RISK MANAGEMENT IN REVERSE SUPPLY CHAIN - General Engineering

RISK MANAGEMENT IN REVERSE SUPPLY CHAIN

A Project Report

Presented to

The Faculty of the Department of

General Engineering

San Jose State University

In Partial Fulfillment

of the Requirements for the Degree

Master of Science in Engineering

By

Sahil Salunke Milan Shah

Sarbjot Kaur Grewal

December 2009

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http://www.sjsu.edu/�

© 2009

Sahil Salunke

Milan Shah

Sarbjot Kaur Grewal

ALL RIGHTS RESERVED

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APPROVED FOR THE DEPARTMENT OF GENERAL ENGINEERING

_________________________________________________________

Dr. Wenbin Wei

Technical Advisor, Department of Aviation and Technology

College of Engineering, San Jose State University

_________________________________________________________

Dr. Tahoe Park

Industrial Advisor, Department of Organization and Management

College of Business, San Jose State University

_________________________________________________________

Dr. Leonard Wesley

Associate Professor, Department of Computer Engineering,

College of Engineering, San Jose State University

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ABSTRACT

RISK MANAGEMENT IN REVERSE SUPPLY CHAIN

By

Sahil Salunke

Milan Shah

Sarbjot Kaur Grewal

Reverse supply chain has gained recognition in recent years. Until now focus was mainly

on forward supply chain, the only difference between the two is that the link between

manufacturer, supplier, distributor and retailer is reversed. The focus of this project is to identify

the risks involved in the reverse supply chain. Survey tool is used to collect data and information

required for analysis. The methodologies that are used to identify key risks are the six sigma tools

namely Define, Measure, Analyze, Improve and Control (DMAIC), Cause and Effect, and Risk

Mapping. After the analysis the key risks are identified and the above mentioned six sigma tools

are used to developed solutions to mitigate the major risks in reverse supply chain. The project

can be applied to all types of industries. The advantage of implementation of our solution is that it

will help improve performance and reduce time. This will benefit the company by having

reduction in their cost due to uncertainties and also contribute to better customer satisfaction.

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ACKNOWLEDGEMENT

We would like to express our respect and appreciation to Dr. Wenbin Wei (Department

of Aviation and Technology) College of Engineering, San Jose State University for his

continuous support, encouragement and direction.

We would like to thank Dr. Tahoe Park. (Department of Organization and Management)

College of Business, San Jose State University for his support in achieving our goal.

We would like to thank Dr. Leonard Wesley, Associate Professor, Dept. of Computer

Engineering, San Jose State University for his suggestions and guidance throughout the ENGR

298/295B course in FALL 2009 Semester.

We would like to thank to our family members who continuously gave us an

encouragement and support.

Sahil Salunke

Milan Shah

Sarbjot Kaur Grewal

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Table of Contents

Sr. No

Description Page No

1

Introduction 1 1.1 Overview 1 1.2 Objective 2 1.3 Problem Statement 3 1.4 Hypothesis 3

2 Supply Chain Overview 4 2.1 Forward Supply Chain 5 2.2 Reverse Supply Chain 5

3

Risk Management 6 3.1 Risk management in reverse supply chain 7 3.1.1 Risk Identification 7 3.1.2 Risk Mitigation Methodologies 10 3.1.3 Proposed Methodologies 10 3.1.4 Risk Assessment 16

4

Literature Review 16 4.1 Introduction to Literature Review 16 4.2 History of Supply Chain 17 4.3 History of Reverse Supply Chain 18 4.4 Present Methodologies 19 4.5 Risk Management in Reverse Supply Chain 22

5

Economic Justification 23 5.1 Executive Summery 24 5.2 Problem Statement 25 5.3 Solution and Value Proposition 25 5.4 Market Size 26 5.5 Competitors 28 5.6 Customers 29 5.7 Cost 29 5.7.1 Variable Cost 30 5.7.2 Fixed Cost 30 5.8 Price Point 31 5.9 SWOT Analysis 31 5.10 Investment Capital Requirements 32

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5.11 Norden-Rayleigh Graph 33 5.12 Personnel 35 5.13 Business Revenue Model 36 5.14 Strategic Alliances / Partners 37 5.15 Profit and Loss Statement 37 5.16 Exit Strategy 40

6 Survey Analysis 40 7 Project Schedule 69 8 Team and Committee Members 72 9 Conclusion 73 10 References 74

11 Appendices 77 11.1 Appendix I 77 11.2 Appendix II 95

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List of Figures

Sr. No Description Page No

1 Supply Chain Network 4

2 Forward Supply Chain 5

3 Reverse supply Chain 5

4 Cause and Effect Diagram 12

5 DMAIC Layout 14

6 Financial benefits down the years after implementing solutions from SMS Consultants

26

7 Growth of SMS Consultancy up to Q7 28

8 Break-Even Analysis 33

9 Norden- Rayleigh Curve 34

10 Cumulative Distribution 35

11 P&L diagram depending on the forecasted number of customers served by SMS consultancy

39

12 Pie digram to the response to question 1 of survey form 41

13 Graphical representation of question 2 in surevey form 43

14 Bar graph showing results to question 3 in survey form 44

15 Graphical representation to results of question 4 of survey form

46

16 Pie chart to the explain table 12 47

17 Pie chart to show distribution of no of respondents to 48

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department they work for

18 Algorithm to show methods after the product is returned

19 Risk Map Model – I 61

20 Risk Map Model II 65

21 Pareto Chart 66

22 Risk Management Model 67

23 Gantt Chart 71

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List of Tables

Sr. No Description

Page No

1 Types of risk and Description 9 2 List of Potential Customers 29 3 Variable Cost 30 4 Fixed cost 30 5 Strength, Weakness, Opportunities, and Threat 32 6 Norden-Rayleigh 34 7 Profit and Loss calculation table 39 8 List of number of respondents from different sectors 41 9 List of respondents from different industries 42

10 List of Respondents to amount spend in dollars on RSC 44 11 List of respondents to question 4 of survey form 45

12 No of respondents to frequency of using risk management methods 47

13 Results to question 5 in survey analysis 48 14 Impact and occurrence scores for Strategic Risk 50 15 Impact and occurrence scores for Financial Risk 51 16 Impact and occurrence scores for Product Risk 52 17 Impact and occurrence scores for Environmental Risk 53 18 Impact and occurrence scores for Customer Risk 54 19 Impact and occurrence scores for Inventory Risk 55 20 Impact and occurrence scores for Data Management Risk 56 21 Impact and occurrence scores for Time-Management Risk 57 22 Impact and occurrence scores for Legal Risk 58 23 Impact and Occurrence score for Managerial Risk 58

24 Impact and occurrence scores for Culture Risk 59 25 Impact and occurrence scores for Technology Risk 59

x

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26 Impact and occurrence scores for Outsourcing Risk 60 27 Risk scores and dependency of risks on each other with weighted

average method 63

28 List of all the sub risks those causes key risk 64

29 List of top four risks 66

30 Recommendation table for the problems 68

31 Team and Committee members and their roles 72

[Risk Management in Reverse Supply Chain]

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1. Introduction

1.1 Overview

“The total value of products returned by consumers in the U.S. is enormous -

estimated at $100 billion annually (Blackburn et al. 2004).” Companies have to handle

the returns and decide what whether they want to refurbish, reuse or remanufacture the

returned products. There is substantial amount of risk involved in the reverse supply

chain that has to be managed by the company effectively. Risk Management in the

reverse supply chain is somewhat uncharted and immature. Most of companies are

spending time and money on improving their Forward Supply Chain Network and

ignoring the Reverse Supply Chain Network. Companies cannot afford to ignore on the

Reverse Network in today’s competitive business world, when there is both internal and

external pressure. Different firms have inimitable characteristics for Forward as well as

Reverse Supply chain. Most of the firms have developed certain tools to enumerate and

manage the risks involved in Forward Supply Chain method.

Through this project our aim is to show that the tools used for risk management in

forward supply chain can be used for reverse as well. To control the risks in reverse

supply chain strong mechanism should be developed which will increase the efficiency

by reducing risks in reverse supply chain. Reverse Logistic Trend Inc is the company

which will provide us with the relative data for consumer electronic industries. This

project will be attempted to figure out certain enumerating and managing tools

exclusively for Reverse Supply Chain method. The tools will be executed at Reverse

Logistics Trend Inc by plugging their data to exhibit the benefits of the Risk Management


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tool to the organization. To attain this objective the project will follow six steps: Map

Reverse Supply Chain network, Risk identification, Map Risk impact, Assess and

Quantify Risks, Assess and Quantify Loss, Managing risk. Various methodologies will be

provided which will help mitigate risks in the reverse supply chain that can be used

universally by all industries.

1.2 Objective

Our project work will concentrate on the risk involved in the reverse supply chain

and how will be reducing those. We will try to mainly focus on the critical thinking areas

during our research and while doing that we will be applying mathematical and

theoretical models used in forward supply chain and reducing the cost.

Reverse supply chain is an area that has a positive impact on the environment by

reducing waste and increasing resources. One of the main reasons for choosing this

project is that there is not much research done in this area. There is a lot of information

and work on forward supply chain but not much on reverse. The main focus of this

project will also be on the risks involved in reverse supply chain. To illustrate the risks

let’s take a look at an example of Nokia and Eriksson during the year 2000 when a fire

destroyed an electronics plant in New Mexico. Both the companies were supplied with

the electronic components by the same plant. Nokia fulfilled all its requirements upfront

by getting the components from other market but on the other hand Eriksson did not

react the same way and did nothing and were not prepared for any kind of uncertainty or

risk and hence suffered a major loss of $390M. This is a very interesting example to

illustrate the importance of risk management in supply chain and it encouraged and


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increased our interest in this area. (Basu.G, et al. IBM Corporation 2008)

1.3 Problem statement

Different firms have different supply chain and hence the risks involved in their

network are different. Considering huge competence within the supply chain sector

various firms are trying to focus on their reverse supply chain network, as 80% of

problems are caused due to 20% of defect (Pareto’s Principle). Cost is a major problem

which this product based firms are facing at present. Companies in United State are

trying to use various methods to minimize these risks by evaluating loop holes and hence

increasing profitability, as it is being tough for industries to survive in today’s

competitive world.

Through our research we have found few major risks that are affecting reverse supply

chain network and they are:

• Distribution Risk- Logistics

• Process Risks – Information Errors

• Input Risk – Forecasting

• Output Risks – Competition, Inventory

• Other Risks – Taxes, Environment

Analysis says that there is not much profit fringe due to strong competitive


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environment; hence risk management within the reverse supply chain network is the

only activity that can be performed

1.4 Hypothesis

After going through previous research papers at Martin Luther King Library,

going current articles on supply chain and most primary source survey we came down to

a conclusion that.

• The current reverse supply chain system in general does not have risk

management function.

• Risk management process applied in the forward supply chain system can be

used in the reverse supply chain as well.

2. Supply Chain Overview

Supply chain management in general is the process of flow of material as well as

information right from the raw material stage till the final product is made available to

customers. “It is the method that encompasses of all activates associated with the flow

and transportation of goods from the raw material stage through to the end use, as well as

the associated information flow.” (Source: Bozarth.C.C & Handfield.R.B (2006).

Introduction to Operations and Supply Chain Management, (1st Ed.)) .


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Figure 1 Supply Chain Network Weber State University, SASCM. (2009). student association of

supply chain management. Retrieved from http://organizations.weber.edu/sascm/

There are two types of supply chain networks Forward Supply Chain and Reverse Supply

Chain.

2.1 Forward supply chain (FSC)

Forward supply chain is a method that involves producer, distributor, retailer

and finally the end customer. It involves collection of raw materials, manufacturing,

assembly and distributing.

Traditional / Forward Supply Chain

SupplierManufacturer

Distributor/Wholesales/

RetailerCustomer/End user

Traditional / Forward Supply Chain

SupplierManufacturer


RetailerCustomer/End user


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Figure 2 Forward Supply Chain (FSC) (Kulkarni.D, 2004)

2.2 Reverse Supply Chain (RSC)

This process includes various activities involved to extract the used or new

products from the consumers or customers for collection, sorting, checking,

disassembly,

Reverse Supply Chain

Supplier Manufacturer


Retailer

Customer/End User

Reverse Supply Chain

Supplier Manufacturer


Retailer

Customer/End User

Figure 3 Reverse supply Chain (RSC) (Kulkarni.D, 2004)

remanufacturing, redistribution, dispose and recycling to make efficient use of the

product. The steps of reverse supply chain are – product acquisition, reverse logistics,

inspection and disposition, remanufacturing, marketing and distribution.

Steps in Reverse Supply Chain

• Acquire Product- products are obtained from users.

• Reverse Logistics- this step includes transportation of returned goods for further

inspection and disposition.

• Inspection and Disposition- inspect the returned products and after assessment

decisions are made as to the ones that can be reused and disposed.

• Remanufacturing/ Refurbishing- returned products are brought to their original

specification/ configuration.


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• Marketing and Distribution- recovered products are marketed in the market.

In the product acquisition phase products are acquired from customers through

resellers. The returned products are further shipped for further assessment such as

inspection and disposition. Returned products are inspected thoroughly to make decisions

on whether the materials need to be disposed or reused. Returned products are then

remanufactured / refurbished to their original configuration/ specification. These

remanufactured products are marketed and distributed in the market. The products that

are not used/ remanufactured are recycled. Reverse supply chain has a positive effect on

the environment as the waste and unused products and materials are brought to use. It

helps environment in becoming green and also helps companies make revenue

(Blackburn et al.2004).

3. Risk Management

Risk management is an organized/ structured approach of identifying, mitigating

and assessing/ evaluating risks to reduced losses incurred due to lack of risk management

(Tohamy 2008). It includes three steps namely risk identification, risk mitigation and risk

evaluation and assessment (Stoneburner et a1. 2002).

Risk management process involves following three steps

• Risk identification- It is the first step in risk management process which helps

identify the possible threats with respect to the system.

• Risk mitigation- It is the second step in risk management process that helps

prioritize, evaluate and implement the proposed control method to the system.

• Risk evaluation and assessment- It is the third step in risk management process


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that analyze and evaluate whether the current control process is applicable to the

system.

3.1 Risk management in reverse supply chain

The global supply chain consists of a number of risks in various stages. In the

reverse supply chain these risks / uncertainties are related to many factors such as

acquiring products from customers, returned product quality, timing etc. Further risks can

be categorized as internal risks and external risk (Goh et al. 2007). The internal risks in

reverse supply chain include financial risks, strategic risk, transportation risk etc. The

external are the ones where the system interacts with external environment such as

customer risk, laws and regulation risk etc.

3.1.1 Risk Identification

Before analyzing risks in reverse supply chain it is important to understand the

risks faced by companies in this area/ domain. This part is risk identification where we

aim on finding the risks that have an impact on the company. Risk identification is a very

important step that leads on to further assessing of problem. Now to get this idea and

understanding the tool used is survey. The reason for choosing a survey form as a tool to

collect data is that it can be sent out to a larger group of companies from various

industries Harris, Shon. (2006, April 06)

Risk identification is a process that aims at finding risks that affect the project/

department and documenting those risks and their distinctiveness/ characteristics. The

first step in this process is to develop a project management plan. This plan focuses on

mission, scope, and work breakdown structure. A Gantt chart is also made which shows


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the schedule and time constraints. Further the second step is to develop a risk

management plan. This plan addresses the what, when, where, why, who and how of

administration of risk management plan. (Elyse et.al, . (2007, February 07)).

• Individual role and responsibilities are described.

• Different categories of risks are mentioned.

• Schedule for risk management is developed and funds for risk management

department are arranged.

• The scope of the plan is defined that address to the limitation and boundaries of

assumption. Risks need to be obtained for further mitigation process.

• Factors such as environment and its effect are mentioned. Both internal and

external factors are addressed that include resources, market conditions, structure

of the organization and the cultural aspect and approach.

a) A few techniques of gather information are –

• Suggestions/ Brainstorming- here a group of members sit together and exchange

their ideas on possible risks and their effect, suggest ideas on how to find

solutions to the problem area.

• Survey- Conducting survey are finding the risks faced by different industries in

this area and their impact on the company

• Personal interviewing- This is a powerful medium of gathering information where

one can have one on one interview with people who work in this area. The main

advantage is that doubts can be resolved at the very moment of improvement.


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After all the information to the above mentioned are found, the third step in the

process is documentation of details in a well explained and detailed manner. There is a

strong need of clarity so that the idea is clear to all. The next step is identification of root

cause where the causes of risks are identified and defined. SWOT analysis is done i.e.

finding strengths, weaknesses, opportunities and threats are found that help understands

these aspects.

The main purpose of using tools and techniques in identifying risks is that it helps in

better assessing and analyzing information. Some of risks are represented below

Risk Description

Strategic risk Adverse effect of strategic implementation on the business.

Operations risk Effect of the firm’s ability to produce /supply goods and services.

Supply risk Adversely affects inward flow of any type of resources to enable

operations to take place; also termed as 'input risk'

Customer risk uncertainty of losing customers

Competitive risk not capable to differentiation your products from competitors

Legal risk Legal laws and regulations that could occur on customer or supplier

side

Financial risk Additional taxation

Reputation risk Decreasing value of company leading to lack in confidence.

Table 1 Types of risk and Description Banisalam, S. (2008).

b) Survey Tool

Survey is powerful tools that can help reach out to a larger group of people. In this

project survey plays a major role in data collection which is further analyzed and results

are obtained. The form was designed with the aim of collecting information on risks


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faced in different industries in reverse supply chain area. While framing survey question

close attention was given to details on reverse supply chain and possible risks. It took us

around a month’s time to come up with the final draft of the survey form. The survey

form is designed in a way that it is easy to understand and can be filled with no difficulty.

3.1.2. Risk mitigation methodologies

After identification of risk areas that have an impact on company, the next step is

mitigation of these risks. Risk mitigation is also known as risk reduction. The process of

mitigation involves two types of approaches, one being quantitative analysis and the

other qualitative analysis. Quantitative risk analysis is one that assigns values, number

and figures to quantify results. Probability and statistics is widely used for assessment of

this project. Results give the probability of occurrence of risks. The outcome of

performing this analysis is to obtain rational and sensible number (Harris, Shon. (2006,

April 06)). The statistical method is also used which involves numbers as well. Although

this type of analysis involves large numbers and tedious calculation the results are

accurate. It is not always possible to quantify all risks as some are not quantifiable.

Qualitative analysis involves assessing the impact and possibility of key risks and effect

on cost and performance.

3.1.3 Proposed Methodologies

After identifying the risks in reverse supply chain, solutions to these problems

will be found by using the cause and effect diagram and DMAIC. These are the tests

that will be used to validate the hypothesis.

a) Cause and Effect diagram-


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The cause and effect diagram was developed to find all possible causes

or inputs that would result in an output/ single effect. These causes/ inputs are

displayed according to their importance. Cause and effect diagram helps in

identifying areas that may have potential risks/ problems. Under reverse supply

chain major causes are:

a) Lack of information flow b) Lack of technical strategies

c) High recycling and disposition cost d) Transportation delays

e) Sorting delays f) Short product cycle

g) Damage in storage h) No proper follow-up

i) Deadlines not met j) Changing policies

k) Language barriers l) Unclear decision making process

These are a few causes whose effect on the system is found. It is essential that all

the causes are addressed upfront and they need to suit the requirement. Below is a

schematic representation of cause and effect diagram. This diagram is also known as

fish bone diagram since the drawing of it resembles the skeleton of a fish Sky Mark

Corporation, (2009).


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Figure 4 Cause and Effect Diagram. (Quality Guru. (2008, April 22). The Systems 2 win. The

Excel Template. Retrieved May 26, 2007, from (http://images.google.com/images?hl=en&q=

DMAIC&um=1&ie=UTF-8&ei=8aScSZrWGImGsQOz9_ GrAg&sa=X&oi=image_result_group

&resnum=4&ct=title)

To build flourishing Cause and Effect diagram

• Everyone needs to come to a common consensus on the problem statement

upfront.

• Be to the point

• Every node needs to have a cause associated with it.

• Follow every line of possibility and find the root cause.

• Split and further simplify complex branches

• Pay close attention to those causes that would affect investments in the future.

b) DMAIC –

This is a six sigma methodology and the abbreviation of DMAIC is Define

http://images.google.com/images?hl=en&q=%20DMAIC&um=1&ie=UTF-8&ei=8aScSZrWGImGsQOz9_%20GrAg&sa=X&oi=image_result_group%20&resnum=4&ct=title




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Measure, Analyze Improve and Control. Each one of these attributes is responsible to

ensure the best outcome. It is a system that helps bring considerable improvement in the

existing system which is going through some problem. This tool can be used when a

particular process/ product or even system is unable to meet customer requirements.

DMAIC is an acronym that is explained below in short –

• Define –

This Phase includes defining customer requirements, customer expectation,

business boundaries, and process of supply chain.

• Measure –

The performance of the process involved and this includes measuring the data

collected, different types of defects, handle customer survey to determine

shortfalls in reverse supply chain.

• Analyze –

Compare the current and past performance and analyze the differences in

variation and determine if the current process is better and find opportunities to

improve the current process.

• Improve –

Finding solutions i.e. models to fix and prevent problems.

• Control –

Here improvement to keep process in line by documenting the new plan and

implementing and monitoring the plan.


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Figure 5 DMAIC Layout. (Quality Assurance and Reliability in the Japanese

Electronic Industry (Feb, 1995) from,

http://www.google.com/search?hl=en&q=images+cause+and+effect+diagram&btnG=Search)

Detailed description of the steps followed in DMAIC Peterka, Peter. (2005, October

25).

First step: Define

In this step the group indentifies the areas where there is high risk and area that

need improvement. To be able to find a solution to a particular problem, it is important

to first define the problem appropriately. The group finds the essential attributes that

have a higher level of impact on performance and quality. Once all the measures are

http://www.google.com/search?hl=en&q=images+cause+and+effect+diagram&btnG=Search


16

defined the group makes a schedule and map of the system along with goals that need to

be attained.

Second step: Measure

In this phase the group starts by setting up an appropriate atmosphere and a valid

metrics is also established. In this phase several parameters such as the input and output

are identified and a proper metrics is used to inspect the progress of this phase. Once

objectives and measures are set the system is studied and action plan is defined and set.

Prioritization of the important risks is done and studied more carefully to identify

different ways in which this risk could affect the system. Once the causes for the risks

are determined implementation of the action plan can be thought about.

Third step: Analyze

The analyses phase is focused on the identifying causes of problems and how

appropriate solution can be obtained to these problems. It is a process where the group

tries to find ways of improving the existing system and bring it to the desired level.

Through analysis phase several improvement solutions are found and developed and the

one that fits the system the best is applied. It is not a lengthy process, in-fact it is a

quick process that helps find solutions and adds value to your system.

Fourth step: Improvement

This phase incorporates the findings from the above phase and implements

them. Once we have determined the area where there are high risks and their impact is

high, causes to these risks are identified and then finally implantation plans are

developed. The team quantifies the measures and checks when the improvement will be


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seen.

Fifth Step: Control

In the control phase the process is controlled by monitoring if the implemented

plan is followed properly. The group prepares training program and procedures that

need to be followed by the company in order to control the system.

3.1.4. Risk Assessment

Risk assessment is done on those risks that have a higher impact on business. The

unacceptably higher levels of risk that affect the organization on a larger scale need to be

reduced and controlled. For a flourishing business

• It is essential to reduce the risks that impact your company.

• It is also required that if the risk cannot be reduced the impact of it should be

limited, so it does not affect greatly.

To attain the above company needs to take certain action, one of which can be risk

avoidance. This can be done by research, i.e. making sure that the business you want to

enter does not have high risk. Do good market research and check the performance of

companies that are already into this business. This could help understand the presence of

risk. But there is negative aspect of this as most of the businesses do have certain amount

of risk. One needs to take a more optimistic approach and try to find better ways of

performing tasks and doing business. Having a risk management team could help the

company take care of the risks and they could find ways of mitigating them.

4. Literature Review

4.1 Introduction to Literature Review


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The first step to succeed in master’s project is to do research on the topic and find

out about the work that has already been done. During research it was found that there is

not much work done on Risk Involved with Reverse Supply Chain. This literature review

covers four areas: (a) History of Supply Chain, (b) History of Reverse Supply Chain, (c)

Present Methodology, and (d) Benefits. The research is limited to Risk Involved with

Reverse Supply Chain.

4.2 History of Supply Chain

Supply Chain is the system used in various firms for moving their products from

suppliers to the customers. The evolutions of the supply chain technique were first used

in 1950’s in the shipyard of Japan. Later the same system was used again in Japan by

Toyota for car manufacturing. Technique was used by the manufacturing companies to

increase their profitability, market share, and be competent. All this was done by

monitoring the cost, improving technologies, quality control, and closely observe the

network. Till date supply chain went through various phases by upgrading the system at

its different nodes throughout the network. The first phase is described as an inventory

'push era’ also called as ‘Formation era’ that focused mostly on physical distribution of

completed merchandise. In the second phase the focus was on the Electronic Data

Interchange system (EDI). The era included both increasing the benefits and reduction of

cost through integrating the network. Presently due to the fast growth of internet the

(EDI) is collaborate with Enterprise Recourse Planning system (ERP). ERP is the

technique in which all the department in the company could store and recover

information from the common database. Database of ERP includes entire data of


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Manufacturing, Supply chain management, Financial, Projects, Human recourse,

Customer relationship management, Data warehouse, Access control, and Customization.

The third era mainly focused on the expansion of this network globally and relations with

the suppliers in the global market. Supply chain management was also used in different

areas such as to the construction and energy sectors.

In today’s world the supply chain management has reduced many problems

related to the manufacturing for example, techniques used in the modern car

manufacturing requires half the human effort, space, time compared to the traditional

methods. Also it was seen that this new technique is sustainable. In the early 90’s this

technology was know by several names such as Class manufacturing, New Production

system, Lean Production. In 1998 Lean Construction was commenced in UK, this

methods gave further subdivisions to the concepts such as Just in Time (JIT) and Total

Quality Management ( TQM). Recently due to the increasing technology and cutting

edge competencies it has become to keep this network of supply chain tight and flawless.

But there is never an ideal case achieved, one can do mitigation to minimize the problems

and go nearer and nearer to an ideal case for achieving a smooth network. Hence

companies started emphasizing on both their Forward Supply Chain Network (FSCN)

and Reverse Supply Chain Network (RSCN). Focusing on their network was basically

evaluating the risk involved within the network. Lots of researches have taken place in

the FSCN area but still the RSCN were not much monitored

4.3 History of Reverse Supply Chain


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The reverse supply chain refers to the series of activities necessary to remove new

or used products from a customer for the purpose of recycling, remanufacturing, and

reusing the product (Kocabasoglu et al. 2007). Recently after analysis it was found that

there are many internal and external risks involved in the RSCN. They can be categorized

according to the impact on the network and environment.

It will mainly concentrate on the risks involved in the areas such as:

A) Strategic risk B) Supply risk

C) Operational risk D) Customer risk

E) Financial risk F) Time-Management risk

Reverse supply chain is an area that has a positive impact on the environment by

reducing waste and increasing resources. One of the main reasons for choosing this

project is that there is not much research done in this area. The main focus of this

project will also be on the risks involved in reverse supply chain. To illustrate the risks

let’s take a look at an example of Nokia and Eriksson during the year 2000 when a fire

destroyed an electronics plant in New Mexico. Both the companies were supplied with

the electronic components by the same plant. Nokia fulfilled all its requirements upfront

by getting the components from other market but on the other hand Eriksson did not

react the same way and did nothing and were not prepared for any kind of uncertainty or

risk and hence suffered a major loss of $390M. This is a very interesting example to

illustrate the importance of risk management in supply chain and it encouraged and

increased our interest in this area. (Basu.G, et al. IBM Corporation 2008)

4.4 Present Methodologies


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This research is to find out the find out the Major Risk, Minor Risk, and Key

Risk.

First method is the risk it method for managing risk. It gives an example of two

organizations that have employed this method to manage risk in their projects. With the

help of case studies and finding this paper helps understand the industrial application of

this method. The projects it focuses on are mainly on manufacturing and software

Industries. Risks are involved in all types of projects including software and an intelligent

project manager gives attention to the risks involved in the development of these projects.

But there are not many companies that apply or follow a systematic risk management

method the managers depend on luck.

This method can be applied to a many other areas such are marketing, planning etc

The second method is the risks involved in the reverse supply chain using the AHP

method which stands for Analysis Hierarchy Process. This method helps in identifying

the risk factors involved in supply chain and the ones that cause obstruction in achieving

the set objectives. It also provides a concept to increase customer value. Evaluation is the

key to identifying crucial supply chain risks and it is required that the managers be

involved in the process. This method is provides the priority hierarchy for risks which

helps decide the risks that need to be mitigated first. It also helps identify those risks

factors that have most negative impact. The APH method is comprised of four phases

Phase 1- It helps prioritize the objectives, i.e. the ones that have the most negative impact

and affect the most in achieving the final objective.


22

Phase 2- Here the risks involved in warehouse, transportation and manufacturing is

identified.

Phase 3- In this phase the ratios are evaluated. With the help of Cause and effect diagram

the manager find out the key risk aid and the effect of relationships of risks within the

organization and along the reverse supply chain.

Phase 4- Depending on the impact of risks they are termed as high risk factor, low risk

factor and medium risk factor. This is done for the easy assessment and representation.

Cause and effect relationship can also be utilized with the help of a flow chart.

The Final or Third method is COSO framework i.e. Committee on Sponsoring

Organization and their development of ERM i.e. enterprise risk management. Event

identification is a major component in ERM and it comprises of developing a list of

activities that obstructs in meeting the objective of the enterprise. This paper provides

information on how system thinking can help in identification of activities or events that

need to be measured in risk assessment. This can be obtained by developing a map on the

value chains of the organization and the second method being identification of risks that

are a threat to the

The COSO framework incorporates eight components.

• Internal environment

• Strategic objectives

• Event identification

• Risk assessment

• Risk response


23

• Control activities

• Information and communication

• Monitoring

This paper gives the COSO guidelines to apply these components in all the areas of

organizational objectives and in all levels. Further this paper also provides the steps in

system-thinking concepts which could be an alternate method.

1. Event identification

2. The systems-thinking paradigm

3. Applying systems-thinking

4. Mapping the value system

5. Identifying events

6. Using the framework

7. Summary and conclusion

4.5 Risk Management in Reverse Supply Chain

After analysis the work of Banisalam, S. (2008) we learned that researcher used

the tools that can be used for risk management of reverse supply chain. The tool that has

been proposed in this paper is easy to implement and would not cost too much. The focus

is mainly on reverse supply chain and the risks involved in it. Further the paper also gives

an overview on supply chain management, forward supply chain, and reverse supply

chain. It also discusses risk management and steps involved in details. The three steps of

risk management mentioned in the paper are risk assessment, risk mitigation, risk


24

evaluation and assessment. Each one of these steps are explained in detail by further

explaining activities under each step.

Also through our research during literature we came across work of (Froot. A.K et al

1994) which increased awareness in organizations about how organization can be

affected by risks. It also talks about how different factors affect different sectors of the

organization. It explains the concept using an example such as during 1986, the prices of

oil decreased by 50% and on the whole the energy prices also fell by 24%. The effect of

all this was on the oil company even though it was great for the economy. All this

affected the oil company which had to undergo losses because of this unavoidable risk.

The idea of this paper is to help the top management is to understand and develop risk

management strategy. It helps them give an idea that funds provided to risk department is

an investment that would help the organizations in the long run.

5. Economic Justification

The idea behind archiving the economic justification in any project is to show

benefits to potential customers in terms of finance investments. Economic Justification is

an important step in the project where cost estimation is done keeping in mind buyers and

sellers benefits. Hence our project focus was on various nodes of supply chain network in

the reverse cycle hence we decided to use survey as a tool for data collection. Through

survey we were able to find the problems in different sectors and the different industry

those sectors focused on.

Every company looks for the best solution with lowest cost possible. Cost and benefits go

hand in hand but it also depends on various other issues so application of the best solution


25

might be difficult even though it is cheaper and vice a versa. Survey gave us and wide

range of data to monitor at different steps of reverse supply chain. We narrowed our

scope to work on the risks those are involved in this cycle and try to reduce the same by

following the simple risk management step. In the past there was not much research done

in this area which was a plus to our project. Survey gave us statistical values from that we

were able to prove both our hypothesis.

Implementation our stats from reverse supply chain in to previous proved research in

forward supply chain –

• Through this project we managed to implement the data on the on the universal

risk formula which is,

• RISK (R) = IMPACT (I) * PROBABILITY OF OCCURRENCE (P)

Therefore, R = I * P --------- (1)

• We also implemented other methods such as finding weighted average, Pareto

Analysis, Analytical Hierarchy Process, and risk mapping methods.

5.1 Executive Summery

Risk management techniques play an important role in overall revenue of the company

and thus Net income. Risk management in reverse supply chain becomes more important

and logical analysis about impact and occurrence of risks involved with supply chain

activities. We at SMS consulting company in Fremont, CA, USA created a survey

questionnaire and uploaded on RLA website with the help of IT team. As a response we

have collected 79 filled surveys forms from different industry sector. We at SMS

consultant firm decided to select key risks among lots of other risks involved with reverse


26

supply chain. Our aim is not only find the key risk but also recommend best possible

solution to that particular risk. Hence by the implementation of our step by step solution,

customers will get benefits in terms of service charge and thus reducing costs that may

occur due to uncertainties in their overall supply chain activities.

Main advantage of having the risk management solution using the risk management

model and it has a small investment cost. This total investment costs consist of fixed and

variable cost. Most of the costs such as software and license costs are implied only one

time and there will be no other cost other than a training cost for the new employees.

Also, there are very few competitors present in the market. This gives an opportunity for

customers to grab benefits from our services. Hence we could clearly predict our growth

in a short span of time. Where in the year 2010, estimations of risk management solution

our market size is 20 % in first quarter with starting of 2-3 customers. By the year 2011,

estimations of risk management solutions and customers from 2 to 20 and our market size

grows by 85 %. Estimated break even can be done in first quarter of 2011 based on initial

investment around $62,800 that also divided among three partners. Finally, SMS

consulting company gives an opportunity to increase the revenue with the help of risk

management solutions.

5.2 Problem Statement

Reverse supply chain has gained lot of attention in recent years. The probability

of occurrence of uncertain risks is not considered by most of the companies. This

ignorance affects the company’s performance in various areas such as finances and

unsatisfied customers. Companies are not aware of the losses faced by them due to lack


27

of risk management strategies. This project is triggered in identifying those risks that

have a higher level of impact on the company and find ways to mitigate and control those

risks in reverse supply chain.

5.3 Solution and Value Proposition

The main focus of this project is to provide methods of mitigating key risks that

would help companies minimize losses both in terms of customer satisfaction and

finances. In addition our price for providing solutions around $5000, we will charge

according to the gravity of the problems and company policies. Our focus is first in the

Bay Area hence keeping in mind competency, culture, and company historical data we

will be providing solution as per the DMAIC steps. So our consultancy fees changes

according to those steps. With the help of the survey we were also able to increase

awareness of risk management among companies which also added value to our project.


28

Figure 6 Financial benefits down the years after implementing solutions from SMS

Consultants http://www.versionone.com/images/agile_graphs_med.gif

Above is the graph that shows the reduction of costs after implementation of risk

management. It can be seen that after the application of risk management there is a

decrease in the probability of loss as well. Hence by the implementation of our solution,

customers will benefit the companies in reducing costs that may occur due to

uncertainties.

5.4 Market Size

Benefits of our service gives an opportunity for our potential customers to take

consulting service based on financial stability of the company. In addition to that we give

a step by step process to overcome the problems that company is currently facing.

http://www.versionone.com/images/agile_graphs_med.gif


29

According to the survey, none of the company gives such kind of benefits to their

customers. Examples ARM, Research provide services to supply chain and IT executives

in the consumer products.

ARM suggests implementing software such as Enterprise Resource Planning,

Customer Relationship Management, and Business Intelligence. Implementation and

solving problems using them is easier but they are very expensive, where in small scale

companies are not willing to pay those high cost (ARM Research (About Us - 2009)).

Also, most of the software focuses on financial aspects on supply chain activities where

else our focus is on entire supply chain network. This gives an opportunity for customers

to grab benefits from our services. Hence we could clearly predict our growth in a short

span of time. This growth is plotted in the graph below, where in the year 2010,

estimations of risk management solution our market size is 20 % in first quarter. By the

year 2011, estimations of risk management solutions our market size grows by 85 %.

Customers will increase from 2 to 20 companies by 2011 and total revenue increases

from $15,000 to $105,000.


30

Figure 7 Growth of SMS Consultancy up to Q7

5.5 Competitors

Through our research we found a few companies that provide solutions only in

particular areas of supply chain network. SMS Consultants provide solutions to all the

areas of supply chain network which cover a wide range of horizon. Focus of this project

is on risks involved in the reverse supply chain but our methods also can be applied to the

forward supply chain. Hence there is no such competition to our analysis. By the year

2011, estimations of risk management solutions our market size grows by 85 % and

customers will increase from 2 to 20 companies by 2011. Risks vary from one firm to

another and hence their impact also varies. We as consultants provide solution to those

unique risks as well. This is achieved by monitoring individual company procedures

which is not done by any other company.


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5.6 Customers

The project focuses on industry wide solution; we monitor the whole reverse

supply chain procedure that includes customers, retailers, distributors, supplier and

manufacturers. Since this involves the higher authorities the solution is sold to senior

level management. It is this level of management that takes decisions on implementing

improvement strategies. Below are the types of industries that could be our potential

customers, i.e. we provide solution to all the companies under below mentioned sectors.

Against the industry types are the percentage amount of returns obtained by them.

Industry Percent

Magazine Publishing 50% Greeting Cards 20‐30% Catalog Retailers 18‐35% Electronic Distributors 10‐12% Computer Manufacturers 10‐20% CD‐ROMS 18‐25% Printers 4‐8% Mail Order Computer Manufacturers 2‐5% Mass Merchandisers 4‐15% Auto Industry (Parts) 4‐6% Household Chemicals 2‐3%

Table 2 List of Potential Customers (Source: Dr. D.S. Rogers, Dr. R. S. Tibben-Lembke,

1998)

5.7 Costs

Our solution will be provided to the existing procedures, however there could be

costs associated with implementation. SMS consultants have a research and development

team that study individual companies existing problems and provide recommendations.

Those recommendations help to create a strong risk management department to mitigate


32

and control the potential -costs problems in reverse supply chain. Cost also involves

different sub-cost estimated in fixed and variable costs.

5.7.1 Variable costs

These are costs that change with volume and units of production. SMS

consultants have several variable costs such as marketing costs, customer service and

consultancy etc.

Expenses Cost

Part Time wages $500 Marketing cost $1,000 Customer Service $500 Consultancy $2,000 Total $4,000

Table 3 Variable Cost

5.7.2. Fixed costs

This is the cost that does not vary with volume and units of production. It is a part

of initial investment that works towards building the company. Examples of sub costs

that come under these costs are simulation tool, furniture and salaries etc. Fixed costs for

the four quarters of the year 2010 are shown in the table below.

Expenses Q1 Q2 Q3 Q4

Simulation tool $15,000 0 0 0 License $6,000 0 0 0 Other Software $1,000 $1,000 $1,000 $1,000 Building Lease $5,000 $5,000 $5,000 $5,000 Furniture $3,000 2000 2000 2000 Internet $180 180 180 180


33

Communication $700 $700 $700 $700 Utilities $1,000 1000 1000 1000 Employees Salary $25,000 $25,000 $25,000 $25,000 Total $56,880 $34,880 $34,880 $34,880

Table 4 Fixed cost

5.8. Price Point

Our service is $5000 which is calculated based on our expenses and time that is

spent on individual project. The price of our service could vary according to the

criticality and amount of time required to resolve the problem. Our solution gives benefits

on DMAIC process. DMAIC basically gives an opportunity towards process

improvement and variability within the processes. Here our aim is to give solution to all

kind of risks that helps to improve entire company operations and that gives an

opportunity on overall revenue of the company. Risk management services are divided in

five stages i.e. DMAIC process.

First, we will define the risks that are associated with processes for which we

charge $300 in order to define it. Secondly, after defining the risks next stage is to

measure the parameters associated with those risks. This service costs around $ 500.

Thirdly, we analyze the problem with the help of cause and effect concepts and break

down the problem until it comes to final solution. This service costs around $ 1000.

Fourth, once we analyze the causes and effects of the problem then next step is to

implement with the recommendations provided. This service costs around $ 1500.

Finally, after implementation we monitor the process, until no further improvement is

required. This service costs around $1700.

5.9. SWOT Analysis


34

Below are the strength, weakness, opportunity and threats to SMS consultants. It is

essential for a company to know these attributes as it will help us grow and understand

areas that need to be work. Below is the SWOT analysis for SMS consultants.

STRENGTH

• Increase company competitiveness

• Reduce both time and cost

WEAKNESS

• High dependency on survey questioner

for data collection

• Solution varies for different industries

OPPORTUNITIES

• Currently working with Reverse

Logistics Inc.

• Implement Risk Management

techniques in various industries

THREATS

• Implementation due to cultural barriers

• Development of software

Table 5 Strength, Weakness, Opportunities, and Threat

5.10. Investment Capital Requirements

The SMS consultancy requires 62,800 in the first quarter. The % 60 of initial

amount invested in first quarter is equally divided among three investors Milan Shah,

Sahil Salunke, and Sarbjot Kaur Grewal. This fund will help to establish software tool,

license, furniture, lease, internet, facilities and implement sales and marketing strategies.

Further financing will be provided by bankers from next quarters. At breakeven point

SMS Technology will begin to make a profit.


35

Figure 8 Break-Even Analysis (BreakEven Point achived at Q4)

As per the breakeven analysis graph, the company generates enough revenue after

providing 20 customers by quarter six in 2011. The goal is to provide risk management

solutions to 10 companies by end of year 2010. The company will start making profit in

the first quarter of the year 2011.

5.11. Norden-Rayleigh Graph

Through Norden-Rayleigh Graph we want to show the expenses done on our project as

the time proceeds. We calculated by using probability density function formula:

V(t) = 2adtexp(-at2)

where, a ; financial cost drivers

d ; estimated total budget

t ; time


36

t d a (‐at^2) e(‐at^2 V= 2adtexp(‐

at^2) 0 0 0.1 0 1 0 1 518500 0.1 ‐0.1 0.904837418 93831.64025 2 516200 0.1 ‐0.4 0.670320046 138407.6831 3 514000 0.2 ‐1.8 0.165298888 101956.3543 4 526000 0.2 ‐3.2 0.040762204 34305.47087 5 533000 0.2 ‐5 0.006737947 7182.651501 6 536000 0.3 ‐10.8 2.03995E‐05 39.36288178 7 540000 0.3 ‐14.7 4.12925E‐07 0.936513768 8 542500 0.3 ‐19.2 4.58718E‐09 0.011945021 9 551500 0.4 ‐32.4 8.48904E‐15 3.37083E‐08 10 571500 0.4 ‐40 4.24835E‐18 1.94235E‐11 11 571500 0.4 ‐48.4 9.55316E‐22 4.80448E‐15 12 571500 0.4 ‐57.6 9.65246E‐26 5.29572E‐19

Table 6 Norden-Rayleigh

Figure 9 Norden- Rayleigh Curve


37

Figure 10 Cumulative Distribution

5.12. Personnel

Since this is a startup company there are not many personnel’s involved. There are three

partners with equal shares namely Milan Shah, Sahil Salunke and Sarbjot Kaur Grewal.

Financial Executive- Milan Shah is the financial executive who deals with the flow of

funds. He is responsible for all the transactions within the company. He has to ensure that

both assets and liabilities are equal.

Strategic Manager- Sahil Salunke is the strategic manager who is responsible for taking

all strategic decisions and makes upper management decisions. Will be closely working

with Risk Management Analyst, whose responsible is to analyze and assess all steps of

reverse supply chain. He/she also does research on finding ways of mitigating risks and

constantly report to Sahil Salunke.

Planning and Operations Manager- Sarbjot Kaur Grewal is the planning and operations


38

manager who ensures and plans all the operational procedures. She is responsible for

successful accomplishing all tasks related to operations. Logistics Operations Supervisor

& Transportation Supervisor, are responsible for all logistics operations to ensures the

successful accomplishment of transportation and shipment and will report to Sarbjot Kaur

Grewal.

Lastly all the three executives of the company will be reported by Supply chain

engineers, who are responsible for successful completion of all supply chain operations

and tasks.

5.13. Business and Revenue Model

These are three revenue models for my project

1. Revenue from banner advertising

Banner advertising is most useful and necessary steps towards revenue generation.

Advertising helps to understand the customers’ requirement for different situation. It also

helps to provide service to potential customers in different sectors

2. Revenue from networking

Our solution can help to business to business and business to consumer. Here there are

many services which we could deliver the solution strategy through networking. It helps

to increase potential customers to choose our services

1. Use data base

2. Participate in discussion form

3. Actively involved in Industry related articles

4. Organize event


39

5. Use blog to get more information about industries

3. Internet advertising

One of the most distinct advantages of internet advertising is spread the knowledge and

service over the globe. The internet advertising creates an opportunity to provide business

intelligence to potential customers. B2B and B2C help to sell service over an internet and

thus increase the revenue of the company Ruparel, Swana. (Producer). (2008).

5.14 Strategic Alliances / Partners

Our team will work together as a whole and do not intend to have partnership with others.

5.15. Profit and Loss Statement

The company profit and loss between the year 2010 to 2011 is forecasted shown

in table Corresponding revenue and expense forecast are shown in Fig .

Expenses Q1 Q2 Q3 Q4

Simulation tool $15,000 0 0 0 License $6,000 0 0 0

Other Software $1,000 $1,000 $1,000 $1,000 Building Lease $5,000 $5,000 $5,000 $5,000

Furnitures $3,000 2000 2000 2000 Internet $180 180 180 180

Communiction $700 $700 $700 $700 Utilities $1,000 1000 1000 1000

Employees Salary $25,000 $25,000 $25,000 $25,000 $56,880 $34,880 $34,880 $34,880

Variable Cost -

Expenses Cost


40

Part Time wages $500

Marketing cost $1,000

Customer Service $500

Consultancy $2,000

Total $4,000

Total expense = Fixed cost + total variable Cost

For example, in First quarter 2010, 56,800 + 4000 = $62,880

Total variable cost = no. of customers served * variable cost.

4000 = 2*2000

Quarter

Number

of

customers

Fixed

Cost

Variable

cost

Total

Variable

cost

Total

cost

Total

Revenue Profit/Loss

Q1 (2010) 2 $56,880 2000 4000 $62,880 15000 ($47,880)

Q2 (2010) 5 $34,880 1500 7500 $43,880 30000 ($13,880)

Q3 (2010) 7 $34,880 2000 14000 $50,880 40000 ($10,880)

Q4 ( 2010) 10 $34,880 2000 20000 $56,880 55000 ($1,880)

Q1 (2011) 15 $34,880 2000 30000 $66,880 80000 $13,120


41

Q2 (2011) 20 $34,880 1400 28000 $64,280 105000 $40,720

Table 7 Profit and Loss calculation table

Profit/loss = Total Cost – Total

Revenue

Figure 11 P&L diagram depending on the forecasted number of customers served by

SMS consultancy.

5.16. Exit Strategy

There are always chances of getting fewer customers than expected. Hence every

company should have a contingency plan ready. Thus failure may occur during any point

of the business but one should be ready for them. Break-even point achieved earlier is

always better. Our company’s break-even point might affect only if number of customers

decrease.

Following are the exit strategies in case of uncertainty that includes

1. Outsource some of the problems so our operational cost would reduce. Thus

service charge per risk would be reducing.


42

2. We also look for other Industries other than electronics consumer industries.

3. We will ask for other bankers to land some money

4. We will change our marketing strategies

5. We will employ good marketing analyst

6. Survey Analysis

1. What type of sector is your company mainly focused in? Please select all that are

applicable?

The aim of this question is to identify what sector or area is the company focused

on. After the obtaining feedback from various companies in the Bay Area, our

estimation was 24.05 % of manufacturers, 17.72 % were supplier and 15.19 %

were distributors. These three were higher than others. Below is the table of our

estimation based on the survey received.

No of Respondents Percentage

Supplier 14 17.72

Manufacturer 19 24.05

Wholesaler 11 13.92

Distributor 12 15.19

Retailer 8 10.13

Third Party Service provider 15 18.99


43

Total 79

Table 8 List of number of respondents from different sectors

Figure 12 Pie digram to the response to question 1 of survey form

2. Which sector of industry your company works in?

The aim of this question was to gather information on which type of industry is

the company focused on. The reason to understand this aspect was to learn the

risks faced by different companies in different industries. The result of our

analysis is shown below. It can be seen that majority of respondents were from

computer parts which had a percentage of 32.91, consumer electronic had a

percentage of 30.38 and pharmaceutical had a percentage of 26.58.


Consumer Electronics 24 30.38

Food Products 7 8.86


44

Chemical 1 1.27

Computer Parts 26 32.91

Pharmaceutical 21 26.58

Automobiles 0 0.00

Aerospace 0 0.00

Total 79

Table 9 List of respondents from differenct industries

Figure 13 Graphical representation of question 2 in surevey form

3. How much dollar does your company spend annually on the Reverse Supply

Chain?

The aim of this question was to find how much funds are spent on reverse supply

chain annually. After receiving the feedback it was seen that the response data


45

was $1 million or less. Using statistical analysis we found that the mean was

11.28 and standard deviation is 18.50

Calculation: Mean (X) =

Summation of respondents for each revenue category / n

(33+23+19+4+0+0+0)/7 = 11.28

Standard deviation formula:

√ [n ∑X2 – (∑X)2]/n (n-1)

= √ [7(1089+529+361+16)-127.23/7(7-1)

= 18.15


$1 M or Less 33 41.77

$2 to $5M 23 29.11

$5 to $10 M 19 24.05

$10 to $30M 4 5.06

$30 to $50 M 0 0.00

$50 to $100M 0 0.00

$100 to $300M 0 0.00

Total 79

Table 10 List of Respondents to amount spend in dollars on RSC


46

Figure 14 Bar graph showing results to question 3 in survey form

4. Do you think that tools/software used to reduce the forward supply chain risks

could be used for reverse SCM?

This question was been designed to help us prove / support our hypothesis that states

“Tools used to identify the risks faced in forward supply chain can be used for reverse

supply chain as well”. The result table shown below says that about 39% of respondents

gave a neutral answer, where as 33% of respondents agreed. But out of those 33%

respondents not all have applied similar tools, only 5% of them have actually applied it.


47


Strongly Agree 0 0.00

Agree 26 32.91

Neutral 31 39.24

Disagree 22 27.85

Strongly Disagree 0 0.00

Total 79

Table 11 List of respondents to question 4 of survey form

Figure 15 Graphical representation to results of question 4 of survey form

5. How often does your company perform Risk Management tasks?

Risk management being our main focus we are keenly interested in answer to this

question. The response was not as expect because only 26 % responded to this question

which helps us understand that not many companies apply risk management in their


48

organization. Among the ones who responded said that 10.13 % perform risk

management on monthly basis.


Daily 0 0.00

Weekly 0 0.00

Monthly 8 10.13

Quarterly 6 7.59

Half-Yearly 2 2.53

Bi-Yearly 5 6.33

Total 21

Table 12 No of respondents to frequency of using risk management methods

Fiure 16 Pie chart to the explain table 12

6. What functions of your company do you think have been affected by not applying Risk


49

Management?

The aim to ask this question was to understand the areas/ domains that were affected due to lack of

applying risk management. The feedback gave us an idea that risk management has a huge impact on

finance area, quality and product design. Hence these are the areas that need close attention as lack of

concentration in this area can lead to major loss. And since this area this is very sensitive we decided to

focus on these key risks.

Figure 17 Pie chart to show distribution of no of respondents to department they work for


Marketing 8 11.43

Finance 16 22.86

Information Technology 11 15.71

Production 9 12.86

Quality 14 20.00

Product Design 12 17.14


50

Total 70

Table 13 Results to question 5 in survey analysis

6. What are the reverse supply chain activities in your company that are taken care,

once product returns

After analysis it was seen that mostly all the companies have similar principle/

procedure for returns. Below is the algorithm of returned products.

Figure 18 Algorithm to show methods after the product is returned

9. List of potential risks which may occur when companies get returns from customers,

distributors, and retailers.


51

Below mentioned are risks that are going to be considered as major risks according to

our research. In the survey form, companies were asked to scale these risks on a scale of

1 to 10 (1 being lowest and 10 being highest). They were asked to rate the impact and

occurrence of possible problems under these risks. Below are the results that shows to

different types of risks with their impact and occurrences after survey

A. Strategic Risk

From Survey

Impact Occurrence

Lack of information flow to support RSC strategies (1) 7 7

Lack of strategy in technically and environmentally

feasible disposition (2) 8 5

Lack of strategy focused on attaining reduction in cost

(3) 6 5

Lack of strategy focused in reducing returns (4) 5 6

Total 26 23

Average 6.5 5.75

Table 14 Impact and occurrence scores for Strategic Risk


52

B. Financial Risk

From Survey

Impact Occurrence

Additional Expense (5) 7 6

High cost to repair and deliver back to customers(6) 8 6

Extend warranty coverage on demand of customers (7) 6 8

High cost for recycling (8) 7 7

High cost for disposal (9) 5 8

Overhead cost (10) 6 8

Total 39 43

Average 6.5 7.17

Table 15 Impact and occurrence scores for Financial Risk


53

C. Product Risk

From Survey

Impact Occurrence

Longer time for replacement (11) 7 5

Unavailability of replacement components (12) 6 5

Short Product Life Cycle (13) 5 5

Product Liability once products are returned

from customers. (14) 3 4

Maintenance of return products. (15) 6 5

Total 27 24

Average 5.4 4.8

Table 16 Impact and occurrence scores for Product Risk


54

D. Environmental Risk

From Survey

Impact Occurrence

Damage to the environment (16) 5 7

Social responsibility (17) 3 5

Resistance from local community(18) 4 5

Total 12 17

Average 4 5.67

Table 17 Impact and occurrence scores for Environmental Risk


55

E. Customer Risk

From Survey

Impact Occurrence

Unable to provide repair service (19) 6 6

Customer demand is too high (20) 5 6

Difficulties in Negotiation with the customers (21) 4 5

Improper communication between company and

transportation agencies such as UPS/USPS/ FED EX etc.

that adversely affect customers.(22) 5 4

Slow response to the customer request (23) 6 5

Lack of Technical Support (24) 4 4

Difficult to trace the status of the return product service

(25) 4 6

Total 34 36

Average 4.86 5.14

Table 18 Impact and occurrence scores for Customer Risk


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F. Inventory Risk

From Survey

Impact Occurrence

Poor inventory handling (26) 5 3

Storage problem in terms of space, storage conditions, damaged

products etc (27) 6 4

Increased in-stock inventory (28) 6 5

Damage in Storage(29) 6 3

Obsolete Goods(30) 7 2

Poor Volume Management (31) 6 4

Damage in transportation (32) 6 3

Total 42 24

Average 6.00 3.43

Table19 Impact and occurrence scores for Inventory Risk


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G. Data Managing Risk

From

Survey

Impact Occurrence

Unable to fulfill customer needs due to incorrect data (33) 6 4

No proper information/ documents internally (34) 6 3

Customer information lost (35) 4 3

RSC data base information was not updated, which affects

customer relations(36) 5 4

Total 21 14

Average 5.25 3.5

Table 20 Impact and occurrence scores for Data Management Risk


58

H. Time Management Risk

From Survey

Occurrence Impact

No proper follow up (37) 6 7

Not paying attention to details in the starting stages(38) 7 6

Deadlines not met (39) 6 6

Transportation delays (40) 5 5

Less Manpower (41) 5 5

Return Order Process delays(42) 5 6

Sorting delays (43) 4 4

Total 38 39

Average 5.43 5.57

Table 21 Impact and occurrence scores for Time-Management Risk


59

I. Legal Risk

From Survey

Impact Occurrence

Different rules and regulations of trading in globally (44) 5 5

Unclearly defined legal policies (45) 4 2

Changing policies (46) 4 5

Total 13 12

Average 4.33 4.00

Table 22 Impact and occurrence scores for Legal Risk

J. Managerial Risk

From Survey

Impact Occurrence

Lack of conflict management (47) 3 3

Lack of upper management involvement (48) 4 3

Lack of expertise and experience in RSC (49) 4 4

Lack of contingency plan (50) 5 5

Lack of understanding individual authorities and

responsibilities (51) 3 3


60

Unclear decision making process(52) 4 5

No standardization process and procedure (53) 5 2

Total 28 25 Average 4 3.57

Table 23 Impact and Occurrence score for Managerial Risk

K. Cultural Risk

From Survey Impact Occurrence Resistance to apply new methodologies(54) 4 1Language barriers(55) 5 3Resistance to change (56) 4 2Different customs (57) 3 2Total 16 8Average 4 2

Table 24 Impact and occurrence scores for Culture Risk

L. Technology Risk

From Survey

Impact Occurrence

Lack of the use of new technologies (58) 5 3

No Reverse Logistics department information on company’s website

(59) 1 5

Inefficient Reverse Logistics Information Systems (60) 3 3

Loss of Key Technical Persons(61) 6 3


61

Lack of technical education and knowledge (62) 4 4

Lack of research on Reverse Supply Chain (63) 6 7

Total 25 25

Average 4.17 4.17

Table 25 Impact and occurrence scores for Technology Risk

M. Outsourcing Risk

From Survey Impact Occurrence Inadequate Terms & Conditions of Contract (64) 6 3 Partner's Poor Service Quality (65) 4 4 Partner's Poor Experience & Skills (66) 5 4 Partner's Poor Communication with Your Company (67) 5 5 High Dependence on Partners (68) 4 4 Cultural difference between Your company and a Partner Lack of trust (69) 2 6 Unknown hidden cost (70) 5 2 Errors introduced by third party involved such as UPS, FED EX (71) 4 2 Total 35 30 Average 4.38 3.75

Table 26 Impact and occurrence scores for Outsourcing Risk


62


63

Figure 19 Risk Map Model – I


64

From Survey Risk

Scor

es

After applying

Risk

Management

Risk

Scor

es

Differe

nce in

risk

score

Weigh

ted

averag

e

Percent

atge

decreas

e in

risks

Potential

Risks

Imp

act

Occurre

nce

Imp

act

Occurre

nce

Strategic

Risk

6.50 5.75 37.3

8

6.00 5.50 33.0

0

4.38 0.10 10.24

Financial

Risk

6.50 7.17 46.5

8

5.83 6.83 39.8

2

6.76 0.16 15.83

Product

Risk

5.40 4.80 25.9

2

5.00 4.40 22.0

0

3.92 0.09 9.17

Envirom

ental

Risk

4.00 5.67 22.6

8

3.67 5.00 18.3

5

4.33 0.10 10.13

Customer

Risk

4.86 5.14 24.9

8

4.43 5.00 22.1

5

2.83 0.07 6.62

Inventory

Risk

6.00 3.43 20.5

8

5.43 3.29 17.8

6

2.72 0.06 6.35

Data

Manage

ment

5.25 3.50 18.3

8

4.75 3.25 15.4

4

2.94 0.07 6.87


65

Risk

Time

Manage

ment

Risk

5.57 5.43 30.2

5

5.14 5.14 26.4

2

3.83 0.09 8.95

Legal

Risk

4.33 4.00 17.3

2

3.67 3.67 13.4

7

3.85 0.09 9.01

Cultural

Risk

4.00 2.00 8.00 3.50 2.00 7.00 1.00 0.02 2.34

Manageri

al Risk

4.00 3.57 14.2

8

3.57 3.43 12.2

5

2.03 0.05 4.76

Technolo

gy /

System

Risk

4.17 4.17 17.3

9

3.83 3.67 14.0

6

3.33 0.08 7.80

Outsourc

ing Risk

4.38 3.75 16.4

3

4.30 3.63 15.6

1

0.82 0.02 1.91

Total 300.

15

257.

42

42.73 1.00


66

Table 27 Risk scores and dependency of risks on each other with weighted average

method.

Problems Impact Occurrence Problems Impact Occurrence 1 7 7 41 5 5 2 8 5 42 5 6 3 6 5 43 4 4 4 5 6 44 5 5 5 7 6 45 4 2 6 8 6 46 4 5 7 6 8 47 4 1 8 7 7 48 5 3 9 5 8 49 4 2 10 6 8 50 3 2 11 7 5 51 3 3 12 6 5 52 4 3 13 5 5 53 4 4 14 3 4 54 5 5 15 6 5 55 3 3 16 5 7 56 4 5 17 3 5 57 5 2 18 4 5 58 5 3 19 6 6 59 1 5 20 5 6 60 3 3 21 4 5 61 6 3 22 5 4 62 4 4 23 6 5 63 6 7 24 4 4 64 6 3 25 4 6 65 4 4 26 5 3 66 5 4 27 6 4 67 5 5 28 6 5 68 4 4 29 6 3 69 2 6 30 7 2 70 5 2 31 6 4 71 4 2 32 6 3


67

33 6 4 34 6 3 35 4 3 36 5 4 37 6 7 38 7 6 39 6 6 40 5 5

Table 28 List of all the sub risks those causes key risk


68

Figure 20 Risk Map Model II


69

Risks Current After

Implementation Financial 46.58 39.82Strategic 37.38 33Time Management 30.25 26.42Product 25.92 22

Table 29 List of top four risks

Figure 21 Pareto Chart to show four key risks.


70

Figure 22 Risk Management Model


71

Table 30 Recommendation table for the problems


72

7. Project Schedule


73


74

Figure 23 Gantt Chart


75

8. Team and Committee Member

Table 31 Team and Committee members and their roles


76

9. Conclusion

The idea behind working on this project was to make aware all the industries that

verse supply chain increase their losses.

pacts of these risks are and their occurrences can be minimized or even nullified.

ing survey with different industrial sectors helped us to gather the information of

ject. Were in after collecting the survey we were able to identify the risks,

the bases of the damage to the company they caused,

depending on the company background the analysis part varied which was seen after

using the risk mapping techniques, after using cause and effect techniques we were able

to perform improvement step were in recommendations were provided on bases of

gravity and type of problem, and lastly in the controlling part we monitored.

Hence according to our hypothesis we were able to show that the techniques used to

identify risk in forward supply chain can be used to find risks in the reverse supply chain.

As the cause and effect method, risk mapping method, DMAIC. Also After the survey

collection it was clearly seen that companies are not concentrating on the reverse supply

chain and the risks involved in the same.

Benefits using our solutions are as follows:

• Companies can monitor their risks in reverse supply chain.

• Minimize losses which indirectly maximize working finances.

• Survive the strong competencies

• Avoid using expensive software

neglecting the risks involved behind the re

Im

Perform

various risks and their root causes. We were able to apply DMAIC techniques to our

entire pro

measure their intensity on


77

• Get recommendation for managing risks in all the areas of supply chain loop.

10. References

• Anne Zieger. Reverse logistics: The new priority? Frontline Solutions, Duluth,

Nov 2003, Vol 4, Issue 11, Paination (20-24)

• Edward J. Marien. Reverse Logistics as Competitive Strategy, Reprinted with

permission from Supply Chain Management Review, spring 1998. Copyright ©

ation.

stics system. Computimes, 2* Edition, Oct

ndfield.R.B (2006). Introduction to Operations and Supply

ems 2 win. The Excel Template.

ie=UTF-

1998 by Cahners Business Inform

• Mark Weaser. Benefits of reverse logi

30, 2003. New Straits Times, Kuala Lumpur, Pagination: 19

• Bozarth.C.C & Ha

Chain Management, (1st ed.). Pearson Eduction Inc and Dorling Kindersley

Publishing Inc.

• Banisalam, S. (2008). A Risk Management Tool for Supply Chain network.

California Polytechnic State University. 2-36.

• Quality Guru. (2008, April 22). The Syst

Retrieved May 26, 2007, from

http://images.google.com/images?hl=en&q=DMAIC&um=1&

8&ei=8aScSZrWGImGsQOz9_GrAg&sa=X&oi=image_result_group&resnum=

4&ct=title

• Quality Assurance and Reliability in the Japanese Electronic Industry (Feb,

es+cause+and+effect+diagram&

1995) from,

http://www.google.com/search?hl=en&q=imag


78

btnG=Search

• Basu, G et al. (2008). Supply C

Act. IBM Global Business Service. 6 (1-28)

• Kulkarni,D (2004). Study Reverse Logistics Management Practices and Trends

In house Vs

hain Risk Management: A Delicate Balancing

Outsource. Project Report from San Jose State University.

arch 29th, 2007

tober 13-14, 2003, Singapore

esearch

• Lam, J (2007) .View from the Top: The Role of the Board in ERM. ERM

Symposium.M

• Universal Network Intelligence, Enterprise-wide Risk Management 2-Day

Workshop, Oc

• Hetamsaria, N (2005,12,27). Why is risk management important? Rediff India

Abroad.

• Dimitrios Vlachos, Rommert Dekker. Return handling options and order

quantities for single period products. European Journal of Operational R

151 (2003) 38-52, available online at www.sciencedirect.com

• How to Advance In The Reverse Channel. Material Handling Management, May

rticle.asp?strArticleId=106448&str

issue, Part 1 in a series

http://www.totalsupplychain.com/ASP/viewA

Site=TSCSITE

• Li-Hsing Shih. Reverse logistics system planning for recycling electrical

1) 55–appliances and computers in Taiwan. Conservation and Recycling 32 (200

72


79

• Marco Serrato, Sarah M Ryan, and Juan Gaytan. Characterization of Reverse

Logistics Networks for O

Manufacturing Systems Engineering. Iowa State University, Ames, Iowa, USA.

• Weber State Uni

utsourcing Decisions. Department of Industrial &

versity, SASCM. (2009). student association of supply chain

management. Retrieved from http://organizations.weber.edu/sascm/

• Harris, Shon. (2006, April 06). Nformation risk management: defining the scope,

methodology and tools. Retrieved from

http://searchsecurity.techtarget.com/tip/1,289483,sid14_gci1178861,00.html

• Elyse, PMP, CPHIMS , . (2007, February 07). Risk identification. Retrieved from

http://www.anticlue.net/archives/000816.htm

• SkyMark Corporation, . (2009). Cause & effect diagram. Retrieved from

http://www.skymark.com/resources/tools/cause.asp

• Peterka, Peter. (2005, October 25). The Dmaic method in six sigma. Retrieved

from http://www.buzzle.com/editorials/10-24-2005-79640.asp

. • Ruparel, Swana. (Producer). (2008). Erc / portal based revenue models [Web]

Retrieved from http://www.slideshare.net/sawanr/portal-based-revenue-models-

presentation

• Froot, Kenneth. (1994, December). A Framework for risk management. H

Busniess Review, 91-102.

arverd

http://organizations.weber.edu/sascm/






80

11. Appendices

I

+++++++++++++++++++++++++++++++++++++++++

eneral Report

utput from Microsoft Word 97 2003 Doc

ate:

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Senario: Normal

++++++++++++++++++++++++++++++++++++++++++

11.1 Appendix

++++++++++++++++++++++++++

G

O

D

++++

++++++++++++++++++++++++++

ear Sir/Madam,


81

We are graduate students at San Jose State University in San Jose, California, USA working on a research project in Risk Management in Reverse Supply Chain under the supervision of Dr. Taeho Park from the department of Organization and Management – College of Business. We are working on this project in association with Reverse Logistics Trends, Inc. an Afterm ket Supply Chain Association.

Your assistance is critical to understanding Risk involved in the Reverse Supply Chain Network and the majors carried out to mitigate those risks by the companies you represent. Please complete the attached questionnaire and return it in the enclosed envelope at your

ience. If you are unable to complete the questionnaire, please forward it to the appropriate person within your organization.

Yes” in

. Your apid response is critical to completing this research. Thank you again

ahil Salunke Milan Shah Sarabjot Kaur Grewal 408-667-9392 408- 528-5028 559-630-0475

ar

earliest conven

All responses will be kept strictly confidential. Only the research teamwill view any of the raw data. No company data will be identified. Should you have any questions, please call us at (408) 667-9392. If you wish to receive the copy of survey results please indicate “the questionnaire. We sincerely appreciate your help in filling out this questionnairerfor your kind assistance. Sincerely,

S

[email protected] [email protected] [email protected]

Survey Questionnaire


82

Employee Name: _________________________________________________________

Job Title: _______________________________________________________________

__

ivision: _______________________________________________________________

ity: _____________________State: _______Zip: _________ Country: _____________

Telephone: ______________________

‐mail Address: __________________________________________________________

c) Wholesaler [ ] d) Distributor [ ]

e) Retailer [ ] f) Third Party Service Provider [ ]

) Others: ___________________

a) Consumer electronics [ ] b) Food Products [ ]

c) Chemicals [ ] d) Computer Parts [ ]

g) Aerospace [ ] h) Others: _________________

Company Name: _______________________________________________________

D

C

________

E

1. What type of sector is your company mainly focused in? Please select all that

are applicable?

a) Supplier [ ] b) Manufacturer [ ]

g

2. Which sector of industry your company works in?

e) Pharmaceuticals [ ] f) Automobiles [ ]


83

3. How much dollar does your company spend annually on the Reverse Supply Chain?

b) Over $50 to $100 Million [ ]

c) 0 to $300 Million [ ]

0 Million [ ]

[ ]

4. What is the percentage of product return annually across all products?

____

plement Risk Manage

controlling/monitoring risks? Yes [ ], No [ ]

A) If Yes,

i) Does your company use Risk Management software/ tools in RSC? Yes [ ], No [ ]

a) If yes, which Risk Management software/ tools do you use in RSC?

_______________________________________________________

b) Do you think that tools/software used to reduce the forward supply chain risks can

Strongly Agree [ ] Agree [ ] Neutral [ ] Disagree [ ]

Strongly Disagree [ ]

ii) Does your company have a Risk Management team/department?

a) $1 Million or Less [ ]

Over $2 to $5Million [ ] d) Over $10

e) Over $5 to $10Million [ ] f) Over $3000 to $50

g) Over $10 to $30Million [ ] h) Over $500 to $1 Billion

_____________ %

5. Does your company im ment for identifying/assessing/

be used for reverse supply chain management?


84

Yes [ ], No [ ]

iii) How often does your company perform Risk Management tasks?

[ ] Daily [ ] Weekly [ ] Monthly [ ] Quarterly

[ ] Half‐yearly [ ] Yearly [ ] Bi‐Yearly

iv) Does your top

[ ]

e [ ]

entation

(

( __________

(3) ____________________________________________

(4) ____________________________________________

(5) ____________________________________________

vi) Please list some problems that may have occurred during the Risk Management

Implementation

management support the Risk Management tasks?

Strongly Agree [ ] Agree [ ] Neutral [ ] Disagree

Strongly Disagre

v) Please list some benefits obtained after Risk Management Implem

1) ____________________________________________

2) __________________________________

(1) ____________________________________________


85

(2) ____________________________________________

(3) ____________________________________________

(4) ____________________________________________

(5) ____________________________________________

vii) After the application of risk management in RSC operations, how much percent do you think

y has improved followings:

ii) When will your company implement Risk Management?

[ ] in 1 year, [ ] in 2 years, [ ] no plan yet.

iii) Please list some problems that you think might have occurred without Risk

Mana

(1) ____________________________________________

your compan

a) Cost _______________ %

b) Frequency of problem occurrences ______________ %

c) Overall performance of RSC operations ___________ %

B) If No,

i) Have you heard about Risk Management (RM)?

Yes [ ], No [ ]

gement Implementation


86

_____ __________________________

___ ____

(2) _____ ________

(3) ____________________________________________

(4) ______________ ________________ _______

(5) ____________________________________________

6. What are Reverse Supply Chain activities in your company that are taken care once product returns? Put [√] in the respective columns

a) Inspection [ ]

b) Sorting [ ]

c) Testing [ ]

d) Re-distribution [ ]

e) Refurbish / Repair [ ]

f) Remanufacture [ ]

g) Recycle [ ]

h) Disposal [ ]

Please mention if any other activities are performed

……………… ………………………………………………………………….. …

…………………………………………………………………………………………

7. How much do you think the application of risk management in RSC will affect the

following area? Please answer in the range of 0‐5, where 0‐ NONE,

1‐ LOWEST and 5‐ HIGHEST.

a. Sales _________


87

b. RSC Cost _________

c. Customer Satisfaction __________

8. What functions of your company do you think have been affected by the

application of Risk Management? Please answer in the range of 0‐5, where 0‐

T

b. Finance __________

c. Information Technology ___________

d.

e. Quality ___________

f. Product Design __________

8. The following is a list of potential risks which may occur when companies get

returns from customers, distributors, and retailers. How would you scale the

ale of 1 to 10, 1 being lowest and 10 being

risks that are not listed below.

a) Strategic Risk

No IMPACT OCCURRENCE

NONE, 1‐ LOWEST and 5‐ HIGHES

a. Marketing __________

Production ___________

impact and occurrence on the sc

highest? Also please add the

REASONS

1 Lack of information flow to support RSC

strategies


88

2 Lack of strategy in technically and

environmentally feasible disposition

3 Lack of strategy focused on attaining

reduction in cost

4 Lack of strategy focused in reducing returns

5

6

b) Financial Risk

No. REASONS IMPACT OCCURRENCE

1 Additional Expense ( e.g. custom

clearance, staff, facility and

quipment to collect data, and

Transportational damage etc)

e

2 High cost to repair and deliver

back to customers

3 Extend warranty coverage on

demand of customers

4 High cost for recycling


89

5 High cost for disposal

6 Overhead cost

7

c) Product Risk

No. REASONS IMPACT OCCURRENCE

1 Longer time for replacement

2 Unavailability of replacement

components

3 Short Product Cycle

4 Product Liability once products

d from customers.

are returne

5 Maintenance of return

products.

6

7

d Environm

No. IMPACT OCCURRENCE

) ental Risk

REASONS


90

1 damage to the environment

2 Social responsibility

3 Resistance from local

ommunity

c

4

e) Customer Risk

. IMPACT E No REASONS OCCURRENC

1

service

Unable to provide repair

2 is too high Customer demand

3 lties in Negotiation with

the customers

Difficu

4 Improper communication

between company and

transportation agencies such

as UPS/USPS/ FED EX etc. that

adversely affect customers.

5 Customer waited so long while

calling to RSC


91

6 Slow response to the

customer request

7 Lack of Technical Support

8

expense.

Customer is not informed

about any damage recovery

and additional

9 Difficult to trace the st

the return product

atus of

service

10

11

f) Inventory Risk

o REASONS IMPACT OCCURRENCE N

1 Poor inventory handling

2 Storage problem in terms of


92

space, storage conditions,

damaged products etc

3 Increased in‐stock inventory

4 Damage in Storage

5 Obsolete Goods

6 Poor Volume Management

7 Damage in transportation

8

9

g) Data Managing Risk

No REASONS IMPACT OCCURRENCE

1 Unable to fulfill customer

ct data

needs due to incorre

2 No proper information/

documents internally

3 Customer information lost

4. RSC data base information

was not updated, which


93

affects customer relations.

5.

6.

h) Time Management Risk


1 No proper follow up

2 ils

in the starting stages

Not paying attention to deta

3 Deadlines not met

4 Transportation delays

5 Less Manpower

6 Return Order Process delays

7 Sorting delays

8

9

i) Legal Risks

IMPACT OCCURRENCE No REASONS


94

1 Different rules and

regulations of trading in

globally

2 Unclearly defined legal

olicies

p

3 Changing policies

4

5

j) Cultural Risks


1 nce to apply new

methodologies

Resista

2 Language barriers

3 Resistance to change

4 Different customs

5

6

k) Managerial Risk


95

No R IMPACT OCCURRENCE EASONS

1 L

management

ack of conflict

2 Lack of upper management

involvement

3 Lack of expertise and experience in RSC

4 Lack of contingency plan

5 Lack of understanding

individual authorities

and

responsibilities

6 ion making

process

Unclear decis

7 process No standardization

and procedure

8

9

l) Technology/System Risks



96

1 Lack of the use of new

technologies

2 No Reverse Logistics

department information on

company’s website

3 Inefficient Reverse Logistics

Information Systems

4 Loss of Key Technical Persons

5 Lack of technical education

and knowledge

6 e

Supply Chain

Lack of research on Revers

Outsourcin


m) g Risk

1 Inadequate Terms &

Conditions of Contract


97

2 rtner's Poor Service

Quality

Pa

3 Partner's Poor Experience &

Skills

4 oor

Communication with

Partner's P

Customers

5

Partner's Poor

Communication with Your

Company

6 High Dependence on

Partners

7 Cultural difference

Your company and a

Partner Lack

between

of trust

8 Unknown hidden cost

9 Errors introduced by third

party involved such as UPS,

FED EX

10

11

. Do you wish to receive a copy of the survey results?

Yes [ ] No [ ]

10


98

11. Would you in a short telephone follow‐up int view to

this ques

Yes [ ] No [ ]

12. Any special Comments after the survey

…………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………

………………………………………………

be willing to participate

tionnaire?

er

THANK YOU FOR YOUR PARTICIPATION.

THIS INFORMATION WILL BE HANDLED IN A CONFIDENTIAL MANNER

11.2 Appendix II

++++

General Rep

Output from Microsoft Office Excel 97 – 2003 Worksheet

Date: Nov/09/2009 Time: 04:57:00 PM

+++++++++++++++++++++++++++++++

Scenario: Normal

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

From Survey After applying Risk Management

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

ort

+++++++++++++++++++++++++++++++++++++

++++++

A. Strategic Risk

Impact Occurance Impact Occurrence


99

Lack of information flow to support RSC strategies

7 7 6 6 Lack of strategy in technically

disposition 8 5 and environmentally feasible

7 5 Lack of strategy focused on attaining reduction in cost

5 6 5 6 Lack of strategy focused in

returns 5 6 5 6

reducing

Total 26 23 24 22 Average 6. 5 5.75 6 5.5

om SurveyAfter applying Risk

anagement

B. Financial Risk

Fr M Impact Occurrence Impact Occurrence Additional Expense 7 6 5 6 High cost to repair and deliveback to customers

r

8 6 8 6 Extend warranty coverage ondemand of custom

ers

6 8 6 8 High cost for recycling 7 7 6 7 High cost for disposal 5 8 5 7 Overhead cost 6 8 5 7 Total 39 43 35 41 Average 6.5 7.17 5.83 6.83

From Survey A r applying Ris

Management

C. Product Risk

fte k

Im ct Occurrence Impact Occurrence paLonger time for replacement

7 5 7 4


100

Unavailability of replacement

6 components

6 5 4 Short Product Life Cycle 5 5 4 5 Product Liability once products

ed from customers. are return 3 4 3 4 Maintenance of return products. 6 5 5 5 Total 27 24 25 22 Average 5.4 4.8 5 4.4

Risk

From Survey After applying Risk

Management

D. Environmental

Impact Impact Occurrence Occurrence Damage to the environment 5 7 4 5 Social responsibility 3 5 3 5 Resistancommunity

ce from local

4 5 4 5 Total 12 17 11 15 Average 4 5.67 3.67 5.00

E. Customer Risk

ey g Risk

After applyinManagement From Surv

Impact Occurrence Impact Occurrence Unable to provide repair service

6 6 6 6

Customer demand is too high 5 6

4 5

Difficulties in Negthe customers

otiation with

4 5 4 5


101

Improper communication

transportation agencies such as X etc. that

adversely affect customers. 5 4

between company and

UPS/USPS/ FED E4 4

Slow response to the customer quest 6re 5 5 5

Lack of Technical Support 4 4 4 4 Difficult to trace the status of the return product service

4 6 4 6 Total 34 36 31 35 Average 4.86 5.14 4.43 5.00

From Survey fter applying isk

Management

F. Inventory Risk

A R

Impact Occurrence I act mp Occurrence Poor inventory handling

5 3 4 3 Storage prostorage

blem in terms of space, conditions, damaged

tc 4 products e 6 4 6 Increased in-stock inventory

6 5 6 4 Damage in Storage 6 3 5 3 Obsolete Goods 7 2 6 2 Poor Volume Management

6 4 6 4 Damage in transportation 6 3 5 3 Total 42 24 38 23 Average 6.00 3.43 5.43 3.29

After applying Risk

G. Data Managing Risk


102

From Survey Management Impact Occurrence Impact Occurrence Unable to fulfill customer

6 4

needs due to incorrect data

5 4 No proper information/ documents internally 6 3 5 3 Customer information lost 4 3 4 3 RSC data base information was not

ustomer relations. 5 4

updated, which affects c

5 3 Total 1 19 21 4 13 Average 5.25 3.5 4.75 3.25

From Survey

Afte applying RisManagement

H. Time Management Risk

r k

Occurrence Impact Impac Occurrence t No proper follow up 6 7 6 5 Not paying attention details in the starting stages

to

7 6 6 6 Deadlines not met 6 6 6 6 Transportation delays 5 5 5 5 Less Manpower 5 5 5 5 Return Order Process

5 6 5 delays 5 Sorting delays 4 4 3 4 Total 3 36 6 38 9 3Average 5.43 5.57 5.14 5.14

I. Legal Risk


103

From S vey After applying Risk

Managementur Impact pact Occurrence Occurrence ImDifferent rules and regulations of trading in globally 5 5 4 5 Unclearly defined legal

4 2 policies 3 2 Changing policies

4 5 4 4 Total 13 12 11 11 Average 4.33 4.00 3.67 3.67

J. Cultural Risk

Fro urvey After applying Risk

Management

m S Impac ccurren Impact Occurrence t O ce Resistance to apply new

ethodologies 4 1 4 1 mLanguage barriers 5 3 4 3 Resistance to change 4 2 3 2 Different customs 3 2 3 2 Total 16 8 14 8 Average 4 2 3.5 2

. Managerial Risk


K Impac Occurrence ccurrence t Impact OLack of conflict management 3 3 3 3


104

Lack of upper management

nt 4 3 3 involveme 4 Lack of expertise and experience in RSC 4 4 3 4 Lack of contingency plan 5 5 4 5 Lack of understanding

dividual authorities d responsibilities

inan 3 3 3 3 Unclear decision making process 4 5 4 4 No standardizaprocess and pr

tion ocedure 5 2 4 2

Total 28 25 25 24 Average 4 3 3.57 3.43 .57

L. Technology Risk


Impact Occurrence pact Occurrence ImLack of the use of ntechnologies

ew 5 3 4 3

No Redepart

verse Logistics ment information on

s website 1 5 company’ 1 3 Inefficient Reverse

3 3 3 3

Logistics InformationSystems LP

oss of Key Technical ersons 6 3 5 3

Lack of techan

nical education d knowledge 4 4 4 4

Lack of research on Reverse Supply Chain 6 7 6 6 Total 25 25 23 22


105

Average 4.17 4.17 3.83 3.67

M. Outsourcing Ris

k

From Survey After applying Risk

ent Managem Im Occurrence Im Occurrencpact pact e Inadequate Terms & Conditions of Contract 6 3 5 3 Partner's Poor Service

Quality 4 4 4 4 Partner's Poor Experience &

4 Skills 5 4 5 Partner's Poor Communication with Your

5 5 5 5 Company High Dependence on Partners 4 4 4 4 Cultural difference between

our company and a Partner ck of trust

YLa 2 6 2 5 Unknown hidden cost 5 2 4 2 Errors introduced by third

UPS, party involved such as FED EX 4 2 4 2 Total 35 30 33 29 Average 4.38 3.75 4.13 3.63

RISK MANAGEMENT IN REVERSE SUPPLY CHAIN - General Engineering

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Transcript of RISK MANAGEMENT IN REVERSE SUPPLY CHAIN - General Engineering