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Perform research using the library and professional organizations (APICS, Center for Supply Chain Management, CSCMP) and Institute for Supply Management (ISM). Create a two-page essay integrating multiple authors’ opinions on the importance of investing in reverse logistics. Consider the objective of business (to make a profit) and provide examples of various ways value is attained with efficient reverse logistics strategies. PS: I will upload the materials once a bid has been accepted

Reverse Logistics

A Monograph


Colonel Joseph L. Walden

Quartermaster Corps, US Army

School of Advanced Military Studies

United States Army Command and General Staff College

Fort Leavenworth, Kansas

AY 00-01




xx-01-2001 to xx-05-2001



Reverse Logistics




Walden, Joseph L. ;


U.S. Army Command & General Staff
School of Advanced Military Studies
1 Reynolds Ave.
Fort Leavenworth , KS 66027








The Army has a serious problem with materiel in the supply chain that is moving in the reverse
direction. The supply chain is a series of inter-related processes and activities that move
supplies and services from the suppliers to the ultimate end users. The reverse supply chain
contains items that are either defective, damaged, or otherwise unneeded by the intended user.
These items must be returned to the supplier for credit or disposal. The items in the reverse
supply chain take longer to identify and process. This delay coupled with a lack of visibility of
the items moving backward slows the movement of items into and out of major distribution
centers. This delay can have an impact on readiness of combat units and increase the amounts
of supplies retained at the unit level. Commercial industry has recognized that managing the
items in the reverse supply chain results in better customer service and improved profits.
Although the Army is not concerned with profit margins, they are concerned with improving
customer service and improving readiness. These concerns lend themselves to the application
of reverse supply chain management. After establishing a clear definition of the supply chain
and the reverse supply chain, this paper examines the shortfalls in the Army?s handling of
serviceable excess items in the supply chain and how commercial industry has tackled this
problem. The Army has a system in place to track and manage unserviceable major assemblies
throughout the maintenance system, but has fallen short in the area of serviceable items. A
careful look at commercial practices provides the basis for recommendations on how to
improve the Army?s reverse supply chain management. The Army is experiencing return rates
as high as some Internet retailers. One possible solution to improve the management of these
items, as proposed in this paper, is to establish a central returns management center at the Red
River Army Depot. This center would be established along the lines of the commercially
operated returns centers used by large retailers such as Wal-Mart and K-Mart. The efficiencies
realized by the Army from establishing a central returns center can be expanded to the entire
Department of Defense to streamline and reduce the Defense Logistics Agency?s supply chain
management responsibilities.

Red River Army Depot; Defense Logistics Agency;

Burgess, Ed
[email protected]






International Area Code

Area Code Telephone Number
913 758-3171
DSN 585-3171



Reverse Logistics, a monograph by Colonel Joseph Walden, 40 pages.

The Army has a serious problem with materiel in the supply chain that is moving in the
reverse direction. The supply chain is a series of inter-related processes and activities that move
supplies and services from the suppliers to the ultimate end users. The reverse supply chain
contains items that are either defective, damaged, or otherwise unneeded by the intended user.
These items must be returned to the supplier for credit or disposal. The items in the reverse
supply chain take longer to identify and process. This delay coupled with a lack of visibility of the
items moving backward slows the movement of items into and out of major distribution centers.
This delay can have an impact on readiness of combat units and increase the amounts of
supplies retained at the unit level.

Commercial industry has recognized that managing the items in the reverse supply chain
results in better customer service and improved profits. Although the Army is not concerned with
profit margins, they are concerned with improving customer service and improving readiness.
These concerns lend themselves to the application of reverse supply chain management.

After establishing a clear definition of the supply chain and the reverse supply chain, this
paper examines the shortfalls in the Army’s handling of serviceable excess items in the supply
chain and how commercial industry has tackled this problem. The Army has a system in place to
track and manage unserviceable major assemblies throughout the maintenance system, but has
fallen short in the area of serviceable items. A careful look at commercial practices provides the
basis for recommendations on how to improve the Army’s reverse supply chain management.

The Army is experiencing return rates as high as some Internet retailers. One possible
solution to improve the management of these items, as proposed in this paper, is to establish a
central returns management center at the Red River Army Depot. This center would be
established along the lines of the commercially operated returns centers used by large retailers
such as Wal-Mart and K-Mart. The efficiencies realized by the Army from establishing a central
returns center can be expanded to the entire Department of Defense to streamline and reduce the
Defense Logistics Agency’s supply chain management responsibilities.



Abstract i.

Table of Contents ii.

Chapter 1 Introduction 1

Chapter 2 The Supply Chain, Forward and Reverse: Background 7

Chapter 3 Commercial Industry Applications of Reverse Supply Chain
Management 15

Chapter 4 The Military and Applications of Reverse Supply Chain
Management 24

Chapter 5 Conclusions and Recommendations 35

Bibliography 42


Chapter 1


“In an ideal world, reverse logistics would not exist”1

The problems associated with handling the return of unwanted or defective items

by consumers have existed for years and the management and disposition of excess items

has been a problem for retailers since the beginning of retail merchandising. Historically,

reverse logistics2 operations were considered the “seedy side of business” according to

Michael Runager, Vice President of Business Development for Burnham Service

Corporation. 3 According to Buzzy Wyland, the president of manufacturing services for

GENCO Distribution Systems, reverse logistics operations was the last thing that

companies wanted to focus on. 4 The simple solution to reverse logistics was to pick up

the damage or obsolete items from the vendor and discard them into a land fill. Estee

Lauder Companies, Inc. dumped as much as $60 million in inventory into landfills

annually prior to adopting a focus on the reverse supply chain.5 Major corporations are

discovering that focusing on reverse supply chain management is critical to profitability,

supply availability, and improved customer responsiveness.

Over the past five years the Department of Defense has shifted from a stovepipe

approach to logistics functions to a more holistic supply chain management approach.

1Jim Whalen, “In Through the Out Door,” Warehousing Management, March 2001, p. 33.
2 Logistics management gave way to Supply Chain Management in the mid 1990s as companies started
realizing that there were more impacts on the overall system than the traditional warehousing, inventory
management, and distribution functions associated with logistics management.
3 Ronald Margulis, “Take it Back!, Reverse Logistics is on the Move” Supply Chain Watch, August 17,
1998, http://www.ideabeat.com/Depts/Tech/Archives/SCW-81798p.html
4 Whalen, “In Through the Out Door,” p. 33.
5 “Reverse Logistics,” Informationweek.com, April 12, 1999.


This shift in focus has produced significant improvement in customer support and

responsiveness to the needs of the soldiers, sailors, and marines at the end of the supply

chain. However, this focus has only been on the forward supply chain – the requisition

process and the delivery of supplies from the vendor, wholesale depots, and Supply

Support Activities (SSAs) back to the customer. There is another critical supply chain

that until recently has been basically ignored by the entire Department of Defense. This

other supply chain is the reverse supply chain – the return of supplies that are surplus to

the needs of the unit or are unserviceable and in need of rebuild or remanufacturing to

return the item to a serviceable status. The Army does maintain a database to track

unserviceable reparable assemblies such as tank and helicopter engines from the unit

maintenance activity to the maintenance depots.

Ignoring the reverse supply chain is not a problem that is unique to the military.

Commercial retailers historically experience a return of goods equivalent to between five

and seven percent of total sales.6 However, depending on the industry, the rate of returns

can be as high as fifty percent (magazine publishing) and as low as two percent of sales

(mail order computer manufacturers).7 The rate of returned merchandise for most

retailers becomes a bit skewed around the Christmas holiday period. Internet retailers

experience return rates as high as twenty to fifty percent of sales.8 One prominent

Internet retailer, Amazon.com, claims to have less than one percent of total sales returned

by their customers.9

6 WERC Conference proceedings, 2000.
7 Dale Rogers, Going Backwards: Reverse Logistics Trends and Practices, University of Nevada, Reno , p.
8 WERC Conference proceedings, 2000.
9 Conversation with Director of Logistics, Amazon.com, April 2000.


The US Army is experiencing returned merchandise rates for serviceable supplies

in excess of twenty percent of total requisitions. 10 These return rates rival those of some

Internet retailers whose return rates also include the return of merchandise that is

damaged in shipment. Commercial returns represent lost sales and lost profits. The cost

of serviceable returns to the Army and the entire Department of Defense is a potential

decrease in operational readiness. For every serviceable part in the reverse supply chain

there is a good possibility of another requirement for the same critical part by another

unit. A serviceable part going backwards through the supply chain is not available, or

visible, to another unit. In addition, if the wholesale depot is out of stock for that

particular item, an order must be placed with the manufacturer or a commercial supplier.

This increases the customer wait time for the part and results in excess on the shelf when

the returned item is finally processed into the depot.

Every part that is ordered as “Non-Mission Capable, Supply” (NMCS) represents

a deadlined piece of equipment. Every deadlined piece of equipment represents a

decreased capability to perform an assigned mission if the unit is called upon to deploy.

Every decrease in readiness represents an increased probability of not being able to

successfully accomplish a mission. Consequently, every part that is in the reverse supply

chain results in a potential stock out or “zero balance” at the next level of supply. This

potential for a stock out results in additional parts on the shelves at each location to

prevent a stock out from occurring.

To prevent readiness shortfalls increased quantities of parts are stocked at the unit

level and the SSA level to ensure availability when needed. Additional stocks at these

10 Presentation to the Velocity Group Board of Directors, September 2000.


levels means an increase in the logistics footprint in theater and also increases the lift

requirements to deploy the supporting unit. The number of airframes for deployments are

finite, therefore increases to the lift requirements for supplies decreases the available lift

for combat units.

Commercial industry is moving towards complete outsourcing of customer

returns. K-Mart uses a third party logistics provider11 to process and prepare for resale all

of its customer returned merchandise and the disposition of all excess stocks.12 Until

recently, Wal-Mart processed its own returns through one centralized distribution center

solely for processing returned merchandise.13 Studies of reverse supply chain-processing

shows that it takes longer to process and restock returned merchandise than it does to

process new material into the distribution center.14 When electronic items are involved,

an additional cost is incurred to test the items before returning them to the shelf. Another

cost to processing electronic items in the reverse supply chain is the cost of obsolescence

due to technology advancements between the time of the sale of the item, the return date,

and the date the item is ready for resale.

Reverse supply chain management in commercial retail industry represents

approximately $62 billion a year. Forrester Research in Cambridge, MA estimates that

online purchased merchandise returns will exceed $11 billion dollars by 2002.15 This

represents a potentially huge problem for the commercial sector. Dr. Richard Dawe of

11 A Third Party Logistics provider is a company that specializes solely in logistics or supply chain
operations as a core competency and thus provides a more cost efficient operation to its customers and frees
the supported company from the burdens of internal logistics support.
12 Presentation by and discussions with the Ed Winter, Director of Reverse Supply Chain, K-Mart
Corporation at the World Logistics Congress, March 16, 2001.
13 Tour of Wal-Mart facilities 1998.
14 Rogers, Going Backwards, p.39-40.
15 “Return to Sender,” Modern Materials Handling Magazine, May 15, 2000, www.mmh.com


the Fritz Institute of Logistics identifies six symptoms that indicate that there may be

problems in the reverse supply chain. 16

1. Returned merchandise or supplies arrive faster than they are processed or

disposed of.

2. There are large amounts of returned inventory held in the distribution center

or warehouse.

3. There are unidentified or unauthorized returns.

4. There is a lengthy processing cycle time for returned goods.

5. The total cost of the returns process is unknown.

6. Customers lose confidence in the repair activities.

Each of these symptoms of a reverse supply chain problem represent areas that have the

potential to reduce the efficiency of a distribution center or wholesale depot. Reducing

the efficiency of the military’s wholesale depots results in longer customer wait times for

critical repair parts and supplies. Longer wait times result in decreased operational


Commercial industry has tracking mechanisms in place to track returned

merchandise. Wal-Mart and K-Mart have visibility of all returned merchandise and its

serviceability as soon as the returned item is received at the store, with the exception of

the condition of some electronics. For many years the Army has maintained the Material

Returns Database (MRDB), an automated system, to track unserviceable major

assemblies that are returned to the National Maintenance Program for rebuild or

refurbishment. However, only recently has a system been put in place to track

16 Beth Schwartz, “Reverse Logistics Strengthens Supply Chains,” Transportation and Distribution
Magazine, http://tdmagazine.com/FrmNewsLoader/index.asp?articleID=22157


serviceable redistributable assets, less euphemistically called excess, from the customer

back to the wholesale supply system.

This paper assesses the utility of implementing a reverse supply chain

management system for the Army and the Department of Defense. The first step in this

assessment is defining supply chain management and reverse supply chain management.

Using these definitions to establish the framework, the applications of reverse supply

chain management in commercial industry are identified. These commercial applications

then provide the basis for analyzing and comparing military practices that may be

impacted by adopting commercial practices.

Chapter 2 provides the background of supply chain management and the

evolution of reverse supply chain management in commercial industry. Chapter 3 looks

at the way the commercial firms process returns and some of the root causes for the

return merchandise, as well, as the impacts these returns cause on the entire supply chain.

Chapter 4 provides an analysis and detailed discussion of the procedures used by

commercial industry and their applicability to military operations. Chapter 5 provides

recommendations on improving the Army’s ability to track and have visibility of supplies

in the reverse supply chain. These recommendations, based on the best practices

identified in Chapter 3, can be exported to cover the entire Department of Defense.


Chapter 2

The Supply Chain, Forward and Reverse


To properly analyze Defense and commercial industry efforts to manage the

reverse supply chain, a basic understanding of a supply chain is necessary. This chapter

will establish a common understanding of the development of supply chain management

concepts, the definition of a supply chain and the resultant definition of a reverse supply


The concept of the supply chain grew out of logistics management practices.

Logistics management is the combination of more than one of the functional components

of warehousing, transportation, inventory management, and manufacturing. Logistics

management was an evolutionary change in the way corporations looked at managing the

functional areas.

In the late 1970’s commercial industry started to become aware of the need to

move away from stovepipe organizations in order to become more efficient and

profitable. By the mid 1990’s this realization led to companies viewing the logistics

processes of acquisition, distribution, and supply as a continuous chain from the suppliers

to the ultimate consumer. Supply chain management has been defined as a “connected

series of activities concerned with planning, coordinating, and controlling material parts


and finished goods from the supplier to the customer. The two distinct flows in which

the supply chain is concerned are material and information.”17 Realization began to sink

in that profitability comes from synthesizing all of these activities into one holistic

management approach resulting in supply chain management.

The Deputy Undersecretary of Defense, Supply Chain Integration (DUSD, SCI)

defines the supply chain as depicted in figure 1.18 This depiction of the supply chain as it

stretches from the supplier’s suppliers to the customer’s customer is based on the Supply

Chain Council’s Supply Chain Operations Reference Model (SCOR).19 The DUSD, SCI

further defines Supply Chain Management as “The management of all internal and

external processes or functions necessary to satisfy a customer’s order (from product

acquisition, to the conversion/manufacturing process, through shipment and delivery to

the customer).”20 Notice that there is no mention of the reverse supply chain in this


17 Graham C. Stevens, “Integrating the Supply Chain,” International Journal of Physical Distribution, vol.
19, no. 8, pp. 3-8.
18 Deputy Undersecretary of Defense, Supply Chain Integration Office FY2001 Business Plan, p.9.
19 For more on the Supply Chain Council and the SCOR see http://www.scc.org
20 Supply Chain Integration Office FY2001 Business Plan, p.9.


DoD Supply Chain
Based on the Supply Chain Council’s Supply Chain Reference Model

Deliver Deliver Source SourceDeliverSource MakeSource Make DeliverMake


DoD Logistics Processes

Inventory Control Point,
Maintenance Facility,
Distribution Depot



internal or external


(internal or external)

Retail Supply,

In-theater Distribution



Figure 1. The DoD Supply Chain according to the Deputy Undersecretary of
Defense, Supply Chain Integration

APICS, The Educational Society for Resource Management, defines the supply

chain as: “1. The process from the initial raw materials to the ultimate consumption of

the finished product linking across supplier-user companies; 2. The functions within and

outside a company that enable the value chain to make product and provide services to

the customer.” 21 Using this definition as a basis, the reverse supply chain is defined by

the University of Nevada, Reno Reverse Logistics Council as: “a broad term referring to

the logistics management skills and activities included in reverse distribution, which

causes goods and information to flow in the opposite direction of normal logistics

activities.”22 Reverse supply chain management “also includes processing returned

merchandise due to damage, seasonal inventory, restock, salvage, recalls, and excess

21 APICS, APICS Dictionary, 8 th Ed., (Falls Church, VA, 1998), p.84.
22 Dale Rogers presentation to WERC at the 1999 Annual Conference.


inventory. It also includes recycling programs, hazardous materials programs, obsolete

equipment disposition, and asset recovery.”23

Dr. Dale Rogers in his book on reverse logistics describes the reverse supply

chain as: “ the process of moving goods from their typical final destination for the

purpose of capturing value or proper disposal.”24 Initial studies into reverse logistics and

reverse supply chain management focused primarily on the proper disposal of hazardous

materials. This paper focuses on the return of serviceable assets from the customer

(typical final destination) to the wholesale and retail Supply Support Activities (point of


Supply Chain Management has been the vogue buzzword in commercial industry

for over ten years. However, the Army and the Department of Defense did not make the

paradigm shift from a logistics management approach to a supply chain management

approach until 1998. This paradigm shift was prompted by the successes of the Army’s

Velocity Management Program in reducing Order Ship Times and Repair Cycle Times

and the US Marine Corps’ 1998 Supply Chain Redesign project.25

The Velocity Management Program was started by the Army after a study by the

RAND Corporation’s Arroyo Center on ways to improve logistics support to the Army.

The study results were briefed to the Army’s Deputy Chief of Staff for Logistics

(DCSLOG) in early 1995 with the recommendation that a continuous process

improvement program be initiated Army wide. The initial focus of the Velocity

23 Rogers, Going Backwards, p. 3
24 Rogers, Going Backwards, p.1
25 For more on the USMC Supply Chain Initiative see “Integrated Logistics Capability Initiative
Checkpoint Briefing,” December 1998.


Management Program was strictly on the Order Ship Time processes.26 Within a year of

starting the Velocity Management Program it became evident that to reap the desired

benefits to the Army required a more multi-functional approach that included financial

management interfaces, distribution management, inventory stockage policies, and

maintenance repair cycle management. This produced the first supply chain initiative in

the military. 27

Cooperation between the Army’s Velocity Management Program Office and the

US Marine Corps’ Precision Logistics proponents led to a USMC sponsored study, in

conjunction with Pennsylvania State University and Dr. John Coyle to redesign the

USMC logistics processes. The results of this study led to a Department of Defense

initiative to adopt a holistic supply chain approach to support. In 1998 the office of the

Undersecretary of Defense, Supply Chain Integration was established to be the

Department of Defense focal point for incorporating best commercial practices and

supply chain initiatives into the way the Department of Defense provides support to the


Further research by the Army and the RAND Corporation into the causes of

serviceable returns from the customer units and the retail Supply Support Activities in

1998 led to some concerns about the impact of processing serviceable excess through the

26 The Order Ship Time is the time from the establishment of a requirement for a part or supply until the
part is filled from the local Supply Support Activity or the wholesale supply system. A recent shift in focus
has replaced Order Ship Time with Replenishment Supply Time and Customer Wait Time. Customer Wait
Time focuses on the total wait time a customer experiences for a part to include those items that are on a
backorder status at the wholesale system. Previous calculations for Order Ship Times excluded those items
that were on a backordered status above the installation level. The commercial equivalent of Order Ship
Time is Customer Order Cycle Time.
27 For more on the Velocity Management Program methodology see RAND’s “Velocity Management: An
Approach for Improving the Responsiveness and Efficiency of Army Logistics Processes.”


supply chain. This research revealed that prior to the Velocity Management Program

serviceable returns exceeded fifty percent of the total number of requisitions by the

Army. 28 By 1999, this return rate was down to only twenty percent; however, it

represented over fifty percent of the dollar value of the total requisitions. A twenty

percent rate of returns, when extrapolated across the entire Department of Defense,

represents approximately eleven million requisitions a year that result in serviceable

excess items that are candidates for return to the wholesale system.

RAND’s research revealed that “controlled, trading or borrowing from another

unit, local fabrication, local purchase (outside of the military supply system), or by

substituting a higher level assembly filled fifteen percent of all requisitions for deadlined

equipment.” 29 Controlled substitution is a polite way of saying that the part was taken

from another vehicle (usually deadlined for a more serious problem) and placed on the

deadlined vehicle. The “work around” identified by RAND of substituting the next

higher assembly is equivalent to buying a new engine for your car instead of waiting

another week for a new fuel injector. The number of “work arounds” to the system

increases as the wait time for a part increases. According to the RAND data, if the wait

time for the part is over fifty-one days, the number of needs filled by a “work around”

increases from fifteen percent to eighty percent.30

Each deadline that is fixed using one of the identified “work arounds” potentially

represents another requisition that will be returned through the reverse supply chain to the

28 Eric Peltz and Kenneth Girardini, “ Using Velocity Management to Improve Logistics Quality:
Serviceable returns as a Quality Indicator,” RAND Santa Monica, CA, 1999.
29 Eric Peltz, Presentation to the Velocity Group Board of Directors, September 2000.
30 Ibid.


wholesale system. However, items that are less than $50.00 in value are not returned to

wholesale because of their low dollar value. These items usually end up either retained at

the unit or disposed of through the Defense Reutilization and Marketing Office (DRMO).

Approximately three percent of all requisitions qualify for return to the wholesale depots.

Extrapolating this data across the entire DoD means that approximately 1,650,000 items

are returned through the reverse supply chain.

With such a large amount of items in the reverse supply chain, it is surprising that

reverse distribution management does not appear in any of the directives, policies, or

information briefings associated with Supply …

Towards conceptualizing reverse service
supply chains

Qile He
Coventry Business School, Coventry University, Coventry, UK

Abby Ghobadian
Henley Business School, University of Reading, Henley-on-Thames, UK

David Gallear
Brunel Business School, Brunel University, Uxbridge, UK

Loo-See Beh
Faculty of Economics & Administration, University of Malaya, Kuala Lumpur, Malaysia, and

Nicholas O’Regan
Faculty of Business and Law, University of the West of England, Bristol, UK

Purpose – Recognizing the heterogeneity of services, this paper aims to clarify the characteristics of forward and the corresponding reverse supply
chains of different services.
Design/methodology/approach – The paper develops a two-dimensional typology matrix, representing four main clusters of services according
to the degree of input standardization and the degree of output tangibility. Based on this matrix, this paper develops a typology and parsimonious
conceptual models illustrating the characteristics of forward and the corresponding reverse supply chains of each cluster of services.
Findings – The four main clusters of service supply chains have different characteristics. This provides the basis for the identification, presentation
and explanation of the different characteristics of their corresponding reverse service supply chains.
Research limitations/implications – The findings of this research can help future researchers to analyse, map and model forward and reverse
service supply chains, and to identify potential research gaps in the area.
Practical/implications – The findings of the research can help managers of service firms to gain better visibility of their forward and reverse supply
chains, and refine their business models to help extend their reverse/closed-loop activities. Furthermore, the findings can help managers to better
optimize their service operations to reduce service gaps and potentially secure new value-adding opportunities.
Originality/value – This paper is the first, to the authors’ knowledge, to conceptualize the basic structure of the forward and reverse service supply
chains while dealing with the high level of heterogeneity of services.

Keywords Service, SCM, Service supply chain, Forward supply chain, Reverse supply chain

Paper type Conceptual paper

1. Introduction
Reverse supply chains are an important current focus of
research (Mondragon et al., 2011; Govindan et al., 2015). The
concept is predicated on the maximization of value creation,
securing sustainable development opportunities throughout
products’ life cycles and dynamic value creation from different
types of returns over time (Govindan et al., 2015). To date,
the manufacturing sector has provided the context for the
majority of reverse supply chain research (Jayaraman et al.,
1999; Blackburn et al., 2004; Jayaraman and Luo, 2007;
Huang et al., 2013; Mafakheri and Nasiri, 2013; Chuang et al.,

2014). Although the supply chain concept is increasingly
being used in sectors outside of manufacturing services
(Sampson, 2000; Ellram et al., 2004; Giannakis, 2011;
Lillrank et al., 2011; Vries and Huijsman, 2011; Shi and Liao,
2013), the interest in the reverse service supply chain (RSSC)
is more recent and nascent in nature (Amini et al., 2005;
Bienstock et al., 2011).

How significant is the RSSC and, conceptually, what are the
key design issues? The answers to these two questions matter
because of the service sector’s share of gross domestic product
(GDP) and its heterogeneity. The service sector is the largest
contributor to the GDPs of the developed economies. For

The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal
21/2 (2016) 166–179
© Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/SCM-01-2015-0035]

The authors would like to thank the anonymous reviewers for their
invaluable comments to improve this paper from its original form. They
would also like to thank the academic experts who have completed the
survey of this study; their comments are essential to improve and verify the
conceptualization of this paper.

Received 28 January 2015
Revised 13 July 2015
Accepted 14 September 2015



example, in the USA, the service sector accounts for 68 per
cent of GDP and four out of five jobs (OUSTR, 2014), and in
the UK, it accounts for around 78 per cent of GDP (ONS,
2014). The significance of the service sector is growing rapidly
within the emerging and developing economies. The service
sector is both broad and inherently heterogeneous – points
discussed more fully in the next section. This heterogeneity
affects both the importance and the design of forward service
supply chains (FSSCs) and RSSCs; hence, no single FSSC or
RSSC model is capable of depicting the service sector as a

Service supply chains (SSCs) possess different
characteristics to manufacturing supply chains (Sampson,
2000); hence, RSSCs need to be conceptualized differently to
capture the unique characteristics of a diverse group of
services. The research examining the RSSC is showing
potential, but is sparse, thus limiting our understanding
(Sampson, 2000; Bienstock et al., 2011). The growing
significance of services calls for greater research effort,
developing conceptual understanding, guiding empirical
research and facilitating more effective RSSC operations in

The aim of this paper is to develop a conceptual model/
typology of FSSCs and RSSCs. We first develop a
two-dimensional service firm typology based on output
tangibility/intangibility and input customized/standardized
continuums, as they impact on the design of FSSCs and
RSSCs. The proposed SSC typology potentially aids future
theoretical/empirical research, as well as practicing managers,
by highlighting the significance of operations and the design
characteristics enabling them to better address potential
RSSC issues.

A review of the extant literature is presented in Section 2,
and FSSCs and RSSCs are defined. In Section 3, we discuss
the methodology; in Section 4, we introduce our
two-dimensional matrix, which serves as the foundation for
our conceptual model and typologies introduced in Section 5.
In Section 6, we discuss the implications, and we draw
conclusions in Section 7.

2. Literature review
The current focus of reverse supply chain research is primarily
on manufacturers’ reverse flow (Jayaraman et al., 1999;
Blackburn et al., 2004; Jayaraman and Luo, 2007; Huang
et al., 2013; Mafakheri and Nasiri, 2013; Chuang et al., 2014).
The few existing studies examining the RSSC rely on
manufacturing concepts or service activities that are treated as
supporting functions of the manufacturing supply chain
(Amini et al., 2005; Bienstock et al., 2011).

2.1 Heterogeneity of service supply chains
The diversity and context dependency of SSCs contribute to
the paucity of conceptual RSSC studies (Sampson, 2000;
Ellram et al., 2004; Giannakis, 2011). Compared with
manufacturing supply chains, SSCs are heterogeneous in
nature for five reasons.

First, services encompass almost all economic activities
apart from agriculture, mining and manufacturing (Goodman
and Steadman, 2002; Ellram et al., 2004). Heterogeneity not
only occurs between sectors, but also exists within sectors

affecting the design and operation of both FSSCs and RSSCs
(Veronneau and Roy, 2009).

Second, service value chains display significant variations
between and across sectors. According to Porter (1985), value
is what buyers are willing to pay and the value chain consists
of a set of primary and support activities that an organization
carries out to create value for its customers. In some sectors,
service elements dominate the value chain as primary activities
creating the majority of value for the customer, for example
consultancy services, education and finance. However, in
other sectors, service contribution to value creation is more
balanced vis-à-vis other elements of the value chain. For
example, in retail, in-bound logistics and the effectiveness of
operations also make significant contributions to the creation
of value.

Third, the value chain processes of service firms are much
less standardized compared to those of typical manufacturing
firms. Service firms’ outputs display significant variations and
uncertainties due to the sizeable human involvement
(Sengupta et al., 2006). Furthermore, the requirements and
expectations of customers can be very different from case to
case (Schmenner, 1986; Sampson, 2000).

Fourth, service provision largely tends to be decentralized
(with some notable exceptions), because decisions are
generally taken locally to meet the varied customer
requirements (Sampson, 2000; Sengupta et al., 2006).
Moreover, when services are outsourced, the procurement of
services is often not centrally managed but based on local
requirements (Ellram et al., 2004). Hence, outputs are also
likely to vary from case to case.

Fifth, uncertainties in processes due to significant human
involvement and the variations in service outputs due to varied
customer requirements tend to make service evaluation and
performance measurement highly complex and differentiated
(Ellram et al., 2004). In turn, this compounds the complexities
of SSC standardization and conceptualization.

2.2 Products as bundles of goods and services
Sampson (2000) argued that services are not solely intangible
and their provision is often dependent on facilitating goods.
According to Davis and Heineke (2003), service products can
be viewed as bundles of goods and services across a
continuum, with groceries at one end, having close to 100 per
cent facilitating goods, and consultancy at the other end, with
close to 100 per cent intangible provision, and other services
in between. Services, depending on their position on the
continuum, will possess different operational characteristics
(Davis and Heineke, 2003; Ellram et al., 2004). Hence, a
one-model-fits-all approach will not suffice.

Previous research focused on services offering intangible
product (output) bundles capturing the position at one end of
the continuum (Sampson, 2000; Ellram et al., 2004;
Giannakis, 2011). These do not necessarily reflect the realities
of the forward and reverse supply chains of services occupying
other positions on the continuum. In this paper, we attempt to
differentiate between the FSSC and the RSSC, utilising
critical distinguishing dimensions. We maintain that a clear
typology will allow for a more fine-grained representation of
the FSSC and the RSSC.

Towards conceptualizing reverse service supply chains

Qile He, Abby Ghobadian, David Gallear, Loo-See Beh and Nicholas O’Regan

Supply Chain Management: An International Journal

Volume 21 · Number 2 · 2016 · 166–179


2.3 Towards definitions of forward and reverse service
supply chains
The traditional definition of supply chain management
(SCM) does not readily apply to services. Hence, Ellram et al.
(2004, p. 17) defined SCM for services as: “the management
of information, processes, capacity, service performance and
funds from the earliest supplier to the ultimate customer”.
The focus here was on service operations outsourcing –
limiting its scope.

Johnson and Mena (2008, p. 28) provided a similar
definition, but with a focus on servitization strategy. They
defined SCM of servitized products as “the management of
information, processes, capacity (people, equipment and
facilities), products, services and funds from the earliest
supplier to the ultimate customer”.

As Albino et al. (2002, p. 119) suggested, “a supply chain
can be analyzed as a network of production processes. Each
process can be defined as a system that produces output flows
in consequence of input flows”. From this perspective, a
service firm is a value-adding unit transforming inputs into
service outputs. As such, SSCs entail the flow of non-physical
inputs and outputs, or bundles of physical and non-physical
inputs and outputs. The flow of information, funds and
intangible and tangible inputs and outputs is common to all
services. The differences arise from the tangibility and/or
intangibility of inflows and outflows, which vary significantly
from one service firm to another, regardless of whether they
fall within the same or a different standard industrial
classification code.

In this paper, we rely on a single broad definition of service
SCM based on previous studies:

[. . .]the management of the flow of information, funds and materials
between the service firm, its earliest suppliers and the ultimate customer in
the process of transforming tangible and/or intangible inputs into tangible
and/or intangible service outputs valued by the customer.

We do not specify the direction of flows, as flows are
bi-directional – not least because of the “customer–supplier
duality” highlighted by Sampson (2000).

In manufacturing, the direction of flow determines whether
the supply chain is forward or reverse. For example, the
American Reverse Logistics Executive Council defined the
reverse supply chain as:

[. . .]the process of planning, implementing, and controlling the efficient,
cost effective flow of raw materials, in-process inventory, finished goods and
related information from the point of consumption to the point of origin for
the purpose of recapturing value or proper disposal (Govindan et al. 2013,
p. 320).

However, as Blackburn et al. (2004) noted, not all reverse
manufacturing supply chains possess similar characteristics;
the dissimilarities are accentuated in the case of service
organizations because of the heterogeneity discussed
previously. For SSCs, it is more difficult to identify the RSSC
simply by the direction of flow of information or inputs,
because it is very likely that an SSC will have bi-directional
flows of information/inputs and will have multiple input points
(Sampson, 2000). Hence, a different approach for defining the
RSSC is needed.

Another approach for identifying the RSSC is to consider
triggers, simply because the reverse flow is logically instigated
by an event, for example, when customers become dissatisfied
with the service or want to cancel the service contract, or when

they want to return the tangible part of a service output that
may have become faulty or reached the end of its useful life.
Consequently, it is reasonable to identify the RSSC through
such triggers. Therefore, in this study, we define RSSC
management as:

[. . .] the process of planning, implementing and controlling the efficient
and cost effective flow of tangible and/or intangible input and output
between the point(s) of consumption and the point(s) of origin, induced by
a service cessation event, for the purpose of recapturing value or proper

This definition, again, does not restrict the direction of flow of
input/output to the RSSC; instead, it recognizes all possible
flows of intangible and tangible inputs and outputs.

3. Methodology
We take our lead from Meredith (1993), arguing that
conceptual model building creates a balance between
inductive and deductive reasoning, enabling academics to lead
and guide managerial practices. We broadly follow the
methodology suggested by Meredith (1993) and deployed by
other SCM scholars (Carter and Rogers, 2008).

Figure 1 illustrates the process we followed. First, we
reviewed the relevant literature identified through a rigorous
search of two major databases – ABI/Inform and EBSCO –
using keywords such as service/supply chain, service/SCM,
service/reverse supply chain and service/closed/closed-loop
supply chain, and in each case, we conducted the search with
the word “service” included and with it excluded. Each search
was preceded by terms such as definition, theory, concept,

Figure 1 Conceptual model development process

Literature search and review

Identification of key
dimensions of the service


Clarification of service clusters with
four field experts

Preliminary parsimonious conceptual
models of forward and reverse

service supply chains

Survey with academic experts to verify
and refine the typology matrix and the

conceptual models

Development of the two-
dimensional typology matrix

Naming of typical
services in each cluster

Short open-ended

Final typology and conceptual models

Further literature review

Consolidation of
service clusters

Identification of

Survey development
and execution

Data analysis and
literature review

Towards conceptualizing reverse service supply chains

Qile He, Abby Ghobadian, David Gallear, Loo-See Beh and Nicholas O’Regan

Supply Chain Management: An International Journal

Volume 21 · Number 2 · 2016 · 166–179


model, typology and inductive/deductive research. An
extensive database of relevant literature was developed
through initial searches.

We then examined this literature in detail and, based on our
initial reading, conducted further searches adding additional
literature to our database. This phase, in particular, involved
consulting books referred to by papers in our database. Our
conceptual development is the product of the integration of
different works, summarizing common elements through
extensive discussions, contrasting the key concepts,
synthesizing the outcomes of our findings and applying
“logical deduction” along the lines suggested by Wacker
(1998) and Handfield and Melnyk (1998).

We used the previous literature (Table I) to identify key
dimensions of service typology and narrowed these down to
dimensions helpful in the classification of reverse supply
chains. These dimensions (standardization of process and
input, and tangibility of expected service output) were used as
the basis for the development of a two-dimensional matrix (see
Figure 2 in Section 4). We then used this typology, our
summary of the literature, extensive discussion and
logical deduction to develop four archetypal service clusters
(Figure 2).

We drew on the knowledge of four field experts in our effort
to identify the four archetypal service clusters. Our selection
criteria for experts were:
● alignment between knowledge and research field;
● publications in leading journals; and
● research leadership.

Panels of experts offer opinion diversity, independence,
knowledge decentralization and opinion aggregation
(Surowiecki, 2004). We used a variant of the Delphi technique
based on populated charts to obtain experts’ opinions on the
archetypal service clusters (VandeVen and Delbecq, 1974),
but experts were also asked to independently name some
typical services or service firms and note these on separate
cards. They were then asked, independently, to place their
cards onto the two-dimensional matrix that had been
developed. A researcher then compared the four
independently populated charts, noting the area of the chart
on which the cards were placed as well as the similarities and
differences. Thirty different services were identified by the
experts, while 18 of those services were shared between
experts; within these 18 shared services, 12 were put into the
same quadrant by all four experts, yielding an inter-rater
reliability of 66.7 per cent (Gwet, 2014). Where there were
differences, the experts were consulted to ascertain the logic of
their choices. The aim was to gain consensus, but where this
was not forthcoming, a simple majority rule was applied. In
the event there were only a few such cases, experts reached
consensus during the interview stage described below. The
process enabled the development of a single consolidated
chart, with services having similar characteristics being
grouped together in an appropriate quadrant.

To enhance reliability, one of the researchers conducted a
short open-ended interview with each of the four experts
independently, asking them to comment on why they had
placed the service in a particular quadrant and whether the
overall typology was robust. Services placed in a particular
quadrant based on the majority rule (mentioned above) were

highlighted and consensus was reached at this stage. The
literature was revisited, using the service typology we had
developed, to specify and illustrate the basic structure and
activities of the FSSC and the corresponding RSSC of firms
belonging to each archetypal service organization. The unit of
analysis was service firm. As a result of this process, four FSSC
and RSSC models were developed for each archetypal service
firm cluster. This culminated in a typology of FSSCs and
RSSCs (see Figure 3 in Section 5).

With the set of preliminary conceptual models developed,
we followed a similar approach to Lyles (1990) and Carrol
(1994) by developing an open-ended questionnaire and
conducting a survey of academic experts world-wide to verify
the veracity and relevance of the proposed parsimonious
conceptual models. We identified a panel of 52 academic
experts who had published in the previous five years in leading
journals, focusing on green or reverse logistics and supply
chain, service characteristics, service operation, service
classification, service logistics, service procurement including
public organizations and SSC.

We developed the open-ended questionnaire using
Qualtrics – a popular internet-based survey engine – allowing
a combination of diagrams and text within the survey
instrument. The questionnaire was designed to ascertain the
experts’ views on the two-dimensional service typology and
the four parsimonious models, as well as the definitions of key
terms, such as FSSC and RSSC, service input and output, and
the examples of archetypal services. Respondents were asked:

Q1. To what extent does the service typology accurately
capture the different types of services?

Q2. Are there any service types not covered by this

Q3. To what extent does each of the four conceptual models
represent the essential characteristics of the FSSCs and
RSSCs of different type of services?

The survey was included as a hyperlink in the invitation email
sent to our panel of academic experts. We received 39
responses, but only 21 were fully completed resulting in an
effective response rate of 40.38 per cent. This compares
favourably with responses received by previous researchers
targeting a similar population (Lyles, 1990). Table II
summarizes the basic profiles of the respondents.

Two of the authors independently reviewed the responses
and noted the emerging themes before comparing and
synthesizing the responses; they had a consistent
interpretation to most of the open-ended responses and
reached consistency on the small number of responses with
discrepancies after open discussion. While most of the
respondents generally agreed with the efficacy of the typology
and the parsimonious conceptual models, discrepancies in
opinions were reviewed by undertaking further review of the
literature to improve and refine the preliminary conceptual
models to reach the final parsimonious conceptual models.

4. Towards a service typology
The heterogeneity of services makes it difficult to develop a
grand conceptual model/theory of service firms (Verma and

Towards conceptualizing reverse service supply chains

Qile He, Abby Ghobadian, David Gallear, Loo-See Beh and Nicholas O’Regan

Supply Chain Management: An International Journal

Volume 21 · Number 2 · 2016 · 166–179


Table I Selected previous service typologies

Selected reference Classification dimensions Comments

Judd (1964) Rented goods services
Owned goods services
Non-goods services

The typology recognizes that customers can be
suppliers of service inputs in the supply chain
process. However, “non-goods services”is too broad
as a classification dimension, which can be
extended into many sub-categories

Rathmell (1974) Type of seller
Type of buyer
Buying motives Buying practice Degree of

Equally applicable to the manufacturing sector. The
typology does not help to explain service supply
chain processes

Hill (1977) Private services
Collective services

A classification from an economics perspective,
which does not provide direct implication to the
service supply chain

Shostack (1977) Tangible dominant
Intangible dominant

Recognizes the possibility of bundles of intangibles
and tangibles in services have a direct implication
on the flow of service input and output in supply

Kotler (1980) People-based vs equipment-based
Extent to which client’s presence is
Meets personal needs vs business needs
Public vs private,for-profit vs non-profit

A synthesis of different previous classification
criteria. Does not have direct implications to on the
service supply chain

Chase (1981) High customer contact
Low customercontact

Too broad in classification for understanding the
service supply chain, further sub-categories are

Lovelock (1983) Nature of the service act
Relationships with customers
Customization and judgment in service
Nature of demand for the service relative
to supply
Method of service delivery

The first criterion recognizes the nature of the
service act being either tangible actions or
intangible actions. The third criterion recognizes the
level of customization in services. The fifth criterion
recognizes the type of customer interaction with the
firm and whether the service is delivered on a single
or multiple sites

Schmenner (1986) Degree of interaction and customization
Degree of labourintensity

The second dimension is less clear for modern
services firms. Thus the classification cannot be used
directly to explain the service supply chain

Mersha (1990) Active customer contact
Passive customer contact

An extension of the customer contact model (CCM)
of high, low or mixed customer contact. But it does
not give direct implications to the concept of the
service supply chain

Chase and Hays (1991) Four-stage schemeAvailable for service
Journey man
Distinctive competence achieved
World-class service delivery

Four-stage scheme distinguishes among service firms
according to their general effectiveness in service
delivery at different stages of development. Cannot
be used directly to understand service supply chain

Kellog and Nie (1995) Service process structure in terms of
customer influence: expert service, service
shop, service factory
Service package structure in terms of
degree of customization: unique, selective,

The two-dimensional service process/service package
matrix has a customer-focused approach, but cannot
be directly used to understand the service supply
chain process

Goodman and Steadman (2002) Physical
Service of experiential value

A generic typology recognizes services being
diversified in providing physical goods and
intangible services. Helps to explain different types
of service output generated by service firms along
the supply chain

Davis and Heineke (2003) Proportion of goods and services making
up a service product

Recognizes the possibility that services can be
bundles of goods and services. Helps to explain
different types of service output generated by
service firms along the supply chain

Towards conceptualizing reverse service supply chains

Qile He, Abby Ghobadian, David Gallear, Loo-See Beh and Nicholas O’Regan

Supply Chain Management: An International Journal

Volume 21 · Number 2 · 2016 · 166–179


Boyer, 2000). To advance our nascent understanding of
service firms’ forward and reverse supply chains, we need to
develop clusters of service firms with common characteristics
relevant to the conceptualization of their forward and reverse
supply chains. Therefore, construction of a robust service
typology is a critical first step in the advancement of a
conceptual RSSC. To this end, we carefully examined the
typologies proposed by leading scholars in the field (including
those of Judd, 1964; Rathmell, 1974; Shostack, 1977; Sasser
et al., 1978; Hill, 1977; Kotler, 1980; Chase, 1981; Lovelock,
1983; Schmenner, 1986, 1995; Mersha, 1990; Chase and
Hays, 1991; Kellog and Nie, 1995; see also Table I) in light of
the definition of RSSC.

A product seems a logical dimension of a service typology
designed to dovetail with the development of conceptual
models of the reverse supply chain. It was central to the
typologies developed by a number of scholars (Shostack,
1977, 1982; Sasser et al., 1978; Goodman and Steadman,
2002; Davis and Heineke, 2003). We used the idea of the
proportion of goods and services making up a product,

suggested by Davis and Heineke (2003), to delineate one
dimension of our typology because it can be objectively
assessed. Moreover, it fits with the current definitions of a
reverse supply chain and is the foundation of a number of
prominent existing typologies.

In assessing the proportion of tangible goods and services
making up a product, it is not sufficient to solely consider the
product bundle. Rather, it is crucial to consider how the
product bundle is viewed by customers. For example, the core
bundle offered by mobile telecoms companies comprises
mobile voice and data services. To reach the market, all the
telecoms companies have retail businesses, and the design and
function of handsets are also highly valued by customers.

Another common element in definitions of the reverse
supply chain is “value generation”, which in turn is
process-driven (Silvestro et al., 1992; Hill et al., 2002). To this
end, a …

Contents lists available at ScienceDirect

Resources, Conservation & Recycling

journal homepage: www.elsevier.com/locate/resconrec

Full length article

Circular economy strategies for mitigating critical material supply issues

Gabrielle Gaustada,b,⁎, Mark Krystofika,b, Michele Bustamantec, Kedar Badamia,b

a Golisano Institute for Sustainability, Rochester Institute of Technology, United States
b Center of Excellence, Advanced and Sustainable Manufacturing, 190 Lomb Memorial Drive, Rochester, NY 14623, United States
c Materials Systems Lab, Massachusetts Institute of Technology, 77 Massachusetts Avenue, Cambridge, MA 02139, United States


Just-in-time manufacturing
Firm strategy
Business cases


Raw materials deemed critical are defined as having potential issues in their supply, limited substitutes, and
applications of importance, namely in clean energy, defense, healthcare, and electronics. Disruptions in supply of
critical materials can have serious negative repercussions for firms, consumers, and economies. One potential set
of mitigation strategies for firms dealing with criticality issues is the implementation of circular economy
principles in their supply chain, operations, and end-of-life management. This work conducts a literature review
combined with case study analysis to examine how certain firms assess and monitor their vulnerability to critical
material supply chain issues and provides specific business examples for integrating circularity strategies. Results
indicate the potential for risk reduction that could be gained from implementation of these strategies; specifically
recycling, for example, can provide an in-house source (for prompt or fabrication scrap) or at least domestic
source (for post-consumer scrap) for critical materials; up to 24% for the case of indium usage in China. Just in
time manufacturing techniques have the potential to both exacerbate supply issues (by encouraging low in-
ventory or needed resources for manufacturing) and improve supply issues by introducing resiliency in the
supply chain indicating that approach of firms in undertaking these strategies is important. Many cases reviewed
show other quantifiable secondary benefits beyond risk reduction, such as economic savings, reduction in energy
consumption, and improved corporate social responsibility via enhanced supply chain oversight.

1. Introduction: what are critical materials and why should firms

In recent years, there has been growing interest in assessing mate-
rials availability due to increased use of materials, and particularly
scarce materials in important technologies, creating growing risk of
supply disruptions. Supply disruptions have the potential to occur via
two distinct mechanisms: actual physical scarcity of a raw material or
short-term shortages caused by rapid demand intensification, political
unrest and instability, natural disasters, etc (Alonso et al., 2007a,
2007b). These risks are generally referred to as factors of material or
resource criticality; however, what makes a material critical varies
somewhat depending upon who is asked. For example, the US Depart-
ment of Energy (DOE) considers material criticality as a measure that
combines two dimensions: importance to clean energy and risk of
supply disruption (Bauer et al., 2011). The European Commission de-
fines critical raw materials as having high supply risk combined with
economic importance to the European Union (Commission, 2014). The
US Defense Logistics Agency (DLA, a part of the Department of Defense)
uses the words “strategic and critical” in considering materials that

“would be needed to supply the military, industrial, and essential ci-
vilian needs of the United States during a national emergency” (Critical
Materials Stockpiling Act, 2014) and are likely to experience supply
disruptions or stockpile shortfalls. The challenge in creating a current
list of critical materials lies in the stakeholder-specific nature of criti-
cality assessments. An excellent overview in creating a multi-stake-
holder criticality perspective is available in (Graedel et al., 2012); this
work explores several important metric approaches to criticality de-
termination. Materials that are of concern for the US energy sector may
not be of concern for the EU or even the US manufacturing or defense
sector and vice versa. As shown in Fig. 1, there are significant areas of
overlap and several materials considered critical (and strategic by DLA)
by all three of these groups for their most recent reporting year.
However, it should be noted that criticality is a dynamic property of
materials. As products continue to utilize more and more elements from
the periodic table and the demand for these products continues to in-
crease; increased competition between sectors for the same materials
will shift their criticality status. Concurrently, supply continues to be-
come less diverse for many of these materials and socio-political issues
may arise that could disrupt supply. Therefore, Fig. 1 is really only a

Received 26 January 2017; Received in revised form 30 June 2017; Accepted 2 August 2017

⁎ Corresponding author at: Golisano Institute for Sustainability, Rochester Institute of Technology, 190 Lomb Memorial Drive, 81-2175, Rochester, NY 14623, United States.
E-mail address: [email protected] (G. Gaustad).

Resources, Conservation & Recycling 135 (2018) 24–33

Available online 30 August 2017
0921-3449/ © 2017 Elsevier B.V. All rights reserved.






mailto:[email protected]



static snapshot and example of critical materials. Table 1 shows some of
the relevant industrial sectors that have demand for these critical ma-
terials including clean energy, defense applications (which include es-
sential civilian and industrial sectors according to DLA), electric ve-
hicles, electronics, and lighting. Many other sectors make use of critical
and strategic materials as well including metal processing, healthcare,
information and communication services, and chemical production.

The high-level perspective taken by most assessments (global or
national) makes it difficult and potentially inappropriate for firms to
directly apply the findings to inform their supply-chain management
strategies. As a result, recent work has been undertaken to develop and
quantify metrics for assessing criticality of materials as these metrics
are key indicators of supply risks for firms within the technology life-
cycle (Erdmann and Graedel 2011; Chu and Majumdar, 2012). Large-
scale national (Japan, US) and multi-national (EU) efforts are currently
underway to systematically assess criticality for specific sectors of in-
terest to a variety of stakeholder groups (Matsumura 2001; Bauer et al.,
2011; Pacheco-Torgal 2014). Supply gaps, even short-term, have the
potential to create significant price volatility and commodity price
uncertainty (Alonso et al., 2007a, 2007b; Craighead et al., 2007). For
example, in the 1970’s, a small scale uprising in Zaire (now the De-
mocratic Republic of the Congo) created a short-term cobalt supply
shortage as 40% of global production was mined in that geographic
area. This caused massive spikes in the commodity price of cobalt, as
shown in Fig. 2, which resulted in speculation, government stockpiling,
and massive disruption to firms in the semiconductor industry (Alonso
et al., 2007a, 2007b). Anywhere from 30%–60% of the cost of a
semiconductor chip manufactured in the 1980’s was materials costs,
with cobalt being a significant contributor (Peters et al., 1995). Now,
lithium ion batteries which also rely heavily on cobalt, face a similar
vulnerability as, cathode materials make up 25% of the total cost with

cobalt being the largest contributor to cost by far (Henriksen et al.,
2002). Fig. 2 also shows the recent spike in rare earth oxide prices for
comparison. A massive price spike would not be able to be passed on to
consumers in these two case examples as well. Assessment of import
reliance shows that even today the US may be quite vulnerable to si-
milar supply disruption events for a number of other materials, in-
cluding bismuth, germanium and rare earths, for which it is even more
heavily reliant upon supply from a single country:, China (see Fig. 3).

Beyond severe price volatility, even temporary supply shortages can
cause a variety of other challenges for firms, including production
bottle-necks, long lead times, and failure to deliver on-time products.
The further downstream firms are from material suppliers, the more
severe these impacts can be; a phenomenon often referred to as the bull-
whip effect (Lee et al., 1997). These effects will only magnify as firms
continue to move toward just-in-time manufacturing (aka Toyota pro-
duction system, short-cycle manufacturing, lean, etc.). Industries where
materials make up a large portion of the total product by weight or by
value are particularly at risk. A recent survey of industry executives
revealed that many firms feature products containing at least 1/4 of
components with scarce minerals and metals by weight and by value,
including the automotive sector, energy and utilities, infrastructure,
and the renewable energy sector (Fig. 4A) (Schoolderman and
Mathlener, 2011). The automotive sector particularly has concerns with
platinum group metals used in catalytic convertors and for rare earth
metals used in alloying specialty steels (Nansai et al., 2014). The re-
newable energy sector relies on rare earth magnetics for rotors in wind
turbines, tellurium, gallium, indium, and selenium in thin-film solar cell
technologies (Alonso et al., 2012). Wide electric vehicle adoption relies
on a growing supply of lithium, cobalt, nickel, and natural graphite.
Within the automotive sector specifically, raw materials have been es-
timated to constitute nearly half of the cost of a vehicle (see Fig. 4B)
(Kallstrom, 2015), suggesting economic impact vulnerability to mate-
rial supply disruptions due to this heavy reliance upon materials.

The present work provides a brief overview of how some firms are
currently assessing and monitoring their vulnerability to critical ma-
terial supply chain issues and uses a case study analysis approach to
propose strategies based on a combination of circular economy prin-
ciples and supply chain management practice for mitigating their risks.

2. Methods: circular economy principles for criticality mitigation

Information from academic literature as well as firm and business
case studies available in the literature and, miwere combined with
original insight gathered by the authors via industry contact to first
report on how companies frame and quantify material criticality in-
ternally. Firm cases were selected based mainly on quantified data
availability or contacts willingness to share unpublished quantified

Fig. 1. Materials deemed critical by various groups including the US Department of Energy (DOE), the US Defense Logistics Agency (DLA), and the European Union (EU). Some groups
call out specific REEs (eg. Ce, Er, etc) in addition to all listing REOs in general. (Romans 2008; Bauer et al., 2010; Commission, 2014; Thomason et al., 2015).

Table 1
Sectors of relevance for selected critical and near-critical materials (Dresselhaus et al.,
2001; DoE, 2005; Bauer et al., 2010; Chu, 2011).




Electronics Lighting

Cerium X X X X
Dysprosium X X X
Europium X X X
Gallium X X X X
Germanium X X
Indium X X X
Lithium X X X
Neodymium X X X X
Praseodymium X X X X
Tellurium X X X
Yttrium X X X X

G. Gaustad et al. Resources, Conservation & Recycling 135 (2018) 24–33


results. This information was combined with current concepts within
the circular economy literature as detailed below to provide insights
about which key circularity principles were the most applicable for
firms to consider in developing mitigation plans for strategic critical
materials. Circular economy literature was reviewed and synthesized
via relevant keyword search related to sourcing materials and/or
supply chains. A wide variety of impact metrics are reported depending
on the approach of each business in quantifying improvement.

2.1. Circular economy principles

A traditional linear supply chain is often described as “take, make,
and dispose”, which refers to the activities of mining and extraction,
processing and manufacturing, and waste management and disposal. By
contrast, a circular economy aims to create a closed loop system where
resources are conserved and brought back into the life-cycle after being
used. As strategies to promote this circularity have been a fundamental
aspect of industrial ecology principles for decades, these concepts are
not new (Meadows et al., 1972). However, aspects of current circular
economy research and action can provide novel perspectives on en-
suring sustainability of industrial systems and, as will be demonstrated

in this paper, reducing material criticality risks for firms.
One of the first uses of the term “circular economy” came in 1990.

Authors Pearce and Turner modelled an economy that considered a
materials balance and adhered to the first and second laws of thermo-
dynamics (Pearce and Turner, 1990). Since this conceptual introduc-
tion, the circular economy has been defined in various ways. In the
general sense, circular economy is a solution that harmonizes economic
growth with environmental protection (Lieder and Rashid, 2015). The
Ellen Macarthur Foundation provides a more comprehensive definition:
“an industrial economy that is restorative or regenerative by intention
and design” (MacArthur, 2013). Although this definition is recent, the
concept of circularity in closed material loops is not new; nevertheless,
it continues to evolve. Circularity can be seen in many applications,
from the well-known 3R principles of reduction, reuse and recycling to
the lesser-utilized remanufacturing. In general, remanufacturing in-
volves recovering value from end-of-life (EOL) products to manufacture
like-new products, often having lower embodied energy than a com-
parable virgin product (Krystofik et al., 2015). In contrast to recycling,
where end-of-life products are broken down in some way (e.g. me-
chanically shredded) and used as the raw material in a character-
istically different product for a different purpose, remanufacturing

Fig. 2. Inflation adjusted price of cobalt and rare
earth oxides showing spike in cobalt price from
uprising (USGS, 2015).

Fig. 3. Net import reliance in the United States for several strategic and critical materials and base metals (2011–2014). Total import reliance shown above bars with fraction of total from
top importing nation shown as percentage in top importer bar (USGS, 2016).

G. Gaustad et al. Resources, Conservation & Recycling 135 (2018) 24–33


maintains the original product’s function in the same application, with
a combination of new component parts and reprocessed component
parts in the remanufactured product. A product service system (PSS)
approach (e.g. leasing) has also been promoted; it provides a less re-
source-intensive business model since the consumer would pay for a
service the product provides without taking ownership of the product.
In PSS, the manufacturer maintains the product and retains ownership
at end-of-life. The PSS approach can be combined with remanufacturing
to allow the original equipment manufacturer the ability to reprocess
previously used component parts in the production of a remanufactured
product for another product use cycle. Xerox used a PSS business model
and utilized a modular design approach for its multifunction office
machine products, which allowed customers to add a module to a base
machine in order to gain additional functionality. Xerox designers also
standardized components as much as possible across modules and
product families in order to optimize the opportunities for component
reuse. The approach allowed the company to profitably offer products
to customers with remanufactured content, and, as a result, in 1997,
Xerox was able to transform a potential disposal cost associated with
160,000 copy machines recovered from customers in Europe into a net
savings of $80 million (Maslennikova and Foley, 2000).

Governments and policy makers have made attempts to curb
growing waste streams by making industry more responsible for end-of-
life products. One example of this concept is termed extended producer
responsibility (EPR). EPR in the European Union has resulted in two
forms of product take-back, (1) collective take-back and (2) individual
take-back. Collective product take-back usually has municipalities col-
lect qualifying products that are discarded by consumers, and then the
government charges the manufacturersof these products fees associated
with collection, and additional processing (e.g. recycling). Under in-
dividual product take-back, each manufacturer is responsible for col-
lecting its own product discarded by consumers at end-of-life, and the
manufacturer absorbs all costs, but also maintains complete control of
its product (Webster and Mitra, 2007). Under collective take-back
schemes, products are typically routed to recycling operations. Under
individual take-back, each individual manufacturer can decide its profit
maximizing strategy, such as remanufacturing, or salvaging key mate-
rials for use in its own production operations, potentially easing sour-
cing for critical materials. Promoting enhanced reverse logistics systems
can provide competitive advantage to companies and help manage both
returned and end-of-life products (Jayaraman and Luo, 2007).

With rapid development in China over the last 20 years, the Chinese
government realized the implications of economic development and
environmental impacts, prompting the development of the “Circular
Economy Promotion Law of the People’s Republic of China” which took
effect in 2009 (Geng et al., 2012). While there are many concepts that

can be implemented by companies to support a circular economy ap-
proach, the field of industrial ecology advocates utilizing a systems
approach that considers material and energy flows within and outside
of the industrial system along with technology development and social
systems (Graedel and Allenby, 2010). While there are several techni-
ques (e.g. Lean Manufacturing, Total Quality Management, Lean Six
Sigma, Eco-efficiency, Dematerialization, etc.) available to manu-
facturers, the application of these techniques using the lens of industrial
ecology can address material criticality concerns in a circular economy

2.2. Firm level criticality and case study analysis

Although there are not many studies in the academic literature that
provide direct insights into how business considers materials criticality,
a few have provided general insights that firms could potentially
translate into actionable strategies (Ashby 2009; Wäger et al., 2012;
Peck 2016). (Rosenau-Tornow et al., 2009) proposes a method that
includes a systematic market evaluation with an assessment of supply
risks using time series analysis. Their method allows for comparisons of
current market conditions with past market cycles and estimates future
market trends. The authors suggest that their method provides valuable
information for identifying early stage changes in mineral raw material
markets. Notably, this method has been used by Volkswagen AG to
assess long-term trends in raw materials markets, driving the company
to increase material use efficiency as well as pursue market hedging and
long-term contracts.

Similarly, (Duclos et al., 2010; Konitzer et al., 2012) demonstrate a
methodology used at General Electric (GE) to address material criti-
cality concerns. Their method identifies materials at risk of supply
constraints or price increases and then outlines an approach to identify
the impacts such a material issue would have on GE. Since GE uses at
least 70 of the first 82 elements on the periodic table, they prioritize
which elements to assess based on the annual value of each element to
the company. The methodology then establishes five risk levels (very
high, high, medium, low and very low) for each of the following risk
assessment areas: (1) GE’s consumption relative to world supply, (2)
impact on GE’s revenue, (3) GE’s ability to substitute, (4) ability to pass
through cost increases, (5) abundance in Earth’s crust, (6) sourcing and
geopolitical risk, (7) co-production risk, (8) demand risk, (9) historic
price volatility, and (10) market substitutability. The approach uses a
blend of quantitative and qualitative means for assigning the five risk
levels to each risk assessment area. GE then uses this data to create a
criticality diagram, which is a visual tool used in most major criticality
studies (NRC, 2008; Bauer et al., 2011; Energy Critical Metals, 2011;
Erdmann and Graedel, 2011; Graedel et al., 2012; Commission, 2014)

Fig. 4. Examples highlighting sectors that rely heavily on their material supply chain for operation and profitability. (A) Percentage of industry respondents (N = 69 executives)
indicating value and weight of scarce minerals and metals in their main products as greater than 25%; adapted from (Schoolderman and Mathlener, 2011), (B) Breakdown of cost
components in the automotive sector indicating raw materials as the primary driver of cost; adapted from Automotive Engineering Partners via Market Realist (Kallstrom, 2015).

G. Gaustad et al. Resources, Conservation & Recycling 135 (2018) 24–33


to prioritize which materials they will take action on. The article
highlights a case study of rhenium, a key material used in turbines,
suggesting circular economy thinking to reduce its usage through a
“revert, recover, recycle, and reduce” approach.

Finally, (Lloyd et al., 2012) described a methodology used by Rolls-
Royce. Their methodology begins by assigning a supply risk value to the
14 critical materials identified by the European Commission 2010 re-
port (E.C, 2010). The company applies a 5 × 5 risk matrix combining
measures of likelihood and impact to business risk. The methodology
looks at the amount of the critical material used in a product, annual
volume of the critical material purchased by the company, and price
volatility of the critical material. Any material that ends up with a high
to very high likelihood and a high to very high impact, is a candidate
for investigating alternative strategies to limit the use of that material.

While some firms, like Rolls Royce and GE, have developed ad-
vanced methods of monitoring risk, most have not; nevertheless, there
is a clear need to develop strategies to deal with criticality risk. In a
2011 survey performed by Pricewaterhouse Coopers, most industry
executives recognized a need for addressing resource scarcity through
resource efficiency (75% of respondents), strategic alliances with sup-
pliers (68% of respondents), supplier diversification (67%), more re-
search & development (65%) and more reuse (64%) (Fig. 5)
(Schoolderman and Mathlener, 2011).

All the companies surveyed indicated that data information, re-
cycling technology, substitution technology and regulation were re-
quired elements of any response to mineral and metals scarcity. These
strategies can be mapped to several circular economy strategies that
may assist in helping firms to realize critical material risk mitigation.
For example, resource efficiency can be gained via application of lean
manufacturing principles and dematerialization approaches.
Diversification in supplier and supply location are two additional
techniques with strong industrial ecology and circular economy foun-
dations. Section 3 will focus on five circular economy strategies that can
be used to mitigate supply issues due to critical materials: 1) recycling,
remanufacturing, and reuse, 2) collection (e.g. reverse channels, pro-
duct take-back, extended producer responsibility), 3) lean principles
(e.g. Kaizen, six sigma, yield increases, waste reduction, enhanced ef-
ficiency), 4) dematerialization, and 5) diversity. These circularity
principles were chosen due to a) their emphasis in the circular economy
literature surveyed, b) the findings of the industry surveys detailed
above, c) the ease of their incorporation into modern business practices,
and d) their perceived potential impact on criticality issues. Each sub-
section presents examples of actions taken by firms in the private sector
and reflects on how those strategies might impact risk issues stemming
from material scarcity and criticality.

3. Strategies for mitigation based on circularity

3.1. Recycling, remanufacturing, and reuse

A key component of the circular economy is to extend the useful life
of raw materials that have already been extracted from the ecosphere.
There are several broad ways to do this. First is through reuse of a
product after its initial use is completed. Familiar examples at the
consumer level can include reusing plastic grocery bags for household
storage or repurposing empty sauce jars for drinking glasses. At an in-
dustrial level, lithium ion batteries from electric vehicles present an
interesting example. If the battery declines to 70–80% of its original
capacity, as expected, before or around the end-of-life of the vehicle as
a whole, it may still be usable for non-vehicle, stationary power storage
applications, such as grid storage or distributed renewable energy sto-
rage. However, if the vehicle expires before the battery capacity fades,
it may still be suitable for reuse in another vehicle (Richa et al., 2014).

Often, at the end of a product’s useful life, it cannot be directly
reused. In these instances, the next option is to pursue remanufacturing.
Remanufacturing involves rebuilding the product using a combination
of old, new, and repaired parts. This strategy has been employed by
Xerox in Australia to realize 3-fold reduction in lifecycle resource
consumption (Kerr and Ryan, 2001). Similarly, Hewlett-Packard (HP)
utilizes recycled plastic resins from used HP cartridge bodies such that
newly produced cartridge bodies contain more than 70% recycled
content. (Hewlett-Packard, 2012). It is possible to reuse printer car-
tridges via direct refilling to greater environmental impact reduction;
however, it has been shown that the benefit of either route is a strong
function of consumer behavior choice in terms of purchasing and
transportation to realize reuse or remanufacturing (Krystofik et al.,

Finally, in a circular economy, if a product cannot be reused or
remanufactured it is encouraged to be recycled. Recycling involves
separating individual raw materials from an integrated end of life
product to provide secondary supply. Recycling is common practice for
many major metals like aluminum, steel, and copper. Table 1 sum-
marizes end-of-life recycling rates for different regions around the
world. Expensive (e.g. platinum group metals) and highly demanded
metals (major metals: aluminum, copper, zinc, iron (steel)) offer the
most economic incentive for recycling, and therefore tend to exhibit
higher recycling rates. Conversely, many elements critical to emerging
clean technologies, such as indium, tellurium, and gallium for solar
photovoltaics and rare earths and lithium for electric vehicles, exhibit
near-zero recycling rates (Table 2). Factors driving recycling are varied
but many of these low recycling rates can be attributed to historically
lower demand, lack of infrastructure, unfavorable economics compared
to ore extraction, and dissipative use. Dissipative use refers to the fact
that very little of these metals may be included in products and
therefore it does not return into that metals lifecycle. However, in

Fig. 5. Relevant firm level strategies to this work
with percentage of survey respondents indicating
their company had some efforts in that area, adapted
from (Schoolderman and Mathlener, 2011).

G. Gaustad et al. Resources, Conservation & Recycling 135 (2018) 24–33


certain cases, despite near-zero end-of-life recycling rate, prompt scrap
is being utilized much more effectively and providing large amounts of
secondary supply. For example, indium recycling is currently negligible
from its dominant application in indium tin oxide (ITO). Nevertheless,
over 50% of global indium supply comes from secondary prompt scrap
recovery during ITO deposition, a very inefficient process (Duan et al.,
2016). Fortunately, as suggested by a Chinese case study, end-of-life
recovery from ITO in flat screen devices and thin film copper indium
gallium selenide (CIGS) photovoltaics (PV) offer potential to meet up to
24% of Chinese domestic demand by 2020; similar results can be ex-
pected in nations with similar demand for these technologies.

Each of these circularity strategies also help to mitigate criticality
concerns for materials. For example, GE utilized these kinds of circu-
larity-inspired strategies to deal with material criticality concerns for
rhenium, a key material used in turbines. The authors identified a
“revert, recover, recycle and …

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