A decision‐making model for reverse logistics in the computer industry

Purpose – This paper seeks to present a decision‐making model for manufacturers to maximize their profits in reverse logistics operations. Design/methodology/approach – A system dynamic model has been developed to complement with prior models and is validated using data collected from a computer company manufacturer handling returns with volumes transacted over a period of two years. Findings – The results from the model indicate that part replacements from suppliers are more profitable than refurbished computer parts. In addition, transportation delay and supplier delay in processing returns have a significant impact on the viability of reverse logistics regardless of return volumes. Research limitations/implications – The current model is not designed for third‐party logistics (3PL) offering reverse logistics services. However, this can be accomplished by resetting some of the parameters in the model. The other limitations are exchange rate fluctuation and product depreciation which are not incorporated in the model. This is important in Asia where each country has its own currency which fluctuates with time. Practical implications – This dynamic model will assist decision‐makers to test new policies related to reverse logistics, for example, liberal versus conservative return policy from supplier, shipment consolidation (longer delays) versus direct shipment, batch (longer delays) versus JIT remanufacturing, pricing of new parts versus re‐condition parts, as well as to examine its long‐term viability. Originality/value – Using system dynamics to understand the profitability of reverse logistics for both replacement parts to suppliers and refurbished parts to manufacturers.