Returns acquisition, sorting, and disposition for a circular economy

A take-back programme is a firm's initiative to collect used products from consumers. Examples include initiatives of H&M, Zara, Dell, HP and, more recently, Walmart. Take-back, in turn, hinges on obtaining sufficient used products (i.e., acquisition, A); classifying them accurately by type and quality (sorting, S); and deciding their value-recovery option (disposition, D). Take-back, driven partly by regulatory and ethical imperatives, is increasingly common, but the practice is young and challenging, with limited practitioner expertise. It’s also complicated by uncertainty around quality, quantity and timing of returns, with Items arriving via varied channels from numerous consumers and under diverse circumstances. Many firms still miss their self-set take-back targets, and the best or fastest transition path to a circular economy (CE) is not necessarily being followed.

With its ultimate goal of eliminating waste and pollution, a faster transition to a circular economy (CE) is crucial environmentally. At the same time, CE business models promise to financially outperform linear ones. In a striking recent global survey of 150 businesses, all firms adopting CE initiatives such as used product take-back averaged 6%–50% more revenue growth than competitors.

Our recent research, reviewing 131 high-impact journal articles from the past decade, provides insights into the current state of research on returns acquisition, sorting, and disposition (ASD) and identifies key research directions for supporting the transition to a CE. We cover five decision areas in ASD relevant to practitioners, returns forecasting, acquisition effort, and channel selection (all part of acquisition), the sorting process, and disposition. Forecasting helps managers predict patterns in used product returns and enables informed decisions for take-back. While much research is available on forecasting the quantity of returns, there is a lack of tools for predicting returns quality.

With acquisition efforts, firms must choose between passive and active approaches. While some consumers spontaneously return used products, a passive policy may not generate enough volume, necessitating ongoing investments in take-back activities. Firms can benefit from an active policy, investing in collecting through marketing activities, public relations, and training front-line employees without directly paying consumers per unit of return. Incentives per unit of return can increase return on investment, but non-monetary acquisition efforts can also be considered, including emotional rewards or promises to donate to charity.

Choosing the appropriate channel for take-back (whether using a remanufacturer to collect on their own, utilising a retailer or a 3rd party collector, or following a hybrid approach) is the next step, and the literature suggests that centralised acquisition is more profitable than single-channel or competitive-channel collection approaches. Increasingly popular e-commerce business models involving acquiring and selling used products through e-commerce platforms have been shown to increase efficiency in traditional channels.

Whereas acquisition often concerns quantity, the issue in sorting decisions is quality. Recovering value profitably depends on returns' quality characteristics and the system's economic parameters. A firm's ability to assess quality makes the value-recovery output more certain, significantly improving profitability. Quality metrics for returns may vary by industry. For example, key quality indicators in textiles include brand, durability and softness, while usage condition is a standard indicator for returned waste electrical and electronic equipment. More generally, and across industries, yield values can indicate quality. A lower yield returns require more materials and labour to remanufacture, e.g., higher-quality mobile phone returns may need only simple exterior cleaning. In contrast, lower-quality returns may require replacing circuitry. A useful practice in sorting is paying a quality-dependent acquisition price. This effectively transfers the sorting task to customers, pre-acquisition.

Alternatively, a firm may first acquire all the available used products, and then sort them by expected yield. Here, the fractions of various classes obtained are uncertain, and the quality is determinable only at a point of sorting after acquisition. Disassembly is the point of the most accurate quality assessment of returns. Yet, disassembly takes time and money. Therefore, obtaining quality information earlier in the reverse (take-back) supply chain, even if not entirely accurate, is valuable. Technology such as radio frequency identification (RFID) may help determine quality without the need for expensive product disassembly. In general, the literature shows that sorting is more beneficial when it isn’t possible to accurately estimate each unit’s quality characteristics and average returns quality is poor.

The final decision area is disposition, where firms must determine the best options for recovering value from returned products or their components. Options such as reuse, refurbish, remanufacture, recycle, and disposal are available, and the choice depends on factors such as returns supply, product characteristics, demand for recovered products, regulations, and economic, social, and environmental impacts. Multiple-criteria decision-making approaches have been employed to identify suitable recovery options, considering conflicting objectives in specific contexts where each firm may need to establish its criteria.

Behavioural considerations have gained increased attention in research, reflecting challenges in used product returns and organisations. However, the applicability of research findings has been limited due to a lack of empirical studies, insufficient validation of mathematical models, a strong focus on economic objectives, and restrictive assumptions concerning behaviour and uncertainty in returns. Take-back organisations need to be mindful that participating supply chain entities (i.e., supply chains, firms and consumers engaged in used product returns and collection) don’t always act rationally. For example, one study shows that when a retailer is concerned about profit-sharing fairness, the acquisition rate and channel profits are higher than the profit-maximising case.

In conclusion, the urgency to transition to a circular economy is undeniable, and the success of returns acquisition, sorting, and disposition is pivotal in achieving this goal. With the promise of environmental sustainability and financial growth, practitioners must address the challenges of accurate returns forecasting, strategic acquisition efforts, channel selection, efficient sorting processes, and optimal value recovery options. Additionally, considering behavioural aspects and embracing empirical research will enhance the effectiveness of take-back programs. By prioritising these critical areas and working collectively, a path towards a circular economy that not only eliminates waste and pollution but also drives economic prosperity and long-term sustainability for businesses may be forged.

Lahiru is a PhD candidate at the Department of Information Systems and Operations Management, University of Auckland, under the supervision of Professor David Robb and Dr Subhamoy Ganguly.