When reverse supply chain makes financial sense: a study of factors affecting profitability in reverse supply chains

Abstract

In recent decades, an increasing number of manufacturers have implemented a reverse supply chain (RSC) that takes back and recovers products, components, or packaging, thereby supporting the ideas of the circular economy. The literature has shown that the profitability of RSCs varies in the sense that some manufacturers profit from this while others do not. The causes of this variance, however, remain unclear. To add to the knowledge on this topic, this paper investigates the factors that influence RSCs’ financial performance. This is done through three case studies of RSCs at equipment manufacturers, focusing on the end-product, component, and packaging level, respectively. The findings show that the RSC initiatives were rather profitable at all three product levels. On the other hand, RSC profitability had only a slight relationship to reverse logistics and RSC design. By demonstrating the importance of factors other than reverse logistics, the present study suggests that future research should apply a broader focus when investigating RSCs’ impact on overall financial performance. By identifying a set of factors influencing profitability at the end-product, component, and packaging levels, the present study advances the understanding of RSC profitability and provides a basis for more holistic RSC research.