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IJPDLM
31,1 The challenge of reverse
logistics in catalog retailing
Chad W. Autry, Patricia J. Daugherty and R. Glenn Richey
26 Division of Marketing, The University of Oklahoma, Norman,
Oklahoma, USA
Received April 2000
Revised June 2000, Keywords Reverse logistics, Catalogue retailing, Customer service, Channel management
September 2000 Abstract Many firms are placing greater emphasis on managing returned product. Reverse
logistics programs are being used to recover assets that would otherwise be lost. Research results are
presented covering reverse logistics programs in the electronics industry, specifically among firms
selling through catalogs. The paper looks at how reverse logistics performance and satisfaction with
reverse logistics service are influenced by industry, firm size/sales volume, and internal or external
assignment of responsibility for disposition. The results are mixed. Performance is significantly
impacted by sales volume, while industry effects significantly impact satisfaction. Neither
performance nor satisfaction was significantly influenced by location of responsibility for disposition.

All sales are not final. Firms are finding that they must cope with an escalating
volume of returned/unsold/damaged product. The tremendous growth in returns
has stimulated new interest in reverse logistics as firms attempt to meet the
challenge. As Witt (1995) notes, ``It's one thing to say you'll take the merchandise
back; something else when you're the person in the distribution center who has to
figure out how to get it back and what to do with it when it arrives'' (p. 22).
Two recent books, Development and Implementation of Reverse Logistics
Programs by Stock (1998) and Going Backwards: Reverse Logistics Trends and
Practices co-authored by Rogers and Tibben-Lembke (1999), provide
comprehensive coverage of reverse logistics practices. The current research was
undertaken to gain greater insights by examining one industry, i.e. electronics retail
firms selling through catalogs. The electronics industry can be further broken
down into several segments ± computer/office equipment, household appliances,
household audio/video, and communications equipment. The intent was to allow
assessment of current practices and to identify variations in performance based on
firm characteristics or operations. Following a brief review of relevant literature,
results of the research are provided detailing a profile of reverse logistics program
performance and satisfaction among the electronics retailing firms.

Reverse logistics
Reverse logistics has important environmental dimensions, i.e. green logistics
(Byrne and Deeb, 1993; Carter and Ellram, 1998; Wu and Dunn, 1995), as well
as dimensions relating to value reclamation. The latter is of the most interest in
the current research. The research focuses on companies' efforts to reclaim
value through the returns process. This may be prompted by a wide range of
International Journal of Physical
Distribution & Logistics reasons including the reclamation of unsold, damaged, or mis-shipped product.
Management, Vol. 31 No. 1, 2001,
pp. 26-37. # MCB University
Effective reverse logistics is believed to result in direct benefits, including
Press, 0960-0035 improved customer satisfaction, decreased resource investment levels, and

reductions in storage and distribution costs (Guintini and Andel, 1995a; Andel, The challenge of
1997). Reverse logistics can significantly impact a company's bottom line by reverse logistics
recapturing value (Andel, 1997; Clendenin, 1997; South, 1998). In fact, if a firm
does reverse logistics well, it will make money (Stock 1998). Recovery of
products for remanufacturing, repair, reconfiguration, and recycling can create
profitable business opportunities (Giuntini and Andel, 1995b). Companies that
are able to take advantage of economies of scale may do especially well. 27
Reverse logistics also influences customer service/satisfaction. For example,
the ability to quickly and efficiently handle the return of product for necessary
repair can be critical (Blumberg, 1999).
In spite of the fact that reverse logistics can so dramatically influence firm
finances and customer relations, too often it is overlooked and the strategic value
ignored. Rogers and Tibben-Lembke (1999) found that four in ten logistics
managers consider reverse logistics unimportant compared to other company
issues. It is estimated that some industries have return rates in the range of 30
per cent to 50 per cent (Meyer, 1999); other estimates are as high as 60 per cent
(Jedd, 1999). Considering this, the perspective that reverse logistics is
unimportant is dangerous and likely to negatively impact firm performance.
Reverse logistics is not optional and it is not unimportant. Liberal return
policies are standard marketing practice at many firms. Customers are often
allowed to return products for any reason, no questions asked. This, coupled
with the need to accommodate damaged or defective merchandise, product
recalls, maintenance and repairs, and recycling, means logistics professionals
must place a higher priority on effectively managing returns. According to
Minahan (1998), efficient management of returns can reduce companies' annual
logistics costs by as much as 10 per cent. About 20 per cent of potential cost
savings from improved reverse logistics typically come from labor savings; the
other 80 per cent relates to savings in freight costs and reductions in pipeline
inventory (McKeefry, 1997).

Research questions
Three research questions were addressed.

Q1 ± Are there differences in reverse logistics program performance or
satisfaction by industry?
In spite of the fact that the importance of developing reverse logistics
capabilities is widely talked about, little empirical research is available
detailing historical accounts or profiling program performance. Reverse
logistics is highly industry-specific. Industry segments react differently with
respect to the strategic allocation of resources and reverse logistics program
development due to the special challenges and differences in operating
characteristics across or between industry segments (Marien, 1998). Reverse
logistics is often ``tailored'' to fit industry/customer requirements (Blumberg,
1999). Such differences in reverse logistics programs can be explained by the
tenets of contingency theory. Contingency theory states that different

IJPDLM environments place differing requirements on organizations (Lawrence and
31,1 Lorsch, 1967). This was tested in the current research by examining whether
differences could be identified based on industry affiliation of the respondents
and whether different programs are likely to provide differential value to
customers.
Langley and Holcomb (1992) have proposed that logistics program value can
28 be measured along three dimensions: effectiveness, efficiency, and differentiation.
Effectiveness refers to the level of performance provided by the program,
efficiency refers to resource commitments or cost controls, and differentiation
refers to program uniqueness. Thus, according to Langley and Holcomb (1992),
effectiveness is synonymous with performance, and efficiency leads to
satisfaction with the programs. The first research question addresses these issues
within a reverse logistics context.

satisfaction by firm size, i.e. sales volume?
The implementation of internal reverse logistics programs often involves
significant allocations of capital and/or resources for the construction of
reclamation and redistribution facilities, purchasing of recycling equipment,
re-training of employees, etc. In order to justify expenditures on in-house
programs, sufficient volumes of reverse logistics activities are required (Stock,
1998). In general, the viability of investment in reverse logistics programs can
be linked to the volume of business being handled by the organizational unit.
Volume has been presented as a key driver of reverse logistics strategies, and
distinctive characteristics have been identified between organizations based on
their levels of reverse logistics activity (Johnson and Leenders, 1997).
Specifically, as organizations experience higher volumes of returned product,
they tend to develop expertise or experience that allows them to operate reverse
logistics programs more efficiently and effectively (Johnson, 1998). These
issues are examined by the second research question.

satisfaction by internal vs. external assignment of responsibility?
Reverse logistics responsibility can be retained within the firm (catalog
retailers within the current context) or transferred/assigned to trading partners
(manufacturers or their intermediaries). Additionally, reverse logistics is
frequently considered a prime candidate for outsourcing, i.e. use of a third-
party firm.
Handling reverse logistics internally, a do-it-yourself approach, allows the
firm to keep control over the process. Internal managers are expected to be
familiar with the process, the products, and potential outlets for disposal or sale
of products (Johnson, 1998). Of course, the do-it-yourself internal approach
requires the commitment of considerable firm resources (time and financial)
and assumes internal capabilities and expertise which may or may not be
present. Alternatively, in some instances, firms elect to hand off reverse

logistics to the trading partner. In such instances, it is assumed that the trading The challenge of
partner (i.e. manufacturer in the current context) will be better suited to reverse logistics
handling returns due to prior experience and/or handling of greater volumes
thus allowing economies that the retailer could not achieve. However, external
handling of reverse logistics is not without drawbacks either. When reverse
logistics is handled externally, close coordination between the parties is
required to ensure maximum efficiency (Blumberg, 1999). The third research 29
question explores the relationship between internal or external handling of
reverse logistics and program performance/satisfaction.

Methodology
Based on a review of the literature and interviews with logistics professionals, a
survey of reverse logistics practices was developed. The survey was pretested
with other logistics professionals and modified with respect to their input.
A commercial mailing list of 212 CEOs at US catalog companies selling
electronic goods was purchased. Questionnaires were mailed to this group and
reminder cards sent after two weeks. A total of 81 surveys were returned, of
which ten had excessive missing values, yielding 71 usable surveys (33.5 per
cent). The respondent base represents a variety of electronics industry segments,
including computers, office equipment, household applicances, household audio,
household video, and communications equipment. The average annual sales
volume and average number of employees for respondent firms were $32.5
million and 160, respectively.
An analysis of non-response bias was performed by comparing early and
late responses, per guidelines established by Armstrong and Overton (1977).
Responses from the last quartile of respondents (assumed to be most similar to
those of non-respondents) were compared to responses provided by the first
three quartiles of respondents. Comparisons of means on survey items across
groups ( p < 0.05) revealed no significant differences for relevant variables.
Thus, non-response bias is not considered to be a problem.

Results and discussion
The research results indicate respondents' satisfaction levels and performance
of their firms' reverse logistics programs. Respondents were provided with a
list of reverse logistics-related performance measures and asked to indicate
how effective their firms have been in achieving each of them. The specific
items were developed, based on a review of the literature and refined following
input from pretesting. A total of six items were included. The items were
measured on a seven-point Likert-type scale with 1 = not at all effective and 7 =
extremely effective. The means and standard deviations for the performance
items are presented in Table I.
As indicated in Table I, reverse logistics programs have been effective in
achieving two of the more externally-driven program-related goals. The
respondents reported that their firms have been successful in terms of
environmental regulatory compliance (5.69) and in achieving improved customer

IJPDLM relations (5.66) via reverse logistics programs. However, the respondents indicated
31,1 less effectiveness in achieving the more internally-focused program goals. They
have only been moderately successful at recovery of assets (5.00), cost containment
(4.96), improved profitability (4.72), and reduced inventory investment (4.70).
Respondents were also questioned about their levels of satisfaction relating to
the reverse logistics programs provided by their trading partners. A series of eight
30 reverse logistics related service components was provided and respondents were
asked to indicate how satisfied they were with their trading partners relative to
those areas. The list of satisfaction measures was developed following a literature
search and subsequent pretesting with logistics professionals. The items were
measured on a seven-point scale with 1 = not at all satisfied and 7 = extremely
satisfied. Satisfaction item means and standard deviations are included in Table II.
In general, firms are only somewhat satisfied with the reverse logistics
service being provided by their trading partners. Respondents indicated
moderate levels of satisfaction with their partners in the areas of quality of
rework/repair (4.95), compliance with the buying agreement (4.88), levels of
returns allowed (4.77), and ease of obtaining return authorization (4.71). Even
lower satisfaction was reported for timeliness of rework/repair (4.44), length of
time for credit processing (4.39), and reconciliation of chargebacks (4.37).
Finally, respondent firms are least satisfied with their trading partners' ability
to use the Internet to process returns (3.76).

Standard
Performance measure Mean deviation

Environmental regulatory compliance 5.69 1.60
Improved customer relations 5.66 1.34
Recovery of assets (products) 5.00 1.71
Cost containment 4.96 1.48
Table I. Improved profitability 4.72 1.59
Effectiveness in Reduced inventory investment 4.70 1.79
achieving reverse
logistics goals Notes: Seven-point scale: 1 = not at all effective ± 7 = extremely effective

Standard
Satisfaction measure Mean deviation

Quality of rework/repair 4.95 1.36
Vendor's overall compliance with buying agreement 4.88 1.41
Level of returns allowed (use of cap programs) 4.77 1.65
Ease of obtaining return authorization 4.71 1.53
Timeliness of rework/repair 4.44 1.51
Length of time for credit processing 4.39 1.54
Handling reconciliation of charge backs 4.37 1.54
Table II. Use of Internet in processing returns 3.76 1.99
Satisfaction with
reverse logistics service Notes: Seven-point scale: 1 = not at all satisfied ± 7 = extremely satisfied

Industry effects on performance and satisfaction The challenge of
The literature suggests that reverse logistics performance and satisfaction with reverse logistics
reverse logistics service will vary by industry. The respondents were asked to
indicate their primary industry from a listing including the computer/office
equipment industry, the household appliance industry, the household audio/
video industry, or the communications equipment industry. If none of the
categories accurately characterized their business, the respondents were asked 31
to write in alternate responses.
Based on the responses, the sample was divided into two groups. Firms that
are participating in the computer/office equipment industry or the
communications equipment industry were placed in one group, while firms
specializing in household audio/video or appliances were placed into another.
Write-in responses were evaluated by the authors and placed into the
appropriate grouping. Results of t-tests performed to examine differences in
means by industry group on the reverse logistics performance measures are
presented in Table III. T-tests were also performed to examine differences in
means for satisfaction with the reverse logistics service. These results are
presented in Table IV.
The results suggest no significant industry effect relative to reverse logistics
performance. None of the six performance measures were found to be significantly
different across the two groups. However, the results do indicate that industry has
significant implications for level of satisfaction with reverse logistics service. The
household goods industries had significantly higher levels of satisfaction ( p < 0.05)
on four of the reverse logistics service components. Satisfaction was significantly
higher for levels of returns allowed, ease of obtaining return authorization, length
of time for credit processing, and handling reconciliation of chargebacks. The
results also indicated moderate differences ( p < 0.10) for two other components,
quality and timeliness of rework/repair. In only two instances, use of the Internet in
processing returns and vendor compliance with the buying agreement, were no
significant differences found between industry groups. Thus, it appears as though
respondents in the household goods industries are more satisfied overall with their
reverse logistics service. Though the research did not attempt to discover reasons

t-tests for differences in means
Computer/office/
communications Household goods
Performance measure industries industries

Environmental regulatory compliance 5.56 5.87
Recovery of assests (products) 4.86 5.30
Cost containment 4.90 5.08 Table III.
Improved profitability 4.68 4.87 Reverse logistics
Reduced inventory investment 4.51 5.15 effectiveness by
industry: t-test for
Notes: Seven-point scale: 1 = not at all effective ± 7 = extremely effective differences in means

IJPDLM t-tests for differences in means
31,1 Computer/office/
communications Household goods
Satisfaction measure industries industries

Quality of rework/repair 4.71 5.31***
32 Level of returns allowed (use of cap programs) 4.36 5.42**
Ease of obtaining return authorization 4.34 5.30**
Timeliness of rework/repair 4.17 4.88***
Length of time for credit processing 4.00 4.96**
Handling reconciliation of charge backs 4.02 4.95**
Table IV. Use of Internet in processing returns 3.59 4.16
Satisfaction with
reverse logistics service Notes: Seven-point scale: 1 = not at all satisfied ± 7 = extremely satisfied
by industry: t-test for ** = Significantly different at p < 0.05
differences in means *** = Significantly different at p < 0.10

for differences in satisfaction by industry, it is possible that the computer, office,
and communications industries might be evaluated more strictly with respect to
the satisfaction components, i.e. their target customers may hold them to higher
standards because they perceive business-related products to be more critical than
household goods.

Sales volume effects on performance and satisfaction
In order to examine associations between sales volume and reverse logistics
performance and satisfaction, respondents were asked to estimate their firms'
sales volume during the most recent fiscal year. The sample was divided into
two groups (at the fiftieth percentile) based on sales dollars. Thus, firms that
sold in excess of $32 million were designated as high volume firms, and those
selling at that volume or below that amount were designated as low volume
firms. T-tests were utilized to identify differences in performance and
satisfaction with reverse logistics service based on sales volume. The results
are presented in Tables V and VI.

Performance measure High volume Low volume

Environmental regulatory compliance 5.34 6.20***
Improved customer relations 5.26 6.09**
Recovery of assets (products) 4.73 5.44***
Cost containment 4.45 5.50**
Improved profitability 4.45 5.07
Table V. Reduced inventory investment 4.29 5.34**
Reverse logistics
effectiveness by sales Notes: Seven-point scale: 1 = not at all effective ± 7 = extremely effective
volume: t-tests for ** = Significantly different at p < 0.05
differences in means *** = Significantly different at p < 0.10

The results presented in Table V suggest that sales volume plays an important The challenge of
role in determining firm reverse logistics performance. Highly significant reverse logistics
differences ( p < 0.05) between groups were discovered for three of the six
performance measures, while two others were found to be different at a more
moderate significance level ( p < 0.10). Low volume firms were found to be
significantly more effective at improving customer relations, containing costs,
and reducing inventory investment than were high volume firms. Furthermore, 33
low volume firms were also moderately more effective at recovery of assets and
environmental regulatory compliance. For only one performance item,
improved profitability, was no significant difference found between the two
sales volume groups.
These results indicate that smaller volume firms are doing a better job with
respect to reverse logistics effectiveness. This is an interesting finding, as it
might be expected that larger volume firms would enjoy performance
advantages due to economies of scale. However, although the electronics
catalog retailers are selling large volumes of goods, these volumes are being
achieved via a large number of small transactions. Many small return
shipments would not allow the firms to achieve economies and performance
may actually be impacted negatively. Also, with many small shipments
(returns of one item, for example) there are more opportunities for things to go
wrong, e.g. slow returns. Thus, smaller volume firms would have fewer
opportunities for mistakes and/or problems.
Although Table V presents a case for sales volume impacting reverse
logistics performance, Table VI indicates that sales volume is not significantly
associated with the firm's satisfaction with its manufacturers/vendors relative
to their reverse logistics service. No significant differences were found between
the sales volume groups on the service component measures. It seems likely
that firms of both the high and low sales volume groups face many of the same
service-related problems. Further research will have to be undertaken to better
understand how economies of scale and economies of scope affect levels of
satisfaction associated with reverse logistics service.

Satisfaction measure High volume Low volume

Timeliness of rework/repair 4.60 4.21
Length of time for credit processing 4.37 4.40 Table VI.
Handling reconciliation of charge backs 4.34 4.42 Satisfaction with
Use of Internet in processing returns 4.04 3.44 reverse logistics service
by sales volume: t-tests
Notes: Seven-point scale: 1 = not at all satisfied ± 7 = extremely satisfied for differences in means

IJPDLM Sales disposition responsibility effects on performance and satisfaction
31,1 To examine the possibility that reverse logistics performance and satisfaction
with reverse logistics service might vary according to the internal/external
assignment of reverse logistics responsibility, respondents were asked to
indicate what happens to products that are returned by their customers.
Specifically, the respondents were asked to estimate the percentage of their
34 returns handled through given disposition options.
Based on the responses, the sample was divided into two groups based on
the assignment of responsibility for disposition of returned product. Firms that
elect to handle the majority of their disposition activities internally (via
donation, destruction, recycling, refurbishment, repackaging and/or reselling)
were placed in one group, while firms that forward the majority of their returns
to the manufacturer or supplier for handling were placed into another. Results
of t-tests performed to examine differences in reverse logistics performance and
satisfaction by internal vs. external disposition are presented in Table VII and
Table VIII, respectively.

More internal More external
Performance measure disposition disposition

Environmental regulatory compliance 6.20 5.35**
Recovery of assets (products) 5.11 5.00
Cost containment 4.84 5.03
Table VII. Improved profitability 4.73 4.75
Reverse logistics Reduced inventory investment 4.67 4.81
effectiveness by
disposition: t-tests for Notes: Seven-point scale: 1 = not at all effective ± 7 = extremely effective
differences in means ** = Significantly different at p < 0.10

More internal More external
Satisfaction measure disposition disposition

Timeliness of rework/repair 4.92 4.05**
Table VIII. Length of time for credit processing 4.66 4.20
Satisfaction with Handling reconciliation of charge backs 4.66 4.19
reverse logistics service Use of Internet in processing returns 3.95 3.68
by disposition: t-test
for differences in Notes: Seven-point scale: 1 = not at all satisfied ± 7 = extremely satisfied
means ** = significantly different at p < 0.05

The results indicate that assignment of disposition responsibility has The challenge of
negligible impact on reverse logistics performance and satisfaction with the reverse logistics
service provided by manufacturers/vendors. Only one of the reverse logistics
performance measures, environmental regulatory compliance, was even
moderately significant ( p < 0.10). Furthermore, only one of the reverse logistics
satisfaction components had a significantly different mean across the two
groups ( p < 0.05). Firms with more internal responsibility for disposition were 35
significantly more satisfied with the timeliness of rework/repair. This result is
somewhat intuitive. If the returned product is handled internally, it may be
completed in less time than if the product is returned for rework to the vendor
or manufacturer. Thus, with the internal handling, the retailer is likely to
reclaim value faster.

Conclusions and future research
More and more companies are having to deal with reverse logistics. Even those
who have tried to ignore it in the past are working to develop standardized
reverse logistics processes. For example, in the early to mid-1990s, Hallmark
Cards representatives would collect and destroy out-of-season merchandise. No
value was reclaimed. Today, Hallmark uses a third-party firm to collect excess
seasonal inventory and repackage it for sale in secondary markets. Firms in the
greeting card and many other types of consumer goods industries are finding it
useful or even necessary to deal with returns in a more effective and efficient
manner.
The current research sought to investigate reverse logistics program
success. The general performance and satisfaction levels reported by
respondents reflect the challenges and enormity of the reverse logistics task.
Although retailers appear to believe that they are performing reverse logistics
tasks fairly well ± they rate themselves moderately effective on key
performance measures ± they are considerably less satisfied with the reverse
logistics service provided by their trading partners. Several potential
explanations exist. It is possible that the surveyed retailers possess some
internal biases working against the manufacturer, i.e. they may be adopting an
egocentric or ``us versus them'' attitude related to service provided by their
trading partners. Another possible explanation may be related to perceived
service quality. There may be a ``gap'' between the expectations held by the
retailers in terms of service quality and the actual performances of their trading
partners. Furthermore, the complexity of reverse logistics programs,
particularly within the catalog industry, makes it difficult for partners to
understand exactly what the retailer wants in terms of service. In such cases,
improved communications within the dyadic relationship could minimize the
gap in service quality.
In order to address these and other concerns related to the future of reverse
logistics, further research is necessary. The current research examined reverse
logistics programs only from the viewpoint of the catalog retailer. Different
perspectives related to reverse logistics performance and satisfaction might be

IJPDLM discovered when measuring the attitudes of the reverse logistics trading
31,1 partner. Thus, to better understand the nature of gaps in service quality
perceived and service quality provided, it would be useful to study both sides
of the reverse logistics dyad using paired comparisons.
Research should also focus on reverse logistics implementation within
different industries. Catalog retailing is an especially challenging area for
36 reverse logistics implementation given the aforementioned complexity of its
systems. Research should be conducted that examines systems being
implemented in other industries as well to develop generalizable results. These
studies could be performed within the contexts of other catalog and non-catalog
industries, and could also be used to identify ``best practices'' or pockets of
excellence which could be imitated by firms in early stages of program
development. The research should also try to isolate learning curve effects, if
any, via the use of longitudinal techniques.
Finally, future reverse logistics research should be conducted to determine
the impact of outsourcing on program performance and satisfaction. In the
current research, there was virtually no outsourcing used. However, some
catalog retailers and many other retailers extensively use third-party firms for
fulfillment and/or returns handling.

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