Creating integral value for stakeholders in closed loop supply chains

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Creating integral value for stakeholders in closed loop supply chains Maren Schenkel a,n, Harold Krikke a, Marjolein Caniëls a, Erwin van der Laan b a b

Faculty of Management, Science and Technology, Open University, Valkenburgerweg , 177, 6419AT Heerlen, The Netherlands Rotterdam School of Management, Erasmus University Rotterdam, Burgemeester Oudlaan 50, 3062 PA Rotterdam, The Netherlands

art ic l e i nf o

a b s t r a c t

Article history: Received 10 July 2014 Received in revised form 3 April 2015 Accepted 7 April 2015

This paper contributes to the existing literature by researching integral value creation in closed loop Q3 supply chains (CLSCs). We distinguish between multiple types of business value, strategic success factors, and multiple groups of stakeholders that affect and are affected by CLSC activities. To gain empirical evidence, we collect and analyze in-depth data of four case studies in business to business markets in high capital goods. Our findings show that CLSC activities create opportunities and reduce risks for the focal company and their primary and secondary stakeholders. Strategic success factors such as product design, customer services, and CLSC business models modify CLSC processes and, hence, increase value. Intra-and inter organizational information sharing and stakeholder relationships strengthen value creation by influencing the strategic success factors. We conclude with the formulation of propositions. & 2015 Published by Elsevier Ltd.

Keywords: Closed loop supply chains Value creation Stakeholder theory Business model Strategic success factors Information value Reverse supply chain

1. Introduction Since the mid-nineties companies have been increasingly triggered to deal with product returns due to, for example, environmental take back and recovery regulations, (e.g. Atasu and Van Wassenhove, 2010; Prahinski and Kocabasoglu, 2006), or increased e-business (Autry et al., 2001; Choi et al., 2004). To handle product returns, firms usually set up a reverse supply chain (RSC). Immature RSCs often operate in isolation and are not as well developed as their forward counterparts (Fleischmann et al., 1997; Zsidisin and Siferd, 2001). Today it is increasingly acknowledged that firms create value by integrating the RSC with the original forward supply chain (FSC) into a closed loop supply chain (CLSC) (e.g. Guide et al., 2003; Talbot et al., 2007). For example, CLSC activities entail economic and environmental benefits by reducing virgin material consumption with purchasing recovered parts and materials and extending the product portfolio with pre-owned products (Wells and Seitz, 2005; Zsidisin and Siferd, 2001). Value for customers may result from an increased spare part availability and an extended service period due to harvested and recovered parts (Krikke et al., 2003; Kumar and Malegeant, 2006). Product returns also provide valuable information on product design and the product life cycle (Mafakheri and Nasiri, 2013; Talbot et al., 2007). More CLSC n

Corresponding author. Tel.: 31 6170 17255. E-mail addresses: [email protected] (M. Schenkel), [email protected] (H. Krikke), [email protected] (M. Caniëls), [email protected] (E.v. der Laan).

research is needed that synthesizes these tangible and intangible benefits in CLSCs and investigates CLSC business value beyond economic benefits (Klassen, 2009). Managing a CLSC involves designing, controlling and operating a system “to maximize value creation over the entire life cycle of a product with dynamic recovery of value from different types of return” (Guide and Van Wassenhove, 2009: 10). It entails taking back and recovering used products, parts or materials for reuse in the original or a secondary FSC (Guide and Van Wassenhove, 2009). Hence, CLSC management involves both forward and reverse supply chain functions including green purchasing, green manufacturing and material management, green distribution and marketing as well as the logistics for product returns (Olugu et al., 2010; Wells and Seitz, 2005; Zhu et al., 2008). Creating competitive advantage by closing the loop has been extensively studied (e.g. Kapetanopoulou and Tagaras, 2011; Lehr et al., 2013; Rogers et al., 2010) using theoretical angles such as the resource based view (Daugherty et al., 2005; Jayaraman and Luo, 2007; Richey et al., 2004), game theoretical models (Heese et al., 2005) and transaction cost economics (Martin et al., 2010). However, the importance of risk reduction for CLSC value creation has been overlooked. Supply chain risk can affect supply chain performance and hence, competitive advantage (Wagner and Bode, 2008). Moreover, to stay competitive, companies need to address the demands of multiple stakeholders as well as the externalities that corporate processes can create for different stakeholders (Olugu et al., 2010). CLSC activities involve interaction and collaboration between the focal firm, their primary stakeholders (i.e. FSC and RSC actors) and secondary, external

http://dx.doi.org/10.1016/j.pursup.2015.04.003 1478-4092/& 2015 Published by Elsevier Ltd.

Please cite this article as: Schenkel, M., et al., Creating integral value for stakeholders in closed loop supply chains. Journal of Purchasing and Supply Management (2015), http://dx.doi.org/10.1016/j.pursup.2015.04.003i

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stakeholders outside the value chain (e.g. NGOs, and local societies) (Corbett and Klassen, 2006). Previous studies acknowledged that several strategic success factors may play a role in improving CLSC performance, such as product design, the business model and service concepts such as leasing or service level agreements (e.g. Mont et al., 2006; Wells and Seitz, 2005). However, extant research has failed to analyze the role of internal and external stakeholders in the implementation and operation of the key success factors. This study investigates the process of integral value creation by CLSC activities. Integral value covers multiple types of business value and opportunity creation and risk reduction for the focal firm, primary and secondary stakeholders. Moreover, we study how strategic success factors increase value creation and how stakeholder relationships influence the implementation and operation of these success factors. Learning about the value entailed in CLSCs, can specifically help purchasing departments to enhance the competitive advantages of their supply chains by dual sourcing recovered and new materials and, hence, supporting green purchasing initiatives. We postulate that brand owners are the most suitable candidates to be the focal firm in a CLSC. They are in the position to make decisions on strategic success factors, such as product design, customer services and business models (Krikke et al., 2004; Wells and Seitz, 2005), and can affect different stakeholder groups. Moreover, brand owners are often pressured and held responsible for adopting environmental practices throughout their supply chain (Caniato et al., 2012). The paper is set up as follows. First, we present extant literature related to value creation in CLSCs, stakeholder theory, as well as strategic success factors for CLSC value creation. Second, we conduct four in-depth case studies in CLSCs within a high capital goods context. Thereby we attain in-depth insights into how focal companies create value for themselves and other stakeholders. Third, by cross-comparing organizational- and CLSC-specific factors we discuss how strategic success factors affect CLSC activities and value creation and how stakeholder relationships affect these factors. We conclude with synthesizing our findings into propositions and present opportunities for further research.

2. Theoretical background 2.1. Closed loop supply chains A RSC significantly differs from a FSC with regard to its operations, management and stakeholders (e.g. de la Fuente et al., 2008; Fleischmann et al., 2000) (Fig. 1). For example, while products in the FSC are produced according to market demand forecasts, the RSC is more reactive to market returns of uncertain quantity and quality (Tibben-Lembke and Rogers, 2002). In a welldeveloped CLSC, FSC and RSC activities influence and support each

other. For example, IT applications used in the FSC can keep track of products in the installed base and increase the return rate in the RSC (Östlin et al., 2008). Also, sourcing recovered materials and parts from the RSC can affect supplier relationships in the FSC as suppliers may lose business from new components, and instead recover returned ones (Thierry et al., 1995). Hence, stakeholders from both supply chains need to be involved in the value creation process. 2.2. Stakeholder theory and value creation Exploring and expressing how firms differ in a competitive sense, is researching a firm's form of value creation (Stabell and Fjeldstad, 1998). Value chain theory suggests that firms create value in a chain of strategically important activities that produce products and transfer value between the firm and its customers (Porter, 1985). Other value creating logics include value shops (Simon, 1977), value networks (Stabell and Fjeldstad, 1998), or the resource based view (Barney, 1991; Wernerfelt, 1984). These theories mostly focus on value creation for the customer, as the customer is considered as being the major source of competitive advantages (Gummerus, 2013; Walter et al., 2001). Stakeholder theory suggests that competitive advantage and performance depend on managers' capacities to react to various stakeholder demands and maintain a relationship with various stakeholder groups other than customers or value chain partners (Freeman et al., 2004; Mitchell et al., 1997). In this way, value is created and shared among multiple stakeholders (Freeman, 1994; Freeman et al., 2004). “Stakeholders” can be defined as “any group of individuals that can affect or is affected by the achievement of an organization's objective” (Freeman, 1984: 46). They can hold companies accountable for social and environmental outcomes, and thereby influence a company's decisions (Parmigiani et al., 2011). “Closing the loop” results in integrating more stakeholders, namely non-supply chain actors such as local communities, NGOs, governments or future generations (Corbett and Klassen, 2006). Addressing more stakeholder groups with possibly conflicting and ambiguous demands creates complexities that exacerbate efforts to create sustainable supply chains (Matos and Hall, 2007). Focal companies not only need to identify major stakeholder groups, but also must decide which groups to prioritize (Mitchell et al., 1997). Studies have categorized stakeholder groups in different ways (e.g. Abdulrahman et al., 2012; Choi et al., 2001; Harrison and St. John, 1996). Focal companies create value for and with so called primary stakeholders, while secondary stakeholders are affected or influenced by the value created, but are not engaged in transactions (Álvarez-Gil et al., 2007; Freeman, 1984). We see the focal organization as a separate stakeholder group, which encompasses employees, investors and shareholders (Clarkson, 1995; Matos and Hall, 2007). Primary stakeholders include customers, suppliers, service provider and leasing companies. Secondary

Fig. 1. Closed loop supply chain processes. Note. Adapted from e.g. Thierry et al. (1995) and Van Hillegersberg et al. (2001).

Please cite this article as: Schenkel, M., et al., Creating integral value for stakeholders in closed loop supply chains. Journal of Purchasing and Supply Management (2015), http://dx.doi.org/10.1016/j.pursup.2015.04.003i

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stakeholder groups are the natural environment, governmental and non-governmental organizations or the society at large. Literature has stressed the importance of demands and pressures from stakeholder groups in CLSC management (Álvarez-Gil et al., 2007). Demands from primary stakeholders can vary from fulfilling customer demand for spare parts with recovered parts (Sprengler and Schröter, 2003), revenue sharing among CLSC actors (Mafakheri and Nasiri, 2013) to sharing responsibilities posed by environmental legislation (Jacobs and Subramanian, 2012). Opportunity creation refers to generating tangible and intangible benefits (Jayaraman and Luo, 2007) for the focal organization, primary or secondary stakeholders. However, value can also be created by reducing risks which is associated with “chance of danger, damage, loss, injury or any other undesired consequences” (Harland et al., 2003: 52). Supply chain literature (Sarkis et al., 2010a, 2010b, 2010c) distinguishes several types of risk (Manuj and Mentzer, 2008; Rao and Goldsby, 2009). In essence, firms create (negative) externalities that affect their stakeholders (Freeman, 1994; Sarkis et al., 2010b). Secondary stakeholders increase pressure on the firms to “reduce negative impacts and increase positive ones” (Sarkis et al., 2010b: 14). For example, the improper disposal of a product creates environmental or safety risks (Krikke et al., 2004) and endangers public safety (Hojas Baenas et al.,2011; Tsoulfas and Pappis, 2006). This may lead to increased environmental regulations (Geyer and Jackson, 2004; Zoeteman et al., 2009). 2.3. Types of value creation in CLSCs By synthesizing CLSC and RSC literature we now distill categories of CLSC opportunity creation and risk reduction and frame them as different “types of value” that can be created in CLSCs. There are four types of values namely economic, environmental and social, customer and information value (Koppius et al., 2011; Krikke, 2011; Kumar and Malegeant, 2006, Mollenkopf et al., 2011). Each value has different attributes that are concrete realizations of opportunity creation and risk reduction. Economic value refers to the profitability of recovering product returns (Brodin and Anderson, 2008; Dowlatshahi, 2010; Škapa and Klapalová, 2012). Sourcing costs can be reduced by substituting new materials, parts or products with recovered equivalents (Jayaraman et al., 2012; Li and Olorunniwo, 2008). This also generates savings in production, operation and logistic costs (Ortegon et al., 2013; Ye et al., 2013), and improves process efficiency by reducing lead time (McConocha and Speh, 1991; Ortegon et al., 2013). An additional value attribute is that focal companies can deploy recovered products and parts to enlarge their service business and aftermarket (Ravi et al., 2005), or enter new market segments (e.g. Atasu et al., 2010). Environmental and social value addresses growing stakeholders' pressure by demonstrating a minimized corporate environmental and social impact and being compliant with legislation. Environmental value attributes include a lower carbon footprint (Krikke, 2011) and pollution prevention (Huppes and Ishikawa, 2009). Some studies discuss green image and marketing through product recovery and consumer perceptions of recovered products as attributes of environmental value (Hazen et al., 2012; Huang et al., 2012; Michaud and Llerena, 2011). An emerging topic is that of social issues in CLSCs (Nikolaou et al., 2013), for example by creating employment opportunities or supporting local infrastructure development (Sarkis et al., 2010a, 2010b, 2010c). Environmental and social risk reduction also involves the use and disposal of toxic waste affecting human health (Khor and Udin, 2013). Customer value is generated by the increase of customer satisfaction, repurchase intention and customer loyalty (Kocabasoglu et al., 2007; Lee and Lam, 2012; Mollenkopf et al., 2007). This implies better

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customer service by aftersales services such as maintenance (Amini et al., 2005, Atasu et al., 2010) or take-back services (Mollenkopf et al., 2011; Skinner et al., 2008). Customer value is also realized by introducing green product features from re-used materials (Eltayeb et al., 2011), a lower price for recovered products (Subramoniam et al., 2010), reduced ownership costs (Amini et al., 2005), and an extended spare parts availability (Kumar and Malegeant, 2006). Some studies also point to an improved corporate image (Jayaraman et al., 2012) and brand protection (Michaud and Llerena, 2011; Östlin et al., 2008). Information value concerns information that becomes available through CLSC management, including information about customer purchasing and returning behavior, product use and-failure and the installed base at large. Thereby, information systems own a key role for collecting and sharing information across CLSC stakeholders (Koppius et al., 2011). Few studies notice possibilities for learning, such as the ability to collect life cycle information to improve product recovery (Mafakheri and Nasiri, 2013; Subramoniam et al., 2010), product design (Kocabasoglu et al., 2007; Talbot et al., 2007), customer contact (Jayaraman and Luo, 2007), and supply chain processes (Östlin et al., 2008). To this end, information value can drive the value creation process of the other three types of value. In sum, we can generate a framework with four types of value (economic, customer, environmental and social, information value) and two dimensions of CLSC value creation: (1) Value creation for the focal company, primary and secondary stakeholders, and (2) Opportunity creating activities versus risk reducing activities. 2.4. Strategic success factors for value creation Based on past studies, we distinguish three strategic success factors for value creation in CLSCs. 2.4.1. Product design Product design principles such as design for x, design for disassembly, modular design and design for the environment (Cerdan et al., 2009; Khor and Udin, 2013) benefit product recovery as they facilitate (cost effective) disassembly and recovery at any required (sub-) component level (Niinimäki and Hassi, 2011; Zuidwijk and Krikke, 2008). Modularity improves possibilities for re-use and upgrades (Krikke et al., 2003; Rashid et al., 2013). Design for upgradability aims at “a product's ability to react positively to essential technological shifts or changes during the product life cycle” (Rashid et al., 2013: 170). 2.4.2. Customer services Customers return behavior creates uncertainty regarding timing, quantity and quality of product returns which causes inefficiencies in the RSC (Thierry et al., 1995). Strong service relationships with customers can increase the return rate of used products through targeted service or trade-in offers to customers and, hence, reduce uncertainty (Östlin et al., 2008). Traditionally, this includes service contracts or after-sales services (Ayres et al., 1997; Östlin et al., 2008). In more recent (hereafter “new”) service models such as leasing, the focal company owns and services a product, which ensures the return of used products (Mont et al., 2006). For an overview of CLSC customer and service relationships, see Östlin et al. (2008). 2.4.3. Business models The choice of recovery activity and CLSC design very often depends on FSC design (de la Fuente et al., 2008; Oezkir and Bashgil, 2012; Wells and Seitz, 2005) and requires coordination of revenues and costs and responsibility sharing among CLSC actors

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(e.g. Jacobs and Subramanian, 2012; Mafakheri and Nasiri, 2013). For example, focal companies can outsource product recovery to third party providers or suppliers instead of recovering in-house (Mafakheri and Nasiri, 2013). In-house recovery activities can be coordinated in separate recovery departments or as part of the portfolio of the customer service department. Moreover, thinking integrally of the entire process, instead of separate functions, business cases and a “silo approach”, is imperative for a CLSC business model that aims at value creation (Guide et al., 2003).

3. Methodology 3.1. Research framework Fig. 2 presents our research framework. We focus on the focal company and an integrated FSC and RSC as conditions for CLSC value creation. CLSC activities can create opportunities and reduce risk for the focal company and their primary and secondary stakeholders. Four types of value were identified with each type of value including attributes of opportunity creation and risk reduction. Strategic success factors influence CLSC processes and, hence, value creation. The aim of this study is to learn how CLSC activities create different types of value for the focal companies and their primary and secondary stakeholders, what role strategic success factors (product design, customer services and business models) play in the value creation process and how stakeholders influence these factors. Given the little empirical evidence on these topics, we used exploratory, theory building research with multiple case studies to pave the way toward more insights in this field (Eisenhardt, 1989; Yin, 2009). Our unit of analysis was the CLSC and CLSC activities

related to a product group of a brand owner, who created value for and with their stakeholders. We did not take a multi-actor view that specifically included the perspective of the brand owners' stakeholders.

3.2. Sampling We used theoretical sampling and selected cases that were suitable for illustrating value creation in different CLSC designs and business contexts (Eisenhardt, 1989; Eisenhardt and Graebner, 2007). We listed possibly interesting cases, and evaluated their relevance with two experts. We conducted our cases in the global electronic industry because it is actively involved in product recovery (Talbot et al., 2007). Electronic products are of significant original value and have a high residual value after their useful lifetime, which makes recovery attractive to manufacturers (de Brito et al., 2003). Due to their large environmental impact, electronic and electrical equipment is subjected to various forms of extended producer responsibility legislation, such as the WEEE (waste of electronic and electrical equipment) directive (Frota Neto et al., 2010; Thierry et al., 1995). We chose for the CLSCs of high capital products in a business to business (B2B) and business to government (B2G) environment. These products have long life cycles, implying a high potential for recovery (Hauser and Lund, 2003). Brand owners often provide after sales services that support reverse flows and recovery of products and close relationship with stakeholders. Given these commonalities, we selected four case studies with European brand owners that differed on company size and maturity in recovery activities in order to generate a sample that represents as many companies practicing CLSC activities as possible. The brand owners had to comply with

Fig. 2. Research framework.

Table 1 Sample criteria and CLSC characteristics.

Case Case Case Case

Case Case Case Case

1 2 2 4

1 2 3 4

Company size in number of employees

Maturity based on estimated return rate

o35,000 o30 000 o300 o3000

High (10–12%) High (10–15%) Low (0–2%) Low (0–1%)

Industry

Re-use

Re-furbish

Medical Document management ICT Material-& baggage handling

þ

þþ þ þ

Remanu-facture

þþ þ

Re-pair

þþ þþ

Har-vest

Re-cycle

Market for recovered products

þ

þ þ þ þþ

Original & new Original & new Original Original

þ

Note. The return rate is estimated by corporate representatives and describes the share of returned products in comparison to new ones sold. The “þ” indicates the estimated degree of activity and importance within the company. For an explanation of the recovery options listed in this table, see Thierry et al. (1995).

Please cite this article as: Schenkel, M., et al., Creating integral value for stakeholders in closed loop supply chains. Journal of Purchasing and Supply Management (2015), http://dx.doi.org/10.1016/j.pursup.2015.04.003i

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EU environmental regulations. Table 1 summarizes information on CLSC activities at each brand owner. 3.3. Data collection First, we conducted interviews with nine CLSC independent researchers at a workshop in 2012 to learn about concrete realizations of value creation in terms of opportunity creation and risk reduction, and to verify the four types of value distilled from literature. Case study data was collected in 2012 and 2013. To achieve triangulation and rich information (Gibbert and Ruigrok, 2010), we collected data via interviews, participative observation in workshops, site visits and document analysis (Table 2). 27 interviews were held with managers in service, reverse logistics, sustainability, sales, research and development (R&D), and product management from different hierarchical levels and functions. All interviews used a semi-structured interview protocol with theoretical underpinned questions, based on previous studies in CLSC, reverse logistics and operations research (e. g. Krikke, 2011; Mollenkopf et al., 2011; Thierry et al., 1995), which Table 2 Data used in this study. Case study

1

2

3

4

Interviews Site visits Observation

6 2 3

4 1 –

8 2 1

9 3 2

Secondary data Presentations Internal documents Master thesis Brochures

– – 2 2

– – 2 4

2 – 3 –

3 3 2 –

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is available from the authors upon request. All interviews were conducted, recorded and transcribed by a single researcher. To ensure the researcher's understanding of corporate processes, the interviews were summarized and sent out to respondents for feedback. 3.4. Data analysis We employed within case analysis to draw preliminary conclusions about what is happening and suggest ideas towards new data collection and questions (Miles and Huberman, 1994). This process led to five additional interviews with managers in two companies. We employed cross-case comparison to generate theory from our findings. The data was analyzed by the methods of coding, pattern matching and cross-case meta matrices (Miles and Huberman, 1994; Yin, 2009). The initial coding list was deduced from the literature and further developed in several coding rounds based on inter-rater discussions among the researching team. Codes were compared to identify relationships between different constructs using NVivo 10 software (Miles and Huberman, 1994). In the analysis of value creation in CLSCs, we distinguish between the types of value created in CLSCs and the strategic success factors to create value. We analyzed value creation by applying our research framework, a matrix consisting of two dimensions (1) Value creation for the focal company, primary and secondary stakeholders; and (2) Opportunity creation versus risk reduction. Value attributes—representing a concrete realization of value—related to opportunity creation are seen as benefits which positively impact business and society at large. Whereas value attributes related to risk reduction are risks and negative externalities which impact the business and society at large. We compared the framework resulting from our data analysis of the four types of value with

Fig. 3. Economic, customer, and environmental and social value creation.

Please cite this article as: Schenkel, M., et al., Creating integral value for stakeholders in closed loop supply chains. Journal of Purchasing and Supply Management (2015), http://dx.doi.org/10.1016/j.pursup.2015.04.003i

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predicted ones. Cross-case meta matrices helped with finding strategic success factors for value creation based on case study differences. We processed information in an iterative manner, constantly comparing data and moving back and forth between data and emerging theory (Eisenhardt and Graebner, 2007). We presented our final findings to corporate representatives in a workshop in February, 2014. Feedback and observations from this workshop were processed in the outcome of this study.

4. Value creation in CLSCs Throughout data analysis, we identified attributes of economic, customer, environmental and social value creation (Section 4.1). Information value is seen as a driver of the other three types of value (paragraph 4.2). 4.1. Economic, environmental and social, and customer value creation By undertaking CLSC activities the four focal companies created opportunities and reduced risks for themselves, primary and secondary stakeholders. Fig. 3 displays the results. Behind each value attribute, the different cases are indicated in brackets with numerals for cases 1 till 4. The types of value creation are indicated with Roman numerals, i.e. economic value (I), customer value (II) and environmental and social value (III). 4.1.1. Focal company—opportunity creation The focal companies extended their business by selling preowned products to the original or secondary market. Trade-in deals and cheaper, recovered product variants extended their markets and created customer retention. Recovered products were also used to compete on price level for placing products in mature markets. A potential second life cycle generated a higher product residual value and, hence, market value. It also generated additional income from “second” service level agreements as a product manager (case 1) explained: “Another element is by reuse, you offer it to other customers, you increase your installed base and there you have an increase of the service recognition you have with people, this is also an element that brings additional money.” The service business was increased by an extended spare parts availability. This enabled the focal companies to service (old) products in the installed base with recovered parts from similar models and offer unique parts, which were not registered as service parts. An asset recovery manager (case 2) gave an example (translated): “ [Imagine that] There is a customer and this customer has a machine with a bump in the cover [. .], the cover is not a service part. So, our regular systems do not support that and you cannot order such a cover. Normally a cover does not get broken. [. .] We have several machines standing here [and] remove one [a cover and] nicely wrap it. [. .] So this is actually added value that our service organization supplies.” Service activities, e.g. upgrades or modification of existing products on- or off-customer site, created service income and increased the return rate of old spare parts. Service costs could also be lowered by substituting end-of-supply items with recovered and harvested parts. By repairing the customers' parts, inventory and working capital costs for spare part pools could also be lowered.

The focal companies reduced sourcing costs and embedded costs for e.g., transportation or energy, by substituting new materials with recovered ones. Product recovery recovered more embedded resources than recovery of parts which in turn outperformed recycling. However, the income from material recovery barely broke even with reverse logistics and re-processing costs (internal studies cases 3 and 4). 4.1.2. Primary stakeholders—opportunity creation Customers were given more choice by a product portfolio that included pre-owned equipment with reduced prices. While product recovery was an ongoing activity in cases 1 and 2, it was driven by individual customer requests in cases 3 and 4. The service portfolio was extended by leasing contracts (cases 1 and 2) or the offer to rent or purchase pre-owned equipment for rapid capacity increases (cases 3 and 4). A customer service manager gives an example (case 3) (translated): “[Imagine] We have a customer who says [. .] I have [a machine with] 12 sections running and they are already four years old. However, I am creating a lot of volume now and I need, let's say, another 6 sections [. .], I do not need new ones. [. .] So [the customer asks] can't we deliver pre-owned ones? And this happens on a regular basis [. .].” Due to the high residual market value, leasing companies could offer contracts with reduced leasing costs. They provided services to the focal companies (cases 1 and 2) or directly to the customer (case 3). Moreover, the focal companies transferred savings made by recovering used parts to their customers who could purchase parts at a stable price. This reduced the customers' total cost of ownership, yet required compatibility between various releases or even products. All four companies advocated a corporate green image. However, few customers especially asked for take back and shares of recovered materials. Apparently, pre-owned equipment is sold primarily for its price-quality ratio. Fluctuating commodity prices and resource scarcity played a minor issue. Case 4 did not generate any savings themselves, yet motivated their suppliers to recover materials to hedge against high commodity prices, thereby preventing higher parts prices for themselves. The supply chain manager explained (translated): “This is also our message to the suppliers […]: If you source your copper from mines [. .] and in five years [the resource] it is close to depletion, or prices increase and your competitor made sure that he gets all returned from the market, then he has organized his own supply and [. .] your business will cease.” 4.1.3. Secondary stakeholders—opportunity creation Recovery activities supported local employment opportunities. Case 3 built local repair centers in different regions, while case 4 employed local organizations to remove old, non-repairable systems. These organizations generated income from recycling materials. 4.1.4. Focal company—risk reduction All focal companies complied with environmental regulations (e.g. RoHs, REACH, WEEE). Cases 1 and 2 pro-actively controlled their auditing and compliance process and thereby reduced costs for compliance. They also considered their product recovery activities as a way to achieve legitimacy within their industry, which has a long-standing tradition in CLSCs. Several managers stressed that CLSCs enabled their company to protect their aftersales- and pre-owned market from cannibalization by third party influence, e.g. brokers. One sustainability director (case 1) explained:

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“They [Brokers] are not going to sell the whole part, they make way more money by taking out the parts, so this is what they do, they are going to take out the parts, they repair […] and then they sell them and what happens, that competes with […] [our] parts.” Paradoxically brokers also served as suppliers of pre-owned parts in emergency situations, i.e. lack of supply. Cases 3 and 4 also dealt with the customers who did not return, broken parts or let competitors service their machines.Harvesting and recovering preowned parts assured fulfilment of warranty obligations also in the case of constrained supply or future resource scarcity. 4.1.5. Primary stakeholders—risk reduction Recovery activities and regulations required data collection on the products' life cycle. This data was used by the companies and their customers to report on their environmental performance. Good collaboration with suppliers is needed as they have to report the bills of materials of their components and parts. High capital electronic goods contain many components, and compliance turned out to be a huge effort for the focal companies. Customers included governmental organizations that require certain environmental certifications which especially emerged in the United States (e.g. EPEAT certification) (case 3). These certifications could be obtained easily as recovered products complied with the required minimal content of recycled materials. By using remote diagnostics and minimizing repair lead times, manufacturers limited the downtime of broken machines, which in case of capital goods led to significant cost savings for the customer. However, this did not apply to all recovery option. Uncertainty of timing and quality of returned machines caused longer lead times for refurbishing than new built in case 1. 4.1.6. Secondary stakeholders—risk reduction Material recycling and recovery helped to lower the virgin material consumption and CO2 emission. One product manager

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(case 2) explained that if the company had to choose between new and recovered, they chose for recovered (translated): “[…] and some of the [remanufactured] products are still available as [a] new [version], then they come from last year. […] So you can fix [the returned machine] or you buy a new one. If this is the same price, than we rather fix [the returned machine].” The respondents also discussed social value creation. So-called critical materials might violate human rights. Unsafe and hazardous materials harm human health. By returning and recovering used products, manufacturers ensured that hazardous materials do not enter the environment and less critical materials are needed. All cases reduced waste- and environmental costs by recycling and re-use activities. Comparing our overall findings to prior research, we found new value attributes such as an increased market value, better product placement and customer support by supplying unique parts. We did not find attributes such as labor- and logistic costs reduction or brand protection as proposed by the literature. 4.2. Information value We found two types of information: Information about the installed base—namely size of installed base, age, technical status, and location of products—and information about the product and product life cycle–namely spare part consumption, life cycle performance, maintenance, service and recovery process. Information only created value when they were shared and collaboratively used across departments and suppliers to modify products and supply chain processes. Hence, modified product design and supply chain processes mediated information value creation. This should eventually enhance customer, environmental and social as well as economic value creation. Hence, information value can be seen as a driver of the other three types of values. However, it is mediated by product and FSC and RSC process modification

Fig. 4. Information value in CLSCs. Note. The four case studies are indicated in brackets behind each information type. Economic (I) customer (II) and environmental and social (III) are indicated in Roman numbers.

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(Fig. 4). For example, based on information about the installed base, the service and sales departments informed the product recovery department about the future part consumption, trade-ins and end-of life products. Using this information, the recovery department could better plan harvesting processes, trade-in offerings and market launches of recovered products. Managers from all case studies agreed that information about the spare part consumption, maintenance, return causes and defects and repair process helped suppliers and the R&D department with product modifications. Several managers proposed a simplification of information management through improved database management (cases 1 and 4). One customer service manager (case 4) explained their information system, its data collection and how it will benefit CLSC processes and product design (translated): “And if you want to close the knowledge circle, then you need this kind of [IT] solutions. [. .] So we can then centrally see from our office here, what the spare parts inventories are, what is used and we will link it to the special equipment. So we can see, hey, this kind of equipment uses a lot [of spare parts], this equipment uses less. [. .] And of course, those parts that break very often are returned saying, here you did not develop these parts good enough: that is to be improved.” Being asked about learning from physical product returns, several managers explained that products are only returned after several years which is considered too long in high-clock speed industries.

5. The influence of strategic success factors on CLSC value creation In the cross-case analysis, we investigated the strategic success factors business model, product design and customer services (see Table 3). Each factor can have both positive and negative implications for FSC and RSC processes, thereby possibly creating value. They also required the involvement of different stakeholders. 5.1. Business models for CLSC activities We found four different types of business models: An integral business model and business case driven business model; a business model related to the CLSC design, with recovery at the focal company and recovery at the supplier or third party. The business models were not mutually exclusive as they can be combined and vary per part or product recovery. 5.1.1. Integral and business case driven business models Cases 1 and 2 have dedicated business units for product recovery and a permanent inventory of to be recovered parts and products. They strived for an integral business model that implies both integral thinking and integral profit creation across departments with the aim to optimize the overall long-term profit of the company. A recovery manager (case 2) illustrates (translated): “[Imagine] A service technician […] He replaces a broken part […] In the case that I have set up [recovery activities], and I say [to the service technician], ok, if you send it [the broken part] back to me then you receive 50 Euros. So the company earns 50 Euros, integrally. I make 50 Euro losses which I had to pay. [. .] I make another 25 Euros reparation costs, so I have a [working] product for 75 Euros. I sell this product for 100 Euros to the

service organization which receives the same product as if it would be new. I would then have 25 Euro profit margin for myself. But integrally I have earned, 50 and 25, 75 Euros for the company.” Integral profit was created because the recovery department acted both as an internal buyer for broken parts and as a supplier for repaired parts. In this way, FSC and RSC processes were integrated and both the service and recovery departments gained financial income. In case 1, profit was only created at the destination of recovered parts and products, i.e. the service or sales unit. This way, the recovery department could suffer losses benefitting other departments. The business units located around the world were stimulated to return old products and trade-ins to the central recovery department which could match demand and supply on global level. The return rate of products was steered by the tradein value offered to customers or (internally) to the national business units. If the demand for recovered products exceeded supply, the trade-in value was increased. In cases 3 and 4 recovery was rather an occasional activity and did not yet belong to core business activities. Each individual business case had to be viable and generate short-term value. Contrary to case 1 and 2 recovery-, inventory-, and transportation costs and investments were minimal. 5.1.2. Business model with recovery at the focal company, supplier or third party In cases 1 and 2 equipment was recovered locally, mostly at focal companies' locations, to minimalize costs for reverse logistics and guarantee qualified processes. Due to increasing logistics costs, reduced control over broken spare parts and long lead times, case 3 recently shifted from recovery by the supplier to recovery at a focal company location. Recovery at the focal company enabled feedback processes between the recovery, service and R&D department. However, it also required (initial) investments. Case 1, 2 and 3 had a global supplier base, which made shipping pre-owned parts and materials to the supplier for repair economically not viable. Case 4, however, had a responsive, local to local supply chain, creating the possibility that recovery was done by suppliers who offered warranties for recovered parts. Risks for the focal company were reduced hereby. In both situations, the interests of the suppliers and focal companies had to be met, for example regarding a reduced part business for the supplier in case of own repair (cases 1–3). Focal companies often employed third party service providers for the de-installation of products (cases 1 and 4) and reverse logistics (cases 3 and 4).

5.2. Customer services: new service models and traditional ownership New service models, such as leasing, strengthened value creation by decreasing uncertainty related to the return quantity and quality as well as trade-in and recovery costs. Moreover, focal companies were able to collect data on the product life cycle (cases 1 and 2). Customers appreciated the flexibility, stable cost of ownership, and a well-maintained product. However, several customers preferred traditional ownership models to maintain control over the product and service operations. The customer service manager from case study 4 added (translated): “They[our customers] have given budgets they can spend and they also simply want to spend them [for buying new machines].” Another obstacle was that when leasing products, the focal companies had to pre-invest in new products, and (partly) earn

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Table 3 Strategic success factors in CLSCs. Strategic success factor

Influence on CLSC activities

   

Stakeholder involved

  

Focal company (Recovery, sales and Integral & long-term profit service department); Customer Integrate FSC and RSC processes Continuous trade-in possibilities Matching supply and demand for recovered products on a global level Matching recovery activities with forward service period High return rate and continuous inventory of returned products Market demand steers the return rate Pre-investment Increased spare part business

Business model: Business case driven (3,4)

   

Short-term value from recovery Reduced inventory costs and investment Lower return rate Less transport of returned parts

Business model: Recovery by focal company (1,2,3)

Focal company (Recovery and service  Reduced logistic costs and lead time department, R&D department)  Control  Feedback information between the recovery-

Business model: Integral business model (1,2)

 

Focal company (Recovery and service department); Customer

and R&D department

 Initial investment costs  Higher margin on recovered products and parts

 Reduced business for the supplier Business model: Recovery by supplier (3,4)

   

Intensified business with supplier Supplier warranty on recovered parts Reduced risk & investment Increased reverse logistic costs

Supplier; Focal company (Recovery and supply chain)

Customer services: New ownership models, e.g. leasing (1,2,3)

   

Increased sales & service business Increased return rate Lower trade-in costs Improved maintenance status, reduced recovery costs Collect data on the product life cycle Long-term investment Obligation for taking back

Customer; Leasing companies; Focal company (Recovery and service department)

 Service as an additional contract  Full sales income  Customer contact via, e.g., service level

Customer; Focal company (Recovery and service department)

   Customer services: Traditional ownership (1,2,3,4)

     

Product design: Modularity (1,2,3,4), design for disassembly (1,2,3) standardization on product (1,2,3) and part level (1,2,3,4), serviceability or upgradability, inter- release compatibility (1,2,3) and inter-product compatibility (3), design for the environment (1,3); customized software (2,3,4); customized product design (3,4), robust design (2)

 

agreements, upgrades and modifications, consultancy on repair High trade-in value risks economic feasibility of recovery Low return rate lowers economies of scale Focal company (Recovery Improved service activities department, R&D department) Modularity offers more recovery options Supplier Upgradability to future technologies Value depreciation on module level as modules can be exchanged Ease of disassembly and testing reduces costs and increases economic feasibility of recovery Ease of removing hazardous materials

Backwards compatibility Note. The four cases are indicated in brackets.

the investment back throughout the leasing period. They also had the obligation to accept products returns from leasing. In traditional ownership models, trade-in and discount programs reduced re-acquisition costs and created market demand for new machines (cases 1–4). Customer contact was maintained via service level agreements and value-adding services.

5.3. Product design Environmental design standards were partly adopted in all case studies. They were not only regarded as green but also as good quality standards and value proposition to the customer (case 3). Focal companies often collaborated with suppliers to implement

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these design standards. The intensity of collaboration varied depending on whether the focal company designed and (partly) manufactured products and parts themselves (cases 1 and 2) or mostly designed and assembled the products (cases 3 and 4). All focal companies strived for increased standardization and modularity to improve compatibility between products and releases, design for disassembly, and future upgradability. These design standards simplified service activities, increased the re-use rate for parts, enabled more recovery options, and future product upgrades. The R&D manager from case 3 explained their design (translated): “Key is actually that you determine the interfaces, the [different] spaces in our machines which are reserved for a special function.] […] and you can work on the machine as long as you stay in the spaces and interfaces. [. .] So this way you actually have an open architecture with fixed interfaces in which you can add all new functions in the future and renew obsolete functions.” Customization influenced product recovery in two ways. Customized hardware often hindered recovery on product level, due to a lack of inter-product compatibility. Hence, depending on the degree of standardization, recovery was feasible only on part or material level. Software customization often occurred at the end of the production phase and could still be adapted later in the product life cycle.

6. Discussion and propositions In this study, we argue that focal companies create economic, customer, and environmental and social value by CLSC activities in two ways. First, CLSC activities create opportunities for extending current service business and markets, streamlining business processes or reducing production costs by for example cheaper sourcing. Second, CLSC activities lead to risk reduction, for instance by complying with environmental regulations, avoiding constrained supply of materials or reducing the supply chain's environmental impact. Several value attributes can be related to more than one type of value. For example, a high spare part availability can extend the company's service business (economic value) but also improve customer services (customer value) (Fig. 3). Hence, win-win situations between the three types of value occur. While economic and customer value attributes can stand alone, environmental and social value attributes are almost exclusively created in win-win situations with (one of) the other two values. We can also see that environmental and social value attributes mostly relate to risk reduction value attributes. Hence, Proposition 1a. CLSC activities create opportunities for standalone economic and customer value and reduce risk for environmental and social value creation. Proposition 1b. Environmental and social values created by CLSC activities are almost exclusively the byproduct of economic or customer value. Future research could measure the relative importance of each value and value attribute of opportunity creation and risk reductions as identified in Fig. 3. The finding that win-win situations emerge when several values are created simultaneously is addressed in concepts such as eco-efficiency (e.g. Huppes and Ishikawa, 2009) or the triple bottom line approach (e.g. Lai et al., 2013). The minor relevance of environmental and social value is also discussed in the literature. Some authors suggest that green supply chain management and CLSC activities may rather increase costs and investments than that they generate economic benefits by, e.g., extending markets (e.g. Kapetanopoulou and Tagaras,

2011; Walker et al., 2008). Additionally, recovering used products may not be necessarily environmental friendlier than new production (Gutowski et al., 2011). The attributes listed as opportunity creating and risk reducing can be linked to the different stakeholder groups. It can be seen that opportunity-creation attributes mostly relate to the focal company and primary stakeholders, while risk reduction attributes also include secondary stakeholders. We propose: Proposition 2. CLSC activities primarily create opportunities for the focal company and primary stakeholders, while reducing risk for all three groups of stakeholders. Focal companies obviously see primary stakeholders such as customers and suppliers as major sources of value creation. Whether CLSCs activities create, for example, social benefits, remains an emerging and contradictory topic in the literature (e. g. Lai et al., 2013; Nikolaou et al., 2012; Sarkis et al., 2010c). Future research studies should investigate how focal companies can create value for secondary stakeholders such as societies or nongovernmental organizations. The focal companies in this study obtained data on the installed base, the product and product life cycle (Fig. 4). Using this data they improved product- and FSC and RSC process design including aspects of customer services. Hence, information value enhances the other three value types. Obtaining information requires the involvement of different stakeholder groups, in particular primary stakeholders. The focal company and other primary stakeholders have to process and share received information for actual productand process improvements, hence: Proposition 3. Intra- and inter-organizational data collection and information sharing lead to improved forward and reverse supply chain processes and improved product design which strengthen CLSC value creation. This study has showed that information value is created in a feedback process between different stakeholder groups. Future research could further explore the inter-and intra-organizational information processing in CLSCs using methodologies such as system dynamics to research vicious and virtuous feedback loops. More attention could also be paid to the benefits of IT investments and use among stakeholders of both supply chains types or emerging IT topics such as big data or systems talking to systems. It is also important to investigate which kind of information is needed by which supply chain stakeholder in order to improve product or process design (e.g. Datta and Christopher, 2011). The cross-case analysis investigated several strategic success factors that strengthen value creation in CLSCs (Table 3). Although primarily led by the focal companies, each factor affects the opportunity-creating or risk-reducing activities of multiple stakeholders. For example, when implementing new product design, focal companies need to collaborate and share information with their suppliers. New customer service concepts, such as leasing, are only implemented when the customer appreciates these new forms of ownership. Proposition 4. Relationships between the focal company and their primary stakeholders as well as intra- and inter-organizational information sharing, influences the impact of the strategic success factors in CLSCs. Future research could focus on stakeholders' relationships and their influence on the implementation of strategic success factors from different angles, such as incentive alignment, the management of conflicting stakeholder interests, and stakeholder collaboration. Longitudinal studies could capture the short- and longterm dynamics of pertaining strategic success factors.

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7. Conclusion Our study has demonstrated integral value creation in CLSCs. We have distinguished between opportunity creation and risk reduction and multiple types of value for multiple groups of stakeholders. Strategic success factors such as product design, customer services and CLSC business models and intra- and inter-organizational information processing strengthen value creation by modifying CLSC processes and product design. These factors are influenced by stakeholder relationships. Our study has a number of limitations. We especially focused on the perspective of the focal companies which create value for different groups of stakeholders. Hence, we did not interview corporate stakeholders which can lead to a subjective perspective of value creation. Future studies could include primary and secondary stakeholders into data collection. For example, focus groups can be used to compare stakeholders' perspectives. The companies in this study were sampled according to the company size and maturity of CLSC activities. These sample characteristics influence the strategic success factors. Comparative studies, which give answer to which strategic success factors create more value than others may be conducted in the future. More research is also needed for instance in B2C and/or less capital-intensive goods. Companies may use the results of this study as a benchmark for assessing their CLSC value creation and evaluate the impact of their product design, customer services and business model characteristics on their CLSC value creation. More importantly, they may consider investments in data collection, information sharing and relationships with different stakeholder groups. Economic value is one of the primary values gained from CLSC activities which is, among others, created by reducing material consumption and sourcing costs. Purchasing managers are key to closing the loop as they re-integrate used materials into the FSC. In order to leverage environmental and customer value as a byproduct of economic value, purchasing managers should be in close contact with, for example, sales-, environmental- or service departments.

Uncited references Hall and Vredenburg (2005); Seuring et al., (2008).

Acknowledgment This project was funded by the Dutch Institute for Advanced Logistics (DINALOG) and European Union, EFRO and OP-Zuid program as part of the Logistics Accelerator project registered 31 W 013/PROJ-00848. References Abdulrahman, M.D., Gunasekaran, A., Subramanian, N., 2012. Critical barriers in implementing reverse logistics in the Chinese manufacturing sectors. Int. J. Prod. Econ. 147, 1–12. Álvarez-Gil, M.J., Berrone, P., Husillos, F.J., Lado, N., 2007. Reverse logistics, stakeholders’ influence, organizational slack, and managers’ posture. J. Bus. Res. 60 (5), 463–473. Amini, M.M., Retzlaff-Roberts, D., Bienstock, C.C., 2005. Designing a reverse logistics operation for short cycle time repair services. Int. J. Prod. Econ. 96 (3), 367–380. Atasu, A., Van Wassenhove, L.N., Guide, V.D.R., 2010. So what if remanufacturing cannibalizes my new product sales? Calif. Manag. Rev. 52 (2), 56–77. Atasu, A., Van Wassenhove, L.N., 2010. Environmental legislation on product take back and recovery. In: Fergueson, M., Souza, G.C. (Eds.), Closed Loop Supply Chains. Auerbach Publishing, Boca Raton, pp. 23–38. Ayres, R., Ferrer, G., Van Leynseele, T., 1997. Eco-efficiency, asset recovery and remanufacturing. Eur. Manag. J. 15 (5), 557–574.

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