Transport (DfT) and by the Chartered Institute of Management Accounting (CIMA) to inform and encourage best practice within retail organisations.

Reverse Logistics was an important area of investment for the DfT as it fell within their Sustainable Distribution agenda. When the toolkit was completed, it was put on their Freight Best Practice site. This site, managed by AECOM, was highly regarded in the freight industry as it provided essential industry relevant information on topics such as saving fuel, developing skills, equipment and systems, and performance management. All materials were available to download free of charge. Reflecting on the reverse logistics project, a manager at DfT said: “The work undertaken by Bernon and Cullen in developing their Reverse Logistics Toolkit has played a significant part in providing organisations with the ability to review their reverse logistics processes and also identify performance improvement steps aimed at improving efficiency, reducing costs and improving customer service.”

In 2009, the toolkit was also published on the Chartered Institute of Management Accounting (CIMA) website and follow-up workshops were held with CIMA members. CIMA and The American Institute of Certified Public Accountants (AICPA) then launched in 2012 a Global Joint Venture called Chartered Global Management Accountants (CGMA), a new professional designation for management accountants. The CGMA is designed to elevate management accounting and further emphasise its importance for businesses worldwide. Cullen and Bernon’s Reverse Logistics Toolkit was one of the first 12 toolkits selected to feature on the CGMA website. Around 18 months after it had been featured, the toolkit’s webpage had had 563 unique visitors and the toolkit itself had been downloaded 960 times.

In terms of user engagement and impact, the 40 managers who contributed to the co-design of the toolkit through the industrial forums and workshops benefitted significantly. They were able to take ideas back to their organisations, share good practices, identify benchmarks, and implement new processes. Industrial partners who supported the development of the reverse logistics toolkit included Avon, Christian Salvesen, Consilium, Dale C Rockell, DHL, Entertainment UK, Fuel Champ, Halfords, LCP Consulting, Linpac, Menzies Distribution, O2, PC World, Stiller Group, Vivendi Universal Games and Wincanton. For example, a supply chain manager at Avon said: “It has been useful to see that other companies face similar challenges, and to share experiences with colleagues working to capture the significant benefits this area offers, with the ‘cradle to grave’ approach across their business practices that it takes.”

At Halfords, one of the organisations involved in the co-design, the impact has been extensive. As a result of making several changes to its reverse logistics processes through the use of avoidance techniques and increased transparency of information, there was a 40 per cent reduction in returns. Also, due to the changes to the reverse logistics processes, non-compliance at store level with agreed returns processes fell from 15 per cent to two per cent. As a consequence of specific interventions aimed at Far-East suppliers, Halfords reduced its direct-sourced returns level from Far-East suppliers by 40 per cent over a two year period resulting in a reduced risk of exposure to the business and significant financial and customer service improvements. The Head of Quality and Cost reduction at Halfords said: “The reverse logistics project had a major influence on the introduction of new reverse logistics processes within Halfords. It helped to increase awareness of the issues and the large potential for improvement to both bottom line performance and customer service through the introduction of improved processes. The identification of new tools and the support provided by discussions at the workshops played a vital part in the implementation of change at Halfords.”

The work has impacted on relationships with all aspects of the supply chain and the new processes impacted on all 460 stores in the UK and also on supply chain partners with around 40 per cent of supplies coming from the Far East.

The toolkit has also been used by other organisations, both manufacturers and retailers, to improve their reverse logistics processes resulting in significant improvements to margins and customer service. Following on from the original project, the researchers are now actively engaged in running a Reverse Logistics Benchmarking Group in collaboration with the Chartered Institute of Logistics and Transport (UK).

Relevant publications

Bernon M. and Cullen J. (2007) “An integrated approach to managing reverse logistics”, International Journal of Logistics: Research and Applications, Vol. 10, pp.41-56.

Bernon, M.P., Cullen, J. and Gorst, J.K (2008) Reverse Logistics Toolkit (Self-Assessment Workbook), Department for Transport. [J.K Gorst was a research assistant employed at the University of Sheffield on this project].

Cullen, J., Bernon, M.P. and Gorst, J.K. (2010) Tools to manage reverse logistics, CIMA Research Executive Summary Series (2010), Vol. 6, Issue 3.

Bernon, M., Rossi, S., and Cullen, J. (2011) “Retail reverse logistics: a call and grounding framework for research”, International Journal of Physical Distribution and Logistics Management, Vol. 41, pp. 484-510.

Cullen, J., Bernon, M., Tsamenyi, M. and Gorst, J.K. (2013), “Reverse Logistics in the UK Retail Sector: A case study of the role of management accounting in driving organisational change”, Management Accounting Research. doi:10.1016/j.mar.2013.01.002

Bernon, M, Bastl, M, Upperton, J. and Cullen, J. (2013), “An exploration of supply chain integration in the retail product returns process”, International Journal of Physical Distribution and Logistics Management. doi:10.1108/IJPDLM-03-2012-0060

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