Pricing Challenges in Closed Loop Supply Chain
Closed loop supply chain deals with the recovery of products from the customers in lieu of value and further recycling the product in order to get profit through the processes of quality checking as well as refurbishment. Closed loop supply chain involves the issues of pricing as well as profit maximization, which have been discussed in the report.
The pricing problem in closed loop supply chain is because of one retailer and a dominant manufacturer. The variations of the remanufacturing cost and collection cost of user products are very uncertain in the closed supply chain system. High transportation and logistics costs are the problems associated with closed loop supply chain. Once a product reaches the end user from the manufacturer, it involves a cost. Again, when the customer returns the product, it again involves some transportation cost. Thus, the cost is enhanced considerably.
Cost in information sharing in the supply chain is a big issue (Christopher 2016). The increased dependence on information technology for sharing of information has lead to enhancement of costs (Peppard and John 2016). This leads to managerial and organizational barriers.
The problem of symmetric and asymmetric information is quite prevalent in closed loop supply chain. The suppliers always have private information regarding their odds of experiencing any sort of disruptions.
Inventory management has been a critical factor in logistics (Mangan and Chandra 2016). The problem of inventory management in the close loop supply chain is because of the lack of forecasting (Calmon and Stephen 2017). The issues of inventory management occur mostly at the retail stores. The inventory policies also have adverse effects on the pricing of the closed loop supply chain. The recession is another factor that is responsible for the activities of this management and the various types of pricing. Pricing of old products is also a problem in closed loop supply chain. The most significant factor to consider in terms of pricing is the huge amount of money invested in inventory for the manufacturing and retail organizations. When there is excess inventory, the money is stuck up and the product value is reduced.
Pricing decision also relies on the product selection in the supply chain system. If the product selection is not proper, then there is a high chance of getting returned or the product may not be selected by the customer for purchase. The product valuation is lowered due to this phenomenon.
Inventory Management Issues
Damaged inventory and inaccurate inventory counts lead to financial problems to the companies associated with the supply chain activities. Location inventory costs are the problems for most of the companies that occur because of the lack of proper planning. The capacity issues in the warehouses often act as problems for the logistics companies. Storage becomes a problem and lot of products is left in the warehouse that reduces the revenue of the companies.
The problem with the channel members is that they are not motivated enough to comply with the principals when the market is very tough (Kashyap and Murtha 2017). The problem of channel members arises when there are not enough people to support the distribution process. Another issue can be that when another member affects the behavior of one marketing channel member. There can be another situation where one member is showing power or authority over another. This affects the marketing channel. There are cases of horizontal and vertical conflicts among the channel members (Usui, Kotabe and Murray 2017).
There is a problem of Bullwhip effect regarding the distribution network of supply chain when there is deviation between the manufacturer and the end-users (Xu et al. 2016). Longer the distribution network more is the transportation costs. It also leads to more delivery time in forward as well as backward supply chain systems. There can be lots of variability in the distribution network when the channel is very long as it involves many organizations, facilities and activities.
The problem of optimal vehicle routing has become an integral part of closed loop supply chain that affects the productivity improvement for the organizations (Wang et al. 2016). The problem with the vehicle routing system is due to a set of identical vehicles, a central depot node, customer nodes and a network connecting the customer and the depot.
There can be problems with product returns in the closed loop supply chain (Ferguson and Souza 2016). When the members associated with the supply chain management, do not follow the rules of the effective return policies, problem arises in the system during the time of product returns by customers (Pagell and Wu 2017). Lack of development of appropriate gate keeping, disposition and avoidance policies lead to various issues regarding return policies. A customer is forced to return a product when either there is any defect in the product or a different product has been delivered (Sekaran and Roger 2016). The problem of return comes into play in these situations. Return avoidance has been a critical component in the closed supply chain. Returns of products increase when there is lack of proper utilization of SKU (Kembro, Veronica and Granit 2017).
Symmetric and Asymmetric Information
Gate keeping takes into consideration the screening of both return request as well as return merchandise (Landin and Helena 2015). The problem with gate keeping arises when the policies are not followed properly in an organization. There can be issues when the process of physical screening of the merchandise is not properly done at the customer locations. The result is that unwarranted merchandise enters the distribution channel. Disposition of the goods needs proper determination. It is done only after they have been received. Lack of this determination policy leads to problems (Braglia, Castellano and Frosolini 2016). The other sources of problems are when performance expectations and metrics for the process of return management do not align with the supply chain strategy and the different functional areas.
There are certain risks associated with strategic alliances that affect the profit of the alliances (Kleymann and Seristö 2017). These can be performance and relationship risks. The issues related to the strategic alliances can be because no one is ready to work on shared risks and rewards in the supply chain (Pearlson, Carol and Dennis 2016). It is not always easy to establish relationships based on rewards and shared risks.
There is a problem of decentralized decision making in closed loop supply chain as the companies associated with the logistics system are not truly empowered and integrated. There is no support across all the supply chain functions, which are not supervised by the companies involved in the supply chain activities. Many companies have not focused on integrating the supply chains. The companies do not view the supply chain organization and the capabilities of the company as a single resource. This is the reason why complications arise in the operations of the supply chain activities. The companies face challenges in decision making because of the inefficient leadership.
Another problem that can affect profit maximization in the closed loop supply chain is the volatility and the uncertainty of the supply chain. The enhanced commoditization of products affects the supply chain beyond the demand volatility.
Conclusion
The report has inferred about the problems regarding the pricing and profit maximization in the closed loop supply chain. The companies in the supply chain industry are facing lot of issues regarding the factors of pricing and the profit maximization that have impacted their profit in the face of recession. The report discusses about the problems in depth that would help the companies to mitigate the issues to get competitive advantage in the market and increase customer satisfaction.
References
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