Designing the reverse supply chain: the impact of the product residual value

Purpose – The purpose of this paper is to explore the impact of the product residual value (PRV) and the loss of value over time of returned products in the reverse supply chain configuration. It also examines whether or not the distinction of Fisher's functional and innovative products holds for the reverse supply chain. Design/methodology/approach – In order to identify the relevance of the Fisher model, the model needs to be recast in terms of PRV, which, in this context, is considered the independent variable in the reverse logistics arena. Products defined as innovative in Fisher's taxonomy correspond to disposed products with high residual value, whereas functional products correspond to disposed products with low residual value. Furthermore, the PRV and the speed at which returned products lose their value are considered in order to determine the configuration of the reverse supply chain that allows for recapturing most of the PRV. These notions have then been tested by analyzing two reverse supply chains with a case study research methodology. Findings – The findings show that low PRV is associated with second‐class recovery options (recycling and energy recovery) and that high PRV is associated with first‐class recovery options (reconditioning and remarketing). When the recovery option is recycling, time is not relevant, the primary objective is cost reduction (efficiency), the chain is centralized, and actors and phases of the reverse chain are determined by the specificity of the recycling process. When the recovery option is reconditioning, time is primarily relevant, tradeoffs between costs and time efficiency are necessary, the chain presents a centralized structure, and the presence of other types of actors and phases influences the structure of the reverse supply chain. Research limitations/implications – The focus is restricted to the industry of electrical and electronic products. Practical implications – Based on the outcome of the study, managers are able to determine the basic prerequisites for the design of their reverse supply chains. Originality/value – Previous literature suggests that when the PRV is high, early product differentiation is necessary, and the chain is therefore decentralized. The paper demonstrates that this is not confirmed in the case of low returned volumes and high reconditioning quality standards.