How is the environmental, logistics' and customers' perspective influencing the reverse logistics system of the Swedish beverage industry?

TABLE OF CONTENTS

Executive Summary

Acknowledgements

1. Introduction
1.1 Background
1.2 Problemising
1.3 Objectives
1.4 Limitations
1.5 Theoretical and Practical Relevance
1.5.1. Theoretical Relevance
1.5.2. Practical relevance

2. Methodology
2.1. Pre-understanding
2.1.1. General knowledge
2.1.2. Specific knowledge
2.1.3. Personal attributes
2.2. Research Journey
2.3. Scientific Perspective
2.4. Research approach
2.5. Research strategy
2.6. Data collection
2.7. Value of the study
2.7.1. Construct and external validity
2.7.2. Internal validity
2.7.3. Reliability

3. Theory
3.1. Environmental perspective – Governmental Regulation
3.1.1. The notion of Extended Producer Responsibility (EPR)
3.1.2. The EU and the Swedish Waste Policy
3.1.3. EU and Swedish Regulations and Measures
3.1.4. Material Aspects
3.2. Logistics’ perspective
3.2.1. Categories of reverse logistics flows
3.2.2. Logistics perspectives
3.2.3. Supply Chain versus Recovery Chain
3.3. Customers’ perspective
3.3.1. Customer’s options
3.3.2. The price as principle of choice
3.3.3. The role of the design of bottles and cans
3.3.4. Customers’ impact

4. Empirical Data
4.1. Carlsberg AB
4.2. Coca-Cola Drycker Sverige AB
4.3. Customer Survey

5. Analysis
5.1. Environmental perspective
5.1.1. The influence of environmental perspective on strategical logistics
5.1.2. The influence of environmental perspective on operational logistics
5.2. Logistics’ perspective
5.2.1. Strategical logistics
5.2.2. Operational logistics
5.3. Customers’ perspective
5.3.1. Position of the customer
5.3.2. Results of the survey

6. Conclusion

7. List of references
7.1. Literature
7.2. Websites

8. Appendix

LIST OF FIGURES

Figure 1 Packaging Demand Trends

Figure 2 Basis for Research

Figure 3 The Recovery Chain

Figure 4 Reverse Logistics Process at Carlsberg

Figure 5 Crates & Marital Status

Figure 6 Packaging Preferences

Figure 7 Motivation of Choice for PET bottles

Figure 8 Observed Recovery Chain

Figure 9 Observed Reverse Logistics Process

Figure 10 Final Conclusion

LIST OF TABLES

Table 1 General Packaging Statistics

Table 2 National Target Rates for Beverage Repositories

Table 3 Age Distribution of Interviewees

Table 4 Distribution: Gender/ marital status and explanations for preferring PET

Table 5 Distribution: Beer packaging and gender/ marital status

Table 6 Distribution: Beer packaging and explanations

Table 7 Distribution: Opinion on beer in PET bottles

LIST OF ABBREVIATIONS

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Executive Summary

Reverse logistics is a concept that has become more and more popular during the last decades. According to Fleischmann it is defined as follows:

“Reverse Logistics is the process of planning, implementing and controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal. ”^[1]

The drivers for this development can be found in three areas, namely the environment, the logistics and the customers.

èThe environment is mostly represented by governments or the European Union that make regulations to guard it because there is an urgent need for protection like the increasing waste problems show.

The companies with their major goal of making profit try to be as efficient and effective as possible and like to put the lever on logistics that provides good qualifications to reach this goal.

èLast but not least the customers with their buying behaviour and expectation of a healthy, sustainable environment for them and the next generations put also a certain pressure on reverse logistics systems.

These fields chosen for study are often discussed separately. For example in most of the books about Supply Chain Management or Logistics Management there is at least one paragraph explaining the definition of reverse logistics and sometimes also the activities appearing within reverse logistics like collecting, handling, cleaning, refilling or redistribution. However, very seldom there is information given about the governmental regulations influencing these activities. Otherwise, there are many law books providing all of the information the government and European Union suppose the companies active in reverse logistics systems to know, but the logistical needs and the customers’ position is not paid attention to. Furthermore, there is lots of marketing literature concerning the customers’ attitude towards recycling, but again rather independently from governmental regulation and logistics in most cases. Up to now there has not really been done much research about reverse logistics systems in general and the factors that are influencing this system.

It is, of course, not easy to do such a comprehensive research. Above all it is impossible to write a bachelor thesis about the whole subject. Anyhow, in this thesis it should be attempted to look upon reverse logistics systems from these three perspectives.

As the Swedish beverage industry is an inviting one to look at when it comes to reverse logistics systems, the research is focused on this industry in order to get reasonable results. Therefore, the research question is defined as the following “How is the environmental, logistics’ and customers’ perspective influencing the reverse logistics system of the Swedish beverage industry?”

Carlsberg AB and the Coca-Cola Company as two of the biggest providers of beverages in Sweden mostly concerning soft drinks are used as empirical data to underline the theoretical findings. To obtain more information, above all empirical data, on customers and their perspective on the reverse logistics systems is a difficult intention. As specific surveys on topics like buying behaviour on soft drinks or the attitude towards the Swedish deposit system were not to be found in any literature or on the Internet, a short survey carried out by the authors themselves tries to close the hole of missing information.

The theory as well as the analysis part are organised according to the three perspectives in focus and the empirical part presents the results of the interviews with the companies and customers. Finally, the conclusion shows the positioning of each perspective towards the reverse logistics system. The environment represented by government and EU gives the frame of the reverse logistics system which cannot be changed by any company.The companies can just (re-)act inside this framework. The logistics can be seen as the heart of the system and supports the companies with its concepts and philosophy. Even if the customers do not have a direct impact on the system , their perspectives can be seen as the starting point of the reverse flow.

Acknowledgements

The evolvement of this thesis was an interesting experience for us. There were periods when we felt highly ambitious because the research was prospering and then there were times when we felt rather exhausted because difficulties arose. However, when looking back you always tend to remember just the good times.

Writing a thesis requires the involvement of people that have a link to the research activity. Throughout the development of this text a number of persons from different horizons supported us. We are grateful to the companies and persons that provided us with information. Special thanks goes to Bo Engdahl executive of Växjö Distribution Centre of Carlsberg AB and Roger Jansson responsible distribution executive at Coca-Cola Drycker Sverige AB who enabled us to obtain the required empirical data for writing this thesis.

We would also like to thank Susanne Hofmann, our tutor who has accompanied us through the research process. She discussed our approach and helped us with very useful information. Special thanks again goes to Anders Hytters and Pernilla Nilsson who taught us methodology. Their lectures provided us with useful information for the selection of an appropriate research methodology. During the seminars we received precious advice in order to improve our thesis constantly. Not to forget our colleagues who had a positive influence on our research work by giving us feedback in the seminars as well as in their spare time. We would like to give a very special thank to Johanna Alm, a Swedish student who helped us to overcome language difficulties by translating information from Swedish into English.

Without the help of all the person mentioned as well as the Swedish people who did not hesitate to answer our questions presented in the customer survey in order to obtain specific empirical data writing this bachelor thesis would not be possible.

We are grateful to all these persons who contributed to the thesis’ successful completion.

1. Introduction

The purpose of the introduction chapter is to describe the background of the thesis. The thesis’ idea is confronted with the status quo. Actual events that support the importance of dealing with this issue are given supplemented with useful definitions.

1.1 Background

The earth population is growing, people can afford more than they actually need and the industry does its best to exceed the required demand. Apart from any wars, this sounds like living in a better world today, because nearly everything is available. Thanks to globalisation Europeans can go to the supermarket and buy food produced in the United States, Asia or anywhere else in the world and vice versa.

Besides this positive impact on the availability of goods there is also an impact on the environment and this is, unfortunately, not the best. Along with the consumption the air-pollution gets worse due to an increased need for transportation or environment-unfriendly production processes. Furthermore, there is the thread of running out of raw materials or getting short of energy resources while inversely waste is increasing due to immense production and packaging volumes.

Therefore international standards and governmental regulations have been arised that partly forced companies to behave in a more environment-friendly way. However, lots of companies themselves have recognised that many of their customers appreciate “green” products. This has not only an influence on marketing activities but also on logistics, because the need for resource sparing handling gets fundamental.

Logistics has gone through lots of different meanings. The origin of the term is lying in military. During war logistics meant the equipment of the army as well as the preparation and strategical planning of the campaigns. Until the 1980’s the term was used for transportation, turnover and warehousing. Then strategies such as just-in-time manufacturing, kanban or total quality management have become popular and extended the meaning of logistics.

Up to now many authors, researchers and organisations have defined the meaning of logistics and a quite common definition of logistics management is given by the Council of Logistics Management (CLM):

“Logistics Management is that part of Supply Chain Management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements. ”^[2]

In short, the past decades have seen a broadening of the concept of logistics to be an essential part in supply chain management. And especially the reverse flow of materials and information came into focus. One main reason for this focusing is the aforementioned ever increasing amount of domestic waste leading to congestion of dumps and rising costs for disposal. Hence, several countries have started to tackle these waste problems by implementing regulations to decrease the total volume of packaging materials. In case if packaging is absolutely necessary e.g. for transportation, the claim is that it has to be reusable or at least recyclable.

By accepting that “Waste is raw material at the wrong place.”^[3] (free translation from German) a completely new view on waste management has been enabled, which tries to close the circle the supply chain concept has once started. The supplier at the beginning and the customer at the end of the chain are taken for granted. However, there has to be also a system dealing with the remains of consumption and which turns back towards the beginning of the circle. The difference to the former attitude is the way the waste is regarded now. It is not something anymore, which one has simply to get rid of and can forget about afterwards. In contrast, it represents more and more a kind of raw material for further use. One industry that has been facing this issue for quite a long time is the beverage industry.

1.2 Problemising

As already mentioned in the background packaging as a remain of consumption can be seen as one of the main driving forces within reverse logistics systems.

“Traditionally, many packaging applications have their roots in production and distribution demands rather than in customer demands. Many packaging solutions have been developed mainly to improve productivity in manufacturing and distribution. […] Many customers do not understand packaging functions relating to demands further back in the supply chain. […] In the future the individual customer may not likely accept packaging which does not correspond to the customer’s prime need.” ^[4] One famous example may be tooth paste. In former times the tube was enclosed in a rectangular box which was stackable and served as well advertisement tasks. Nowadays, this from a logistics’ point of view advantageous box has been eliminated, because it was classified as unnecessary by the customers.

Figure 1 below illustrates the different trends that influence packaging and goods flow beside the traditional demands as mentioned before. These driving forces are some of those that have been identified by Carl Olsmats in cooperation with a broad group of experts.

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Figure 1 Packaging Demand Trends^[5]

Packaging is always in close connection to environmental responsibilities because it is visible and encountered in everyday life. Environmental concern and awareness have grown in the society and industry as well as trade has responded by adopting environmental policies. Additionally, governmental regulations have put pressure on companies to take responsibility. Environmental certificate schemes like EMAS or ISO 14000 have been implemented to support companies acting responsible.

International standardisation as the EU directive 94/62/EEC on packaging and waste, stresses the priority for preventing present and future generations from packaging waste. International trade and transportation require packaging with regard to volume and weight efficiency.

Competition gets more and more keen, customers demand customised products as well as brand and packaging are getting more important in order to gain business advantages. Therefore, the customer is in focus, the company should know what their customers expect and watch constantly the changing of customer patterns and society, e.g. the ageing population that has become healthier, more active and financially stronger or the increased demands on health and hygiene in general.

According to the survey done by Olsmats the customer in focus might be the strongest driver. However, in the beverage industry one could argue that the driving force for the current trend towards PET bottles instead of glass is rather the company’s goal to save costs than a customer driven decision. Due to their lower weight, PET bottles are easier to handle, there can be moved more “product-mass” instead and in this way logistics costs can be reduced. However, on the other side, if the customer does not like to buy PET bottles because he perceives plastic for example unhygienic or carcinogenic and the beverage industry takes away all the glass bottles anyway and sells merely beverage in PET without regard to the customer’s needs and wishes, the launch of the new packaging for drinks could lead to a predicament.

In short it can be said that the decision for or against PET is influenced by the customers as well as by logistics aspects. Furthermore, the figure above shows that there are more influencing factors like for example environment-friendliness. To make companies act in an environment-friendly way, governmental regulations are enacted for the beverage industry to use reusable and recyclable packaging.

Out of the trends that are influencing packaging in general Figure 2 describes the main factors that are influencing the reverse logistics system. It could be also seen as the basis for the research question:

“How is the environmental, logistics’ and customers’ perspective influencing the reverse logistics system of the Swedish beverage industry?”

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Figure 2 Basis for Research^[6]

1.3 Objectives

The overall objective of this thesis is to explore and analyse the influence of the three mentioned areas in their specifications environment-friendliness, logistics’ and customers’ perspective on the reverse logistics system of the Swedish beverage industry, and especially breweries providing beer, mineral water and soft drinks in returnable repositories. To achieve the overall objective the following steps have to be taken:

1. Describing
- Describe the reverse logistics system of the Swedish beverage industry
- Explain the position of the Swedish government and the European Union towards packaging and the correlation on the environment-friendliness
- Illustrate the different logistics activities that occur within reverse logistics
- Describe the customers’ perspective towards reverse logistics

2. Confronting each of the chosen fields with the reverse logistics system of the Swedish beverage industry

3. Determining the most influencing factors within each area towards the system of the industry studied

1.4 Limitations

As reverse logistics is a quite broad concept the focus of the thesis is more on the reverse distribution in its definition as “the process by which a company collects its […] packaging from end-users”^[7] for the purpose of recapturing value or proper disposal . While looking for companies working with reverse logistics concepts, the decision was made to study the beverage industry. The reverse logistics system in this industry has its main focus on the reverse distribution of used beverage repositories.

The research is limited to the influences of environmental, logistics’ and customers’ perspective on reverse logistics especially of the beverage industry in Sweden. No observation of the dependencies between the three perspectives shall be done. As the investigation of adding value through reverse logistics does not belong to the choosen research area, the cost aspects are not considered.

As most of the Swedish breweries are merged in the Carlsberg Group AB since February 2001, Carlsberg, being now the largest brewery company in Sweden, has been chosen as representative for the alcohol providing part of the market, while the Coca-Cola Company which has around 42% share in the Swedish soft drink market resembles the non-alcoholic representative for the empirical study.

1.5 Theoretical and Practical Relevance

1.5.1. Theoretical Relevance

After reading books it becomes obvious that lots of literature is focusing either on packaging or logistics. Theories that concern reverse logistics, environmental perspective, customers’ perspective and logistics’ perspective are rare. These fields are seen separately. Most of the literature concerning reverse logistics deals only with the environmental aspect of reverse logistics. Reverse Logistics is often seen as the way to manage, handle and carry the flow of materials or goods from customer or final consumer to the producer. Furthermore, only a few books are aware of the stake of packaging within the logistics and reverse logistics channel.

The aim of this thesis is to show the crucial aspects and the impact of environmental, logistics’ and customers’ perspective on reverse logistics. These three elements should be integrated simultaneously in the vision of reverse logistics.

1.5.2. Practical relevance

Reverse logistics should be considered as a whole system and not to be focused only on one issue of reverse logistics. That is why three perspectives of reverse logistics are combined. The analysis part of the study is the practical relevance of the research question. It ought to be explained how these three fields are influencing the reverse logistics process and show that the reverse logistics system should be seen as a whole cycle.

2. Methodology

Research often seems to be something mystical to new researchers, and the proneness of research philosophers to engage in sophisticated debates using terminology that is inaccessible to the novice does not help.^[8] This is also applicable for the authors of this thesis but they are aware of the importance and the impact methodology has on a thesis.

2.1. Pre-understanding

“The concept of pre-understanding refers to things such as peoples’ knowledge, insights, and experience before they engage in a research program or a consulting assignment.”^[9] Researchers’ pre-understanding is based on personal experience, experience of others –intermediaries such as textbooks, research reports, lectures etc.^[10] This definition could lead to the assumption that pre-understanding is knowledge before conducting a research project and thereby gaining understanding. Yet the term pre-understanding is used in a wider sense than just knowledge as it also implies a certain attitude and commitment on the part of the researcher.^[11]

As stated in the definition above, pre-understanding consists of personal experiences and the experiences of others which can be turned into understanding by personal involvement and also by analysing second-hand data. Of course, this is not a single loop but rather an ongoing process that can be described as a spiral. Knowledge and personal attributes are influencing the pre-understanding. Therefore, it is necessary to go deeper and to categorise different types of knowledge and personal attributes. According to Gummesson, it is useful to split the term knowledge into general knowledge, specific knowledge and personal attributes of the authors background.^[12]

2.1.1. General knowledge

The authors of this thesis are sharing quite the same opinion on environmental issues because they come from three EU member countries, namely Austria, France and Germany, which are all quite advanced concerning their attitude towards environmental problems. Particularly Germany is leading in this area and also the country being dealt with in this thesis, Sweden, has very high environmental standards and the awareness of the Swedish people about these issues is significant. Hence, the pre-understanding for writing this thesis is based on a common North-West-European view on waste disposal and management, packaging and recycling. This common view is supported by the individual studies of each author as described in the following.

One author has studied “production management” and “environmental and resource economics” for two years at the Carl von Ossietzky University Oldenburg, Germany specialising the knowledge from basic studies in economic science. Addditionally, there have been made experiences while doing an apprenticeship for becoming clerk at Pipelife Rohrsysteme GmbH, a producer of water pipes made from PVC and PP, who is dealing with the recycling issue since 1972.

Another author has been studying economics for three years at ESCEM business school Tours, France and is now on the point of specialising in logistics. Experiences can be contributed due to an eleven-month-long internship in the fields of controlling linked with logistics issues at the Thomson Corporation which is active in the electronic industry worldwide.

The third author is studying international logistics management for three years at the Professional University of Steyr, Austria. Before starting to study she attended the commercial school where she specialised in ecologically oriented management. Beside lectures like logistics information, - technology and - management she has also had lectures about environmental economics and law at university. In addition to the general knowledge provided by university, work experience in logistics contributed to this specific type of knowledge as well. During the internship in the Austrian company Dipl. Ing. Hitzinger GmbH, manufacturer of electric powered machines (like power units or generators) doing business worldwide, she got deeper experiences in the fields of logistics by doing a project on material flow analysis.

Beside the general knowledge each author can contribute, the knowledge in methodology was provided by Växjö University during the preparation classes for the Bachelor. The knowledge in writing papers and conducting research was gained by projects, case studies and jobs each of the authors has done individually.

2.1.2. Specific knowledge

Specific knowledge is the ability to use the right method to the right problem and to understand organisations. Institutional knowledge (pre-understanding) stimulates the models and techniques and allows them to be applied to a particular company or industry. This kind of knowledge can mainly be gained by experience. The authors’ institutional pre-understanding was mainly gained by jobs, internships and projects as mentioned before. Specific knowledge consists not only of knowledge of institutional conditions but also of social patterns. The authors’ specific knowledge in the latter was mainly developed by work and projects with different international companies. The work experience and the intercultural and social skills gained in these companies also broadened their theoretical knowledge as well.

2.1.3. Personal attributes

Gummesson (2001) describes personal attributes as personal characteristics for instance intuition, creativity, vitality, human understanding etc.. This of course influences the personality of the researcher and the decisions she/ he makes. The author’s individual pre-understanding and knowledge is essential for the full understanding of the processes in an organisation.

It is rather difficult to evaluate one’s own personal attributes, nevertheless all three authors agreed to be open-minded persons interested in different cultures and ways of working. This and the international environment in which they are writing their thesis should help to give the reader a rounded view of the topic presented.

2.2. Research Journey

By doing some brainstorming to find a research area interesting in equal measure for each author, the research topic reverse logistics was found rather quickly. As this concept is quite broad many ideas for going deeper into this subject emerged. Several questions considered worth to be answered were formulated and because all questions led in a certain direction, finally the following research question “How can reverse logistics add value to a company?” was derived.

Looking for companies active in reverse logistics, the beverage industry was discovered, representing one of the most developed systems in managing the reverse flow of materials and information. After having learnt more about this industry the former research question seemed not appropriate anymore, because the beverage industry is to a huge extent subject to governmental regulations and the companies in fact do not have real scope for adding value by using reverse logistics systems. On the contrary costs are actually increasing. Therefore, the research question was changed to the following:

“How is the environmental, logistics’ and customers’ perspective influencing the reverse logistics system of the Swedish beverage industry?”

The explanatory statement for this formulation of the research question is given in Chapter 1.2 Problemising.

2.3. Scientific Perspective

Discussing the two traditional perspectives called the Positivistic and the Hermeneutic Scientific Perspective and the modern Narrative approach, it has been recognised that in this thesis the research is rather influenced by the Hermeneutic paradigm as there are the following signs:

- the starting point of the research is the empirical data collection from a specific area (the beverage industry in Sweden)
- the observed data are more qualitative than quantitative (interviews, customer survey – in both cases the figures need to be interpreted in order to be useful)
- statistical methods (like cross-classified tables) are used to present the outcome of the customer survey (data basis see Appendix)
- the research concentrates on specific issues (the reverse distribution in the beverage industry)

2.4. Research approach

Inductive versus deductive

As lots of information is coming out of empirical studies in the beverage industry, a customer survey and governmental regulations, the research approach which must be derived at first glance is the inductive one. The inductive approach means to start with empirical observations, their description and explanation, followed by building up models and finally generate new theory that can also be transformed to other areas.

In comparison, the deductive approach starts with existing theory and ends with the adaptation of theory to reality, which is not the case here.

The abductive approach is not used either, because, after starting with the inductive approach there is no confrontation with theory and therefore this characteristic is not met.

[...]

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^[1] Fleischmann, M., 2001, p. 6

^[2] Vitasek, K., 2003, p.74

^[3] acc. to: Hermann, T., 1997

^[4] Olmats, C., 2002, p. 187

^[5] source: acc. to: Olmats, C., 2002

^[6] source: own

^[7] Johnson J., Wood D., p. 77

^[8] Rowley J., 2002, p. 18

^[9] Gummesson E., 2000, p. 57

^[10] ibid., p. 67

^[11] ibid., p. 60

^[12] ibid., p. 73