Financial Impact of Reverse-Flow

Closed-loop and reverse-flow systems focus on sustainability.

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Sustainability is becoming an important aspect of operating a business, for reasons involving government regulations, public relations and cost control. While closed-loop and reverse-flow supply chains both utilize recycling, they are not the same thing. Understanding the differences between the two systems, as well as the financial impacts, will help if you decide to incorporate either system in your supply chain.

In a reverse-flow supply chain, the product is collected after consumer use and recycled. What makes this system unique is that the discarded product is processed by other firms and used for something different. This makes it easier for the original manufacturer, because it does not have to remake the product. For example, if a beverage maker supplies a company with discarded bottles that are used to make asphalt, that system would qualify as a reverse-flow supply chain.

A closed-loop supply chain is similar to a reverse-flow supply chain, albeit with a more hands-on approach. In a closed-loop system, the original manufacturer will take the used product and remake it. For example, a beverage manufacturer that took discarded aluminum cans and recycled them to make new cans for its beverages would be using a closed-loop system. Note that in both systems the discarded product is returned to the supply chain; the difference is in who uses it and what they use it for.

One of the issues surrounding both systems is getting customers to return the used product instead of just throwing it away. While some customers will return products out of environmental concerns, most will need an incentive. For example, an office store may issue coupons for customers who return printer cartridges. Another option is for a company to lease products instead of selling them. An example of this would be an electric car company leasing the vehicle batteries; the batteries would be returned for recycling at the end of the lease. The additional cost of these incentives needs to be factored in when deciding on whether to implement such a system.

The first stage in any product life cycle is design. In a closed-loop or reverse-flow system, this stage is even more important. If the product cannot be easily reassembled or recycled, the cost to remake it may be excessive. Redistribution is another issue — once the product has been collected, it needs to be taken to a facility to be recycled or refurbished. Also, the cost of marketing is a factor: Remanufactured goods should be marketed just as a product produced from a traditional supply chain would be. Marketing will let the customer know of the return option. This is critical, because if the product is not returned, a closed-loop or reverse-flow system will fail. Closed Loop Supply Chain With Remanufacturing Performance Analysis of the Closed Loop Supply Chain

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Shane Blanchard began writing in early 2010 and has tutored students in accounting, business finance and microeconomics. He graduated from the University of North Carolina, Charlotte with a Bachelor of Science in accounting. Prior to graduating from UNC, he graduated from Mitchell Community College with an Associate of Applied Science in business administration. Blanchard is a licensed property and casualty insurance agent.

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