Özden Tozanlı, Elif Kongar, Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation: A Case Study of a Mattress Recycling Company in:

Alptekin Erkollar (ed.)

Enterprise & Business Management, page 1 - 26

A Handbook for Educators, Consultants, and Practitioners

1. Edition 2020, ISBN print: 978-3-8288-4255-7, ISBN online: 978-3-8288-7230-1,

Series: Enterprise & Business Management

Tectum, Baden-Baden
Bibliographic information
Özden Tozanlı, Elif Kongar Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation: A Case Study of a Mattress Recycling Company Learning Objectives The objectives of this chapter are to highlight the importance of shifting traditional business operations towards the digital era and to provide a compreherensive understanding of Industry 4.0 principles together with the value-adding role of these principles in reverse supply chain operations. Once you have mastered the materials in this chapter, you will be able to: – Understand the goal of supply chain management and the significance of reverse logistics in supply network flow. – Discuss the role of environmentally, economically, socially, and technologically sustainable value creation tasks in long-term corporate strategies. – Describe value creation modules of Industry 4.0 and their functions in the digital era. – Identify Supply Chain 4.0 and its major deliverables in the context of the sustainable value chain. – Comprehend the utilization of Industry 4.0 principles into business operations through a real-life case study. Chapter Outline This chapter introduces the vision of future-oriented supply chain technologies in the area of Industry 4.0. Growing trends towards digitalization and globalization significantly trigger the ever-increasing customer demand for personalized products and the rapidly-expand- 1 ing complexity in managerial and operational layers of value chains. As a result, companies today are required to realign their long-term corporate strategies to adopt to state-of-the-art technologies. Industry 4.0 is signified as the paradigm shift in business processes since it facilitates the transition of traditional industrial operations to a highly intelligent digital platform. Focusing on these, the chapter first provides a conceptual understanding of supply chain operations and the distinctive role of reverse logistics in sustainable development to reach a steady state in competitive value creation. Then, Industry 4.0 principles and the utilization of these principles in sustainable reverse distribution are examined through an in-depth analysis in order to discuss their impacts on the overall value-adding capability of organizations. As an illustration, a case study of a mattress recycling company is presented so as to support a coherent insight of this topic. The proposed results aim at delivering a new perception to the traditional value chain in terms of economically, environmentally, socially, and technologically adaptable infrastructures. Keywords Industry 4.0, Supply Chain Management, Reverse Logistics, Sustainability, Value Creation, Qualitative Research Introduction Today, manufacturing companies are forced to a disruptive change caused by various ongoing trends such as globalization, individualization, and virtualization. As a result of such trends, the complexity in manufacturing networks is steadily growing along with the ever-increasing market requirements. Specifically, fast-growing demand for newer and customized products results in shortened product life cycles, which reveals the need for firms to have faster and more reliable production technologies. In addition, the growth in global business activities compels firms to build advanced communication channels via farreaching networks. Moreover, growing environmental concerns and regulations obligate companies to carefully assess the sustainable impact of their products and services considering environmental, econo- 1 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 2 mic, and social aspects at all stages of a product life cycle (Efendigil et al. 2008). These challenging requirements force corporations to adapt using state-of-the-art technologies in their business operations in order to maintain their competitiveness in today’s highly complex market environment. However, traditional production and supply chain technologies have become insufficient to simultaneously overcome the ever-increasing complexity and ensure sustainable development in their manufacturing functions (Stock and Seliger 2016). As a result of insufficient capability of traditional technologies on value creation, the need for intelligent technologies emerges in order to enable companies to enhance total value added in terms of cost efficiency, productivity, modularity, flexibility, adaptability, stability, and sustainability along their supply chains (Hofmann and Rüsch 2017). With this motivation, the term Industry 4.0, also referred to as the Fourth Industrial revolution, was developed so as to shape a concept of integrated industry to achieve effective management of production and supply chain and value creation in the product recovery towards sustainability (Lasi et al. 2014). In the subsequent sections, the basics of supply chain management along with the role of reverse logistics in sustainable supply chain operations are presented. Following this, the context of Industry 4.0 and its deliverables to the long-term operational strategies are elaborated through an in-depth discussion. Consequently, a case study mattress recycling company is introduced in order to investigate reverse logistics activities in the Industry 4.0 era so as to provide a coherent understanding of this topic. The Basics of Supply Chain Management The concept of supply chain management (SCM) first emerged in the early 1980s, however, received a growing interest from both academics and practitioners upon the mid-1990s. This topic originated from the theory of binding logistics operations with various business functions including planning, sourcing, production, and distribution in an effort to develop a dynamic flow of information, materials, services, and funds. One of the basic but very common definitions of SCM was provided by Handfield and Nichols (1999) as “the supply chain encom- 2 2 The Basics of Supply Chain Management 3 passes all activities associated with the flow and transformation of goods from the raw materials (extraction), through the end user, as well as associated information flows. Material and information flow both up and down the supply chain.” By its very nature, SCM integrates all parties within a network including suppliers, manufacturers, wholesalers/distributors, retailers, and customers while enabling them for collaboration and coordination within and between organizations. To this end, SCM is undoubtedly a preeminent task that companies must pursue in order to have a successful competitive advantage since it examines entire business operations as well as responding to the needs of stakeholders. Figure 1 depicts a generic supply network flow model adapted from Chopra and Meindl (2007). Keeping in mind the network flow across the players presented in this figure, the pertinent chain design may vary according to customers’ needs and organizations’ workstream to increase the overall value of supply chain. To illustrate an example, some companies may fulfil consumers’ orders directly without employing intermediaries such as retailers and/or wholesalers/distributors, whereas some others may engage with each channel of supply network in their business processes. A generic supply chain network flow model (Chopra and Meindl 2007) An optimum chain design is positively correlated with the value of the network which is signified as the difference between the revenue generated from the sales and the total cost incurred throughout the network (Chopra and Meindl 2007). Inferring this fact, a desirable material stream notably triggers value creation, efficiency, and therefore, the overall performance of businesses (Ahi and Searcy 2013). Such outcomes are characterized as value-creating activities within a supply chain, which also refers to the value chain. According to Porter (1985), Fig. 1 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 4 value chain distinguishes the primary internal and support activities that organizations are engaged in an effort to transform inputs to outputs, in other words, raw material acquisition to sales to end-users. In conventional supply chains, core internal activities comprise the features of inbound logistics, operations, outbound logistics, marketing and sales, and service, whereas support activities include firm infrastructure, human resource management, technology, and procurement. These functional components as a whole practice solely economically accountable operation. Yet today, due to increasing demand for personalized products and environmental regulations mandated by government agencies in addition to expanding operational layers in supply chains, companies encounter major challenges to secure their strategic position in the market. Adopting to new technologies alone becomes insufficient to achieve a sustainable competitive advantage. The companies are now under pressure to also fulfil one or more of the requirements of competitiveness such as cost and energy efficiency, productivity, product differentiation, flexibility, adaptability, stability, resource conservation, and waste reduction (Bartodziej 2016, Hofmann and Rüsch 2017). To accomplish such major qualifications, corporates are expected to evolve their traditional economically-driven supply chains towards an advanced environmentally and socially friendly network designs. Hereby, the conception of the sustainable supply chain derives as a necessity resulted from this issue. Sustainability embedded supply chain management embraces economically viable activities while ensuring environmental and social circumstances and enables corporates to maintain a tenable competitive strategy in the market environment. Specifically, sustainable supply chains assemble the perception of reverse logistics (RL) in typical internal business applications, where the stages of product end-of-life and product recovery processes at end-oflife are appended to the last stage of the value chain (Tozanli et al. 2017). RL is latterly acknowledged as part of sustainable supply chain management by both academia and industry. A detailed description of RL and its role in sustainable value chains are provided in the next section. 2 The Basics of Supply Chain Management 5 The Role of Reverse Logistics in Sustainable Supply Chain Operations Logistics is a part of supply chain management which governs an effective and efficient point-to-point flow of products, services, and related information to match customers’ requirements (Bartodziej 2016). Sustainable logistics facilitates two types of material flows: downstream and upstream. While the management of downstream flow is known as forward logistics, the management of upstream flow is defined as reverse logistics. Here, forward logistics refers to traditional product delivery routes addressing the optimization of long-term financial return of supply network. Unlike such typical distribution approach, reverse logistics is a relatively new concept which was initiated by manufacturers as part of their supply chain strategy over the last decade. The RL concept emerged from the idea of developing environmentally friendly operational business strategies. With regards to this approach, RL aims at regaining the value embedded in discarded products in an efficient and effective way and ultimately utilizing acquired output as an input in the forward system. Not for long, reverse logistics rapidly became a mandatory task that must be aligned in corporations’ longterm business practices due to shortened product life cycles and growing environmental concerns and regulations imposed by governments. In its working discipline, RL incorporates the reverse distribution of products and materials between channel members, and it concentrates on identifying environmentally, economically, and socially viable solutions through the transparency of information flow (Tozanli et al. 2017). Specifically, RL primarily encompasses the processes of the collection of used products, inspection and sorting, remanufacturing, recycling, reuse, and/or disposal, distribution, and integration to the forward logistics channel. In this regard, upstream management briefly is summarized as retrieving the value added from scrap or reusable products and inserting them into the downstream route to be used as raw material in the production line of new products. A basic presentation of forward and reverse logistics flows is shown in Figure 2. 2.1 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 6 A basic presentation of forward and reverse logistics flow (Agrawal et al. 2015) The integral of forward and reverse transportation fosters the growth of closed-loop product life cycles where the products move from facilities to end-users and back to facilities for product recovery on a continuous basis. As indicated in Tozanli et al. (2017), the closed-loop supply chain is one of the distinctive scopes in the sustainable value chain, and its proper handling constitutes a vital role to endorse sustainable competitiveness. With this motivation, it can be declared that only corporations which have the competency to harmonize these two channels within their value chain are capable of achieving sustainable material flows for their products throughout their life cycles. Beyond this fact, the utilization of Industry 4.0 can only be legitimate with adequate employment of logistics practices which cater the desired input factors to the production systems in the right quantity, with the right quality, at the right costs, at the right time, and at the right place (Bartodziej 2016, Hofmann and Rüsch 2017). Fig. 2 2 The Basics of Supply Chain Management 7 Industry 4.0: A Disruptive Industrial Movement Ever since the beginning of the Industrial Revolution in the late eighteenth century, industries have been influenced by ongoing developments. The past three industrial revolutions emerged by technical innovations has led to radical changes in industry. Specifically, the first industrial revolution was in the field of mechanization by the use of water- and steam-powered manufacturing; the second industrial revolution was the evolvement to mass production and assembly lines by the intensive use of electricity; and the third revolution was the transition to the digitalization in conjunction with computer aided manufacturing and automation systems. As mentioned in the previous sections, companies are challenged by dramatically expanding complexity and market needs. Among these, demand for high product variety at high quality levels and low costs, capital for maintaining global corporate activities, and capability of achieving developments towards sustainability constitute some of the major needs. To address these challenges, industries seek faster and more reliable business technologies to be utilized in their manufacturing and logistic processes throughout their supply chain in order to attain sustainable competitive advantage. Due to this, the German government established an initiative under the name “Industrie 4.0” in order to not only secure the future production requirements of German manufacturing industries but also to stimulate the industrial sector as a forerunner ensuring German market competitiveness in the world (Bartodziej 2016, Hofmann and Rüsch 2017). The utilization of Industry 4.0 significantly consolidates the German manufacturing industry since it elevates the efficiency of domestic production and the volume of export significantly contributing to their GDP. Industry 4.0 represents the developments towards the fourth stage of industrialization. The background of this concept relies on the year 2011 when it was first presented at the Hannover Messe Trade Fair and published by Kagermann et al. (2011) in a German-speaking manuscript. The idea here was introduced as the establishment of autonomous, knowledgebased, sensor-embedded, self-organized and decentralized IT-driven production systems. Therefore, the Fourth Industrial revolution was simply described as the future production systems that run modular 3 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 8 and efficient manufacturing operations where the products control their own manufacturing processes. Endorsing its importance, Kagermann et al. (2012) stated that the active participation in the Industry 4.0 is vital for companies to overcome possible challenges and opportunities in future production systems in terms of industrial value creation. Industry 4.0 was not common outside of German-speaking areas until the Industrial Internet Consortium in the US promoted it in 2015. Subsequently, it was listed as a main topic on the 2016 World Economic Forum’s (WEF) agenda (Hofmann and Rüsch 2017, Stock and Seliger 2016). Since then, this promising concept has received attention from both academia and industry due to its ability to cope with the complexity of the market dynamics by putting forward the vision of future-oriented manufacturing and logistics processes. Industry 4.0 is considered as the transition from current industrial technologies to a new fully digitalized industrial age. This evolution can basically be signified as the convergence of disruptive technologies such as Cyber Physical Systems (CPS), Internet-of-Things (IoT), cloud computing, big data analytics, artificial intelligence, advanced robotics and autonomous systems, augmented reality, and additive manufacturing (WEF 2017). Undoubtedly, CPS and IoT here can be remarked as the most powerful core enablers which form the basis of the fourth stage of industrialization. In particular, IoT provides manufacturers the ability to keep track of individual products throughout the value chain on a continuous basis via embedded devices such as high-quality sensors, actuators, RFID tags, and microprocessors (Brettel et al. 2014). CPS decodes the ongoing digital-to-physical and physical-to-digital cycles; therefore, it maintains the communication between these intelligent structures and humans. To emphasize its power, Hofmann and Rüsch (2017) described the CPS platform as an unprecedented degree of endto-end control, surveillance, transparency, and efficiency in the value chain. Furthermore, big data analytics and cloud computing serve as data enablers. In this regard, big data analytics transforms large volumes of data obtained from intelligent IoT processors into valuable real-time information with the help of a machine learning software. Bartodziej (2016) delineated this structure as a self-optimizing intelligent system which stimulates the reduction of lead time and energy consumption as well as the increase of quality. Additionally, cloud comput- 3 Industry 4.0: A Disruptive Industrial Movement 9 ing demonstrates a user-friendly interface of advanced digital platform which delivers a rapid real-time network connection. With regards to its working discipline, data gathered from intelligent objects are sent to a server, processed via big data analytics, and sent back to the designated location. Through all enablers, companies can reduce the complexity and uncertainty in their business processes by governing endto-end real-time information flow. The fourth stage of industrialization hence introduces an embedded system where current advanced manufacturing technologies are integrated into CPS in manufacturing and supply chain operations as well as IoT in industrial processes (Bartodziej 2016). Specifically, this concept aims at fully integrating industrial technologies to establish smart objects including smart factories, smart logistics, smart products and services embedded in CPS and IoT in order to optimize overall industrial value added (Stock and Seliger 2016). Industry 4.0 also facilitates a paradigm shift in corporate strategies by extending business functions beyond an advanced and highly flexible platform. To this end, the new business environment accommodates a decentralized, modular, self-organizing, flexible, innovative, and sustainable structure. High flexibility together with increasing innovation capability decreases the product development periods while concurrently performing mass production. Decentralized organizational structures notably accelerate the decision-making processes while modularity allows for individualization on demand and removes strict production hierarchies. In addition, Industry 4.0 paves the way to a remarkable level of resource- and eco-efficiency in terms of sustainability. Illustrated in Figure 3, the prominent value creation modules of Industry 4.0 embrace an interplay of the intelligent technologies in association with up-to-date corporate strategies. With the help of these key modules, the benefits of Industry 4.0 can be compiled as an advanced mechanization and automation, simultaneous information flow and real-time coordination with a communication technology infrastructure, reduction of complexity costs, and the emergence of new services and innovative business models while expediting eco-efficiency, adaptation of human needs into the system, and corporate social responsibility. Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 10 Value creation modules of Industry 4.0 (Brettel et al. 2014) In general, the oncoming industrial age revolutionizes conventional ways of value creation by transforming all point-to-point steps in production and supply chain models, and therefore constructs a bridge between human needs and advanced technologies (Bartodziej 2016, WEF 2017). This novel system as a whole build the term called Smart Factory which allows for the base components of industry such as machine, product, human, and organization to communicate with one another using ubiquitous flow of smart data in an integrated network. Moreover, the intelligent infrastructure reinforces the capability of the value chain including inbound and outbound logistics, manufacturing, production and service operations (Lasi et al. 2014, Stock and Seliger 2016). Fig. 3 3 Industry 4.0: A Disruptive Industrial Movement 11 Impacts of Industry 4.0 on Supply Chain Operations towards Sustainability Industry 4.0 conveys a noteworthy perception to the future of supply chain management which can also be called Supply Chain 4.0. A successful aggregation of compatible technologies leads to a concrete value-creating capability throughout the sustainable supply chain. Utilization of such intelligent systems prompts a unique, secure, agile, dynamic, responsive, knowledge-based, and customer-oriented constellations which help to succeed in long-term competitiveness. Similar to technological developments, sustainable and secure flow of materials is another fundamental surroundings for corporations to be capable of utilizing their resources effectively, therefore, becoming more competitive in industry (Bartodziej 2016). The intersection of intelligent and operative systems in the digital era yields more sustainable value creation and delivers superior benefits to firms against their competitors. Through the Supply Chain 4.0 setting, organizations become more responsive to the rapidly-changing market environment, more flexible to settle new technological functions in their existing systems, and more interactive by binding all parties in a network throughout their forward and reverse logistics operations. Additionally, this interdisciplinary cornerstone avoids firms from wasting their time and resources by using the help of autonomous IT-based platform. Smart supply chain management can be examined under the umbrella of three overarching strategic pillars for actions such as horizontal integration, end-to-end digital integration in product life cycle, and vertical integration (Stock and Seliger 2016). In this regard, horizontal integration addresses the same level value-adding activities along supply chain of a firm or between multiple firms. This integration puts forward a collaborative digital value network of multiple companies including an exchange of materials, energy, and information (Bartodziej 2016). This network constitutes greater significance for Small Medium Enterprises (SME) due to its capability of expanding resource channels conjointly with reducing the complexity of manufacturing processes and business layers (Brettel et al. 2014). End-to-end digital integration supports the concatenation of IT-driven systems into entire product life cycle steps beginning from raw material acquisition to end-of-life 3.1 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 12 product (Stock & Seliger, 2016). Consequently, vertical integration arranges the intelligent end-to-end solutions between different hierarchical levels from production management and manufacturing stations to sales and marketing in supply chain of a smart factory (Bartodziej 2016, Stock and Seliger 2016). Contrary to the horizontal merger, vertical aggregation gives firms the opportunity to reduce their operational costs and increase effectiveness and efficiency by acquiring varying levels of managerial capabilities. The 2017 WEF’s report “Impact of the Fourth Industrial Revolution on Supply Chains” endorses its economic potential by indicating that the majority of companies who achieved altering their digital transformation appears in the manufacturing sector (79.9%) and the logistics sector (85.5%). Here, the manufacturing industry has achieved having a positive impact on the cost reduction plus additional revenues by 20.1% while the logistics sector has increased by 17.8%. In the technical standpoint, Supply Chain 4.0 authorizes manufacturers to unify people, objects, and operating systems in an integrated network and uplifts business models towards a new degree of value creation. Hereby, Fourth Industrial revolution in sustainable supply chain can be concisely presented as the union of physical and digital value chain. Physical value chain analyzes the impacts of advanced models on organizational and strategic structures allied with economic, environmental, and social perspectives, while a digital value chain evaluates the long-term value-adding pattern from the technological viewpoint. The implications of such modern interconnected value chain can be examined in different characteristics such as digitalization, localization, customization, and collaboration (WEF 2017). Focusing on these, digitalization facilitates an unprecedented degree of surveillance and quality control along the point-topoint value chain from product design to end-of-life product recovery. The integration of key technologies such as CPS, IoT, big data, and cloud computing intelligently links all primary objects within a factory such as human, machine, and product as well as all partners within a supply chain such as supplier, manufacturer, logistics provider, and consumer to each other. In particular, as outlined previously, IoT pertains to small, widely distributed, and virtually connected ubiquitous devices which read, collect, and store continuous real-time data in a cloud. CPS transforms these collected data into real-time information 3 Industry 4.0: A Disruptive Industrial Movement 13 via the cloud using the help of big data analytics. This system generates the emergence of environmentally friendly smart grids where the need for energy generation of advanced factories is met by renewable energies or short-term energy storages (Bartodziej 2016, Stock and Seliger 2016). This profound progress as a whole develops the intelligent logistics system. The workflow of the Supply Chain 4.0 setting is exhibited in Figure 4. The workflow of the Supply Chain 4.0 setting Through this setting, firms are capable of monitoring an online material flow, and hence reducing errors on forecast analysis through the stream of smart data. Therefore, digitalization helps organizations im- Fig. 4 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 14 prove a transportation system by eliminating the uncertainty in both their forward and reverse logistics flows. Moreover, localization and customization imply decentralized organizational structures accompanied with flexible and agile production logistics. Based on these features, manufacturers obtain individualization on demand in high quantities and mass customization. Collaboration eventually stimulates the involvement of all actors along the end-to-end value chain, and therefore, provokes transparency in the logistics network. As a consequence, the characteristics of corporation’s substitute with highly flexible, adaptable, innovative, digital, and responsive features through advanced communication channels. The following section presents a case study on mattress recycling network in order provide better understanding of Industry 4.0 in practice. Reverse Logistics Network Design for Mattress Recyclers: A Case Study Without a doubt, mattresses fulfil one of the most basic needs of individuals, and therefore appeal to an extensive range of consumer profile. Mattresses today have a large variety available in the market place in response to the varying needs of customers. Beddings are classified as memory foam, gel, innerspring, crib, fiber, latex, airbed, temporary air, waterbed, organic eco-friendly, pillowtop, smart, and hybrid mattresses (Tuck 2018). A typical mattress contains various recyclable content such as metal, polyurethane foam, wood, fibrefill, cotton batting, paper, and other miscellaneous textiles (DEEP 2018). More specifically, these components by weights can be distributed as 48% of metal, 26% of polyurethane foam, %5 of wood, %16 of cotton and fibrefill, and %5 of non-recyclables, which is also graphically demonstrated in Figure 5. 4 4 Reverse Logistics Network Design for Mattress Recyclers: A Case Study 15 Distribution of recyclable components of a mattress by weights Mattresses at the end-of-life (EOL) stage are one of the major contributors to the growing waste with an estimated range of 20 million units disposed of each year in the US (CascadeAlliance 2017). Despite the fact that more than 80% of the materials in a typical mattress or box spring are recyclable, the vast majority inevitably are sent to landfill or incineration. Recycling is the primary product recovery method which aims at regaining the value embedded in EOL products by transforming waste components into reusable materials. Recycling significantly improves waste reduction, energy efficiency, and resource conservation. In addition to environmental hazards, EOL mattresses, if not handled properly, may lead to severe health issues by creating an avenue for parasites, bed bugs, and other contagious diseases to be transmitted into community (DEEP 2018). As a solution, energy recovery is another commonly used EOL mattress recovery option where polyurethanes and other plastics are combusted to generate energy. For every EOL mattress recovery, the estimated CO2 saving reaches up to 1.5 tons and the saved landmass rises 23 m3 of landfill space (CascadeAlliance, 2017). To this end, a proper reverse logistics management becomes a vital importance in order not only to regain the maximum value but to also maintain an environmentally, economically, and socially viable value chain. However, EOL mattress recovery program requisitely turns out to be on a non-profit basis since the revenue gained from the sales of material yield is not appealing for a business venture. With this motivation, three states, Connecticut, California, Fig. 5 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 16 and Rhode Island, in the US enacted a legislation requiring manufacturers to establish a statewide mattress recycling program, whereas Connecticut was the first state to adopt the comprehensive mattress stewardship law in 2013 (CascadeAlliance 2017, GBCE 2018). The recycling program is conducted through Bye Bye Mattress project launched by Mattress Recycling Council (MRC) – a non-profit organization which was formed by mattress industry to develop and implement the statewide mattress stewardship program (DEEP 2018). According to the Bye Bye Mattress program, each state funds its activities through a unit recycling fee collected from consumers per sale of bedding or box spring (CascadeAlliance 2017), and thereby the states can afford the labour, recycling, and transportation costs. This case study investigates business operations of a non-profit mattress recycling organization in Connecticut from various standpoints. This organization is the only mattress deconstruction and materials recycling business of its kind in the Northeastern United States. The vision of the company is to reduce the cost of mattress disposal and increase the volume of recycling rate while ensuring green and clean neighborhoods (GBCE 2018). Therefore, the aim of this study is to explore the ways to increase operational efficiency of the organization in addition to finding alternative markets for its raw materials via in-depth analysis. Reverse logistics network of the business starts with the collection of used mattresses, followed by recycling operations and the sale of materials back to the manufacturing industries. The organization has several suppliers including various transfer stations, hospitals, universities, prisons, hotels, and retailers. With regards to the workflow, the hauler delivers the used bedding products which are received by individuals and collected at transfer stations, or EOL mattresses can be directly brought to the recycling facility by other suppliers. Following this, the facility unloads, inspects, and segregates the collected mattresses. Here, unhygienic products are immediately sent back or taken aside to be sent to incineration. The Connecticut Department of Energy and Environmental Protection (DEEP) imposes the facility to recycle at least 85% of the materials in each mattress taken for recovery (CascadeAlliance 2017). Therefore, incineration is not accepted as an option for used mattresses in good condition. Mattress recycling is a complex process that involves the stages of separation 4 Reverse Logistics Network Design for Mattress Recyclers: A Case Study 17 and dismantling that require capital investment to carry out safely. To encourage recyclers, the law in Connecticut cuts the cost of mattress recycling by imposing an echo-fee of $9 on all new mattress purchases, which is pooled to support the mattress deconstruction programs. Mattress retailers transfer the total echo-fee to the recycler, who uses this amount for transportation and recycling of unwanted mattresses. Therefore, the non-profit organization meets the capital needs to recycle around 40 thousand EOL mattresses annually with no additional cost to the used mattress providers. Recycling operations performed in the facility is labor-intensive, where materials are taken apart, sorted, and baled manually. The valuable materials extracted from the mattresses are arranged as metal, foams, woods, and cotton and fibre. After the reprocessing, these components are sold back to various manufacturing industries to fulfil their production line requirements. To increase the sales, the company purchased a metal baler to crush the metal, which increased the net income up to $4K/month. Despite the fact that metal and wood are the two most profitable materials, foam is the most challenging material due to the difficulties in economies of scale. Hence, insufficient demand for foam results in a mismatch between its supply and demand in the recycler’s supply chain. As a result of the decline in this demand, the fluctuating revenue from the resale of components causes insufficient capital to sustain recycling operations and cover labour costs. With this motivation, the steps of EOL mattress recovery in the organization starting from delivery of beddings to the resale of the extracted material have been monitored and recorded through several site visits and personal communications. Based on the data and information collected, the main objectives of this study are designated as follows: – Finding additional markets for recycled foam that utilize foam for the business. – Determining the best suitable recycling method for foam, viz. mechanical or chemical recycling. – Creating a more appealing material/product market for the consumers. Additionally, the utilization of future technologies into the existing business functions is assessed from different perspectives such as po- Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 18 tential for IT-oriented developments and expected limitations for future technologies. A Qualitative Research Approach A qualitative research methodology is determined as the most suitable technique for this real-life case study since it addresses “why” questions to comprehend issues and “how” questions to explore process behaviours (Bartodziej 2016). As a part of qualitative analysis, in-depth individual interviews, open-ended questions, participant observations, group discussions, and systematic data collection and analysis are conducted. In this regard, a limited number of respondents who noticeably have in-depth insights of this related topic has been identified, which constitutes a sample of 7 people including one manager, three faculty, and three graduate students. Based on these, the manager has been intermittently interviewed face-to-face with a series of open-ended questions in order to fully examine the business processes and evaluate the complex issues. Similarly, group discussions have been periodically implemented among the manager and researchers in order to explore the spectrum of opinions and associated solutions to the relevant questions. Some examples of these questions are listed as follows: – Can you think of any alternatives where foam can be used as a raw material? – Can you think of other nearby institutions in addition to existing providers where the mattresses can be supplied from? – Can you think of any value-added operations similar to metal crushing which now pays for more jobs? – Can you think of online channels for material sales? If yes, what would be the setting? Who would be the customers? What would be the platform and why? – Can you think of alternative products that can be made via the recycled materials? – Can foam be used for carpet padding/packaging? What would be the minimum amount required to make it profitable (the breakeven point)? – How many bales can you produce per day with the vertical baler? 4.1 4 Reverse Logistics Network Design for Mattress Recyclers: A Case Study 19 – Can you think of chemical recycling of foam to increase the profitability in the long-term period? – How to contain flammable materials so that they are stacked together to save space? At the next stage, business environment has been monitored on site to verify that the information provided by the informants and to gain further insight regarding the business. As a part of participant observations, photographs, video-recordings, and artefacts have systematically been collected from the facility. Consequently, the final stage of data analysis has been applied. In this regard, information collected through interviews and observations have been carefully analysed in order to reduce vast amount of information and obtain meaningful insights. With regards to the market pattern and business structure, emerging subjects have been clustered under different labels such as the development of a smart transportation model, establishment of online channels, identification of alternative products, and assessment of the environmental and economic feasibility of mechanical and chemical recycling of foam based on the market patterns. Accordingly, the relevant findings are elaborated under each label in order to accomplish each main objective of the study in the context of Industry 4.0: Development of a smart transportation model: This proposed solution focuses on the establishment of a smart logistics model. Accordingly, a geographic information grid system is utilized to accurately obtain key places to look for customers and suppliers within 100-mile radius of the recycler’s location. This system is an aggregation of advanced information technologies and geographical grid system, which provides users the ability to reach a variety of potential customers through online services with no additional cost. With the help of such system, the recycler can achieve a cost-effective shipping of supplies to the destination points. Establishment of online channels: Online marketing services help the organization to create new customer profiles from individuals to wholesalers. By the virtue of web services, the recycler is required to pay either no or slightly a small amount of additional cost to operate business activities in online channels. Identification of alternative products: Foam can be utilized for various purposes in the market place such as insulation, packaging, sports mats, cushioning, pet hous- Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 20 es, architectural models, clown nose, and decorative purposes. At this step, the company should pursue a strategy to explore new customers who utilize such products in their production line by using the abovementioned solutions, and therefore adding new consumers to its value chain. Assessment of the environmental and economic feasibility of mechanical and chemical recycling of foam: Polyurethane foam is recycled in two primary ways: mechanical or chemical. Mechanical recycling is a method where foams are regained in polymer form. The most common mechanical recycling method is rebond which is made up of pieces of chopped foam that are bond in one slab (ACC, 2018). Rebond is primarily used by carpet underlay market, followed by sports mats and cushioning industry. On the other side, chemical recycling is a method where foams are decomposed to their chemical constituents. Alcoholysis is the most respected chemical recycling method due to its mild reaction condition and the good performance of regained components (Yang et al., 2012). The polyols obtained from alcoholysis can be used in myriad applications from furniture to packaging (ACC, 2018). Building one of the recycling techniques is crucial for the organization in order to realign its business to adopt changes in an autonomous manner and optimize foam value added in the long term. To determine the best appropriate recycling process, technological evaluation of these two methods can be assessed through several methods such as cost-benefit ratio analysis, Delphi method, and risk analysis (Bartodziej, 2016). Due to this fact, an in-depth discussion on market dynamics is carried out to evaluate pros and cons of two processes. Compared to chemical recycling, mechanical recycling is an economically and environmentally viable option, and it is commonly applicable in the market. Mechanically reprocessed materials are more appealing for wider range of consumers using online sales channels. However, the rebond market now goes down, and it is expected to be no longer an option in a decade. Even though chemical recycling appears to be a costly choice in comparison to the traditional reprocessing, the unit sale price of materials is significantly higher than the rebond. Therefore, it is a fact that such setting can pay for itself in the long term. On the other side, this alternative implies negative environmental impacts which have to be inspected before its establishment. In addition, the type and age of foams also constitute an important place since they 4 Reverse Logistics Network Design for Mattress Recyclers: A Case Study 21 may necessarily affect the quality of output materials. Regarding to these, environmental regulations and restrictions posed by local governments, the convenience of the facility location, and type and quality of foams to be recycled are signified as the primary parameters to assess the outcomes of this method. Eventually, chemical recycling presents as an ultimate and effective alternative in the long term. Conclusions This chapter introduced the utilization of Industry 4.0 in supply chain activities towards sustainability. With this motivation, the chapter comprehensively interpreted the context of Industry 4.0. Following this, its potential impacts on reverse logistics operations examined through a qualitative analysis in order to find viable solutions to increase the overall value added in business operations. Then, a case study of a mattress recycling company is presented so as to provide a better understanding of this topic. The proposed results here aimed at delivering a novel perception to the traditional value chain in terms of not only economic levels but also environmentally, socially, and technologically adaptable infrastructures. With the development of Industry 4.0, companies are subject to a movement from conventional industrial technologies to a fully digitalized era. This novel concept provides the industry with the opportunity to keep track of end-to-end real-time information and material flow through state-of-the-art intelligent systems. With the help of the ubiquitous flow of smart data generated via such digital technologies, corporates become capable of communicating with each of their partners in the supply chain network. This state culminates in a high degree of collaboration and coordination skills in organizations’ value chain. Smart infrastructures not only vitalize the formation of an efficient and effective future manufacturing architecture but also remarkably influence a unique, secure, agile, dynamic, responsive, knowledge-based, customer-oriented, transparent, and sustainable supply chain constitution. The industrial transformation towards the fourth stage of automation can legitimately be endorsed as a keystone of operational and organizational structures, and 5 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 22 therefore, its adoption becomes a vital essence for companies who desire to be sustainable in the vision of future business environment. References Agrawal, S., Singh, R. K. & Murtaza, Q. 2015. A Literature Review And Perspectives In Reverse Logistics. Resources, Conservation And Recycling, 97, 76-92. Ahi, P. & Searcy, C. 2013. A Comparative Literature Analysis Of Definitions For Green And Sustainable Supply Chain Management. Journal Of Cleaner Production, 52, 329–341. Bartodziej, C. J. 2016. The Concept Industry 4.0: An Empirical Analysis Of Technologies And Applications In Production Logistics, Springer. Brettel, M., Friederichsen, N., Keller, M. & Rosenberg, M. 2014. How Virtualization, Decentralization And Network Building Change The Manufacturing Landscape: An Industry 4.0 Perspective. International Journal Of Mechanical, Industrial Science And Engineering, 8, 37–44. Cascadealliance 2017. The State Of The Mattress Recycling Industry. Chopra, S. & Meindl, P. 2007. Supply Chain Management. Strategy, Planning & Operation. Das Summa Summarum Des Management. Springer. Deep. 2018. Mattress Recycling [Online]. Department Of Energy & Environmental Protection. Available: Http://Www.Ct.Gov/Deep/Cwp/View.Asp?A=2714&Q= 482160&Deepnav_Gid=1645%20. Efendigil, T., Önüt, S. & Kongar, E. 2008. A Holistic Approach For Selecting A Third-Party Reverse Logistics Provider In The Presence Of Vagueness. Computers & Industrial Engineering, 54, 269–287. Gbce. 2018. Bye Bye Mattress Recycling Program [Online]. Greater Community Bridgeport Enterprises. Available: Https://Greenteambpt.Com/Bye-Bye-Mattre ss-Recycling-Program/. Handfield, R. B. & Nichols, E. L. 1999. Introduction To Supply Chain Management, Upper Saddle River, Nj: Prentice Hall. Hofmann, E. & Rüsch, M. 2017. Industry 4.0 And The Current Status As Well As Future Prospects On Logistics. Computers In Industry, 89, 23–34. Kagermann, H., Lukas, W.-D. & Wahlster, W. 2011. Industrie 4.0: Mit Dem Internet Der Dinge Auf Dem Weg Zur 4. Industriellen Revolution. Vdi Nachrichten, 13, 11. Kagermann, H., Wahlster, W. & Helbig, J. 2012. Im Fokus: Das Zukunftsprojekt Industrie 4.0: Handlungsempfehlungen Zur Umsetzung. Bericht Der Promotorengruppe Kommunikation. Forschungsunion. Lasi, H., Kemper, H.-G., Fettke, P., Feld, T. & Hoffmann, M. 2014. Industry 4.0. Business & Information Systems Engineering, 6, 239–242. 6 6 References 23 Porter, M. E. 1985. Competitive Advantage: Creating And Sustaining Superior Performance. 1985. New York: Free Press. Stock, T. & Seliger, G. 2016. Opportunities Of Sustainable Manufacturing In Industry 4.0. Procedia Cirp, 40, 536–541. Tozanli, O., Duman, G., Kongar, E. & Gupta, S. 2017. Environmentally Concerned Logistics Operations In Fuzzy Environment: A Literature Survey. Logistics, 1, 4. Tuck. 2018. Mattresses [Online]. Tuck Advancing Better Sleep. Available: Https:// Www.Tuck.Com/Mattresses/. Wef. 2017. Impact Of The Fourth Industrial Revolution On Supply Chains [Online]. World Economic Forum. Available: Http://Www3.Weforum.Org/Docs/Wef_I mpact_Of_The_Fourth_Industrial_Revolution_On_Supply_Chains_.Pdf [Accessed October 2017. Key Terms Supply chain management Reverse logistics Sustainability Industry 4.0 Supply Chain 4.0 Value creation Cyber-physical systems Cloud computing Big data analytics Internet-of-things Physical/digital value chain Qualitative research approach Questions for Further Study Why do companies today realign their supply chain strategies towards sustainability to remain competitive in the market? What are the major deliverables of embedding sustainability into the supply chain strategy? Why are organizations forced to a disruptive change? What are the major factors that trigger organizations adapting to this change? Compare and contrast traditional industrial technologies with fully digitalized industrial technologies. What are the distinguished functions of the digitalized setting? Classify value creation modules of Industry 4.0 and describe their working discipline as a whole. Compare and contrast three overarching pillars of smart supply chain management. 7 8 Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 24 What are the primary outcomes of utilizing Supply Chain 4.0 in the context of physical and digital value chain? Exercises Suppose you are a supply chain manager who is in charge of the management of economically-driven forward channels in an electronics company. Your directors have decided to adopt to sustainable supply chain strategies due to its positive outcomes in long-term business operations. What would the methodology that you would follow look like? Develop a network design which incorporates forward and reverse supply flows of your company (similar to Figure 2). Could you list any potential improvements compared to the prior strategy? Suppose you are an analyst developing a new information system compatible with Supply Chain 4.0 infrastructure in collaboration with production engineers, IT engineers, supply chain specialists, and other technical and managerial departments. What changes could you expect from this transition? What could your role and responsibilities be during this changeover in order to be capable of creating a fullyfledged smart information system as an analyst? The key components of Industry 4.0 and their functions discussed in this chapter can be integrated into a supply chain network to build an intelligent hybrid business model. How could this advanced model affect the organizational structure? Is it a worthwhile model to perform? Think about the impacts of this model to the customer relations and company’s profitability in the long period. Further Reading Glas, A. H., and F. C. Kleemann. “The Impact of Industry 4.0 on Procurement and Supply Management: A Conceptual and Qualitative Analysis.” International Journal of Business and Management Invention, Vol. 5, No. 6, 2016, pp. 55–66. Hermann, M., T. Pentek, and B. Otto. “Design Principles for Industrie 4.0 Scenarios.” System Sciences (HICSS), 2016 49th Hawaii International Conference on. IEEE, 2016, pp. 3928–3937. 9 10 10 Further Reading 25 Lee, J., H.A. Kao, and S. Yang. “Service Innovation and Smart Analytics for Industry 4.0 and Big Data Environment.” Procedia CIRP, Vol. 16, 2014, pp. 3–8. Lu, Y. “Industry 4.0: A Survey on Technologies, Applications and Open Research Issues.” Journal of Industrial Information Integration, Vol. 6, 2017, pp. 1–10. Rüssmann, M., M. Lorenz, P. Gerbert, M. Waldner, J. Justus, P. Engel, and M. Harnisch. “Industry 4.0: The Future of Productivity and Growth in Manufacturing industries.” Boston Consulting Group 9, 2015. Seuring, S., and M. Müller. “From a Literature Review to a Conceptual Framework for Sustainable Supply Chain Management.” Journal of Cleaner Production, Vol. 16, No. 15, 2008, pp. 1699–1710. Shrouf, F., J. Ordieres, and G. Miragliotta. “Smart Factories in Industry 4.0: A Review of the Concept and of Energy Management Approached in Production Based on the Internet of Things Paradigm.” Industrial Engineering and Engineering Management (IEEM), 2014 IEEE International Conference on. IEEE, 2014, pp. 697–701. Integration of Industry 4.0 Principles into Reverse Logistics Operations for Improved Value Creation 26

Chapter Preview



Organizations have always been dependent on communication, information, technology and their management. The development of information technology has sped up the importance of management information systems, which is an emerging discipline combining various aspects of informatics, information technology, and business management. Understanding the impact of information on today’s organizations requires technological and managerial views, which are both offered by management information systems.

Business management is not only about generating greater returns and using new technologies for developing businesses to reach future goals. Business management also means generating better revenue performance if plans are diligently followed.

It is part of business management to have an ear to the ground of global economic trends, changing environmental conditions and preferences, as well as the behavior of value chain partners. While, until now, business management and management information systems are mostly treated as independent fields, this publication takes an interest in the cooperation of the two. Its contributions focus on both research areas and practical approaches, in turn showing novelties in the area of enterprise and business management.

Main topics covered in this book are technology management, software engineering, knowledge management, innovation management and social media management.

This book adopts an international view, combines theory and practice, and is authored for researchers, lecturers, students as well as consultants and practitioners.