The Impact of Reverse Logistics on the Total Cost of Ownership

Abstract

Reverse logistics can have a significant impact on the cost of owning an item, and is an important factor to consider in calculating the total cost of ownership (TCO), when making a purchasing decision. Frameworks for calculating TCO are presented from the literature. Then, the impact of reverse logistics on each of these costs is discussed. The importance of including disposal and end-of-life costs in any total cost of ownership calculation is also discussed.

Total cost of ownership (TCO) is a structured approach for determining the total costs associated with the acquisition and subsequent use of a given item or service from a given supplier (Carr and Ittner, 1992). An important area for consideration in TCO is the cost associated with product returns (LaLonde and pohlen, 1996). Reverse logistics (RL) is the process of moving products the “wrong way,” from the customer back to the supplier. Many of these costs are affected by the presence of a reverse logistics system, and this should be taken into account in the calculation of total costs of ownership.

Additional information

Notes on contributors

Ronald S. Tibben-Lembke

Ron Tibben-Lembke (Ph.D., Northwestern University) is an assistant professor of logistics at the University of Nevada, Reno. His research interests include reverse logistics, total cost of ownership, inventory management, postponement, supply contracts, and facility location.