Department of Technology Management and Economics 
Division of Service Management and Logistics 
CHALMERS UNIVERSITY OF TECHNOLOGY 
Gothenburg, Sweden 2017 
Report No. E 2017:084 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifying Pallet Management 
Strategies and Improving 
Warehouse Capacity 

A Case Study of the Pallet Logistics at 

SCA’s Paper Mill in Lilla Edet 
Master’s Thesis in the Supply Chain Management programme 

 

KARL ABDALLAH



 

 

 

 

 



 

 

 

 

MASTER’S THESIS E 2017:084 

 

 

 

 

 

 

 

 

 

Identifying Pallet Management Strategies and 

Improving Warehouse Capacity 

A Case Study of the Pallet Logistics at SCA’s Paper Mill 

in Lilla Edet 
 

 

KARL ABDALLAH 
 

 

 

 

 

 

Tutor, Chalmers: Ivan Sanchez Diaz 

Tutor, SCA: Martin Drobena 

 

 

 

 

 

 

Department of Technology Management and Economics 

Division of Service Management and Logistics 

CHALMERS UNIVERSITY OF TECHNOLOGY 

Gothenburg, Sweden 2017



 

 

 

 

 

 

 

 

Identifying Pallet Management Strategies and Improving Warehouse Capacity 

A Case Study of the Pallet Logistics at SCA’s Paper Mill in Lilla Edet 

 

KARL ABDALLAH 

 

 

© KARL ABDALLAH, 2017. 

 

 

Master’s Thesis E 2017:084 

 

 

Department of Technology Management and Economics 
Division of Service Management and Logistics 
Chalmers University of Technology 

SE-412 96 Gothenburg, Sweden  

Telephone: + 46 (0)31-772 1000 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chalmers Reproservice 
Gothenburg, Sweden 2017



 

 

 

 

 
 



 

 

i 

 

Abstract 

A rather new area identified by managers as a potential for increasing returns has received 

great attention. Industry analysts predicts that approximately 450 million EPAL Euro pallets 

are in constant circulation in the world. Traditionally, pallets have been disregarded and 

perceived as a source of cost with the single mean to transport products to customers. Lately, 

actors in supply chains have started to perceive pallets in a total cost approach and, hence, as 

significant for the overall result of the supply chain. In parallel with an increased attention of 

the pallets importance on the supply chain performance, a shift towards an increased 

utilization of pallet pooling systems has been indicated. This is related to the constant increase 

in raw material prices as well as costs associated with repair, maintenance and recovery of 

pallets. 

This study aims to answer two issues. The first issue relates to investigating the pallet 

logistics process at SCA’s paper mill in Lilla Edet, which includes the mapping of flows to 

the Danish and Norwegian markets as well as reviewing the design of the pallet warehouse. 

The second issue concerns evaluating the current inspection control process related to 

inbound deliveries of pallets. Established standards and routines will be reviewed in order to 

clarify whether these are complied with. 

A case study approach has been selected as a method in order to fulfil the aim of this thesis. 

Since a mixed methods approach is considered useful, both qualitative and quantitative data is 

collected. Interviews, observations and access to internal documents are the major sources of 

information. Further, the empirical findings were analysed based on the theoretical framework 

in order to provide solutions that addressed the stated issues. Improvement suggestions can be 

grouped in two major measures that should be considered. Firstly, three errors associated with 

defective pallets are correlated with the temperature. Consequently, during winter months’ 

pallets should be stored in the pallet warehouse in order to avoid rising defect levels. 

Secondly, a redesign of the current pallet warehouse should be performed since the current 

design is not optimal from wooden pallet’s perspective. Further, it should be noted that an 

increased information sharing between pallet suppliers and the SCA Edet mill is a huge 

facilitator for improving the studied issues. 

Key words: Pallet logistics, pallet management strategies, warehouse capacity, reverse 

logistics, visual inspection, information sharing, inventory. 



 

 

ii 

 

Acknowledgements 

This master thesis has been conducted at the division of Service Management and Logistics at 

Chalmers University of Technology in Gothenburg, Sweden. The project has been carried out 

at SCA’s paper mill in Lilla Edet during the time period January 2017 to June 2017. 

The author would like to express his sincere gratitude to all the helpful and caring people who 

dedicated their time for this thesis. Thank you to all the employees at the case company who 

helped me during this journey. Your insight and experience have contributed to the achieved 

results. Further, my supervisors at SCA Edet mill, Martin Drobena and Amit Dhokia, deserves 

a special thanks for all the support, feedback and discussions during this thesis. 

A huge thank you to Ivan Sanchez Diaz, my supervisor at Chalmers University of 

Technology, who guided me through the project and provided valuable feedback. 

Finally, I would also like to thank friends and family for all the support, positive feedback and 

engaging attitude during my study. 

 

Gothenburg, June 2017 

Karl Abdallah 



 

 

iii 

 

 

Table of Contents 
List of Figures……………………………………………………………………………....v 

List of Tables……………………………………………………………………………….vi 

List of Abbreviations……………………………………………………………………..vii 

1. INTRODUCTION.................................................................................................. 1 

1.1 Background ...................................................................................................................... 1 

1.1.1 Company description ............................................................................................ 2 

1.2 Problem description ..................................................................................................... 2 

1.3 Aim and research questions ......................................................................................... 4 

1.4 Scope and delimitations ............................................................................................... 5 

1.5 Outline ......................................................................................................................... 6 

2. THEORETICAL FRAMEWORK........................................................................... 7 

2.1 Supply chain management ........................................................................................... 7 

2.1.1 Supply chain management and reverse logistics ....................................................... 8 

2.2 Return reasons for reverse logistics ............................................................................. 8 

2.2.1 Realizing value in reverse logistics ...................................................................... 9 

2.2.2 Implications related to return flows...................................................................... 9 

2.3 Reverse logistics network design .............................................................................. 10 

2.3.1 Return logistics systems ..................................................................................... 10 

2.3.2 Design a pallet management system .................................................................. 13 

2.4 Quality control ........................................................................................................... 15 

2.4.1 Visual inspection ................................................................................................ 16 

2.5 Supply chain coordination ......................................................................................... 17 

3. METHODOLOGY ............................................................................................... 19 

3.1 Research design ......................................................................................................... 19 

3.1.1 Hermeneutic approach ........................................................................................ 19 

3.1.2 Abductive approach ............................................................................................ 19 

3.2 Data collection methods ............................................................................................ 20 

3.2.1 Qualitative data collection .................................................................................. 20 

3.2.2 Quantitative data collection ................................................................................ 21 

3.2.3 Literature review ................................................................................................ 21 

3.3 Interview structure ..................................................................................................... 22 

3.3.1 Sample of interviews .......................................................................................... 22



 

 

iv 

 

 

3.4 Reliability .................................................................................................................. 24 

3.5 Validity of data .......................................................................................................... 24 

3.6 Methods for data analysis .......................................................................................... 25 

3.6.1 Regression analysis ............................................................................................ 25 

3.6.2 Decision making process in pallet logistics ....................................................... 26 

4. EMPIRICAL FINDINGS ..................................................................................... 27 

4.1 Pallet demand at SCA Edet mill ................................................................................ 27 

4.2 Ordering of pallets ..................................................................................................... 28 

4.3 Pallet handling process .............................................................................................. 29 

4.3.1 Standardized pallet handling process ................................................................. 29 

4.3.2 Errors associated with defective pallets ............................................................. 31 

4.3.3 Current inspection control process ..................................................................... 32 

4.4 Storage and warehouse capacity ................................................................................ 34 

4.5 Export pallet process ................................................................................................. 36 

5. ANALYSIS ......................................................................................................... 38 

5.1 Storing locations not complying with standards ........................................................ 38 

5.1.1 Information sharing in the pallet handling process ............................................ 39 

5.1.2 Providing opportunities for feedback ................................................................. 40 

5.1.3 Improving the process of detecting defective pallets ......................................... 41 

5.2 Future pallet demand ................................................................................................. 42 

5.2.1 Restructuring the pallet warehouse .................................................................... 42 

5.2.2 Increased warehouse capacity ................................................................................. 44 

5.3 Mapping of the flow to Norway ................................................................................ 45 

5.4 Mapping of the flow to Denmark .............................................................................. 48 

6. CONCLUSIONS................................................................................................. 49 

6.1 Future work ................................................................................................................ 50 

REFERENCES ......................................................................................................... 51 

APPENDIX A ............................................................................................................ 55 

APPENDIX B ............................................................................................................ 56 

 



 

 

v 

 

List of Figures 
Figure 1: Illustrates the percentage of purchased pallets compared to consumption over the 

year of 2016. ............................................................................................................................... 3 

Figure 2: Pallet process for Euro pallets. ................................................................................... 4 

Figure 3:An illustration of a circular supply chain network as described by Nuss et al. (2015).

 .................................................................................................................................................... 6 

Figure 4: Illustration of a supply chain network (Simchi-Levi et al., 2003). ............................. 7 

Figure 5: Reverse logistics network structure (Fleischmann et al., 2003). .............................. 10 

Figure 6: The decision making process in pallet logistics design (Elia and Gnoni, 2015). ..... 13 

Figure 7: The closed loop pallet management system according to a LSP point of view (Elia 

and Gnoni, 2015). ..................................................................................................................... 14 

Figure 8: Direct and postponed pallet interchange schemes (Elia and Gnoni, 2015). ............. 14 

Figure 9: Illustration of a regression analysis, where the line emphasizes the relationship 

between two variables (Gallo, 2015) ........................................................................................ 25 

Figure 10: Ordered number of pallets per week, during 2016. ................................................ 27 

Figure 11: A comparison between ordered and consumed pallets, during 2016. The blue line 

represents ordered pallets, while the orange line represents consumed pallets........................ 28 

Figure 12: The structure of the pallet warehouse. The illustration above shows the supposed 

storage area of the warehouse. The actual storage of wooden pallets is depicted below. ........ 30 

Figure 13: 12 errors that identifies a defective pallet, according to the Vocational Training and 

Working Environment Council in Sweden. ............................................................................. 31 

Figure 14: The result of an investigation regarding the accuracy level of the sorting machine.

 .................................................................................................................................................. 33 

Figure 15: Structure of the pallet warehouse with stored finished goods. ............................... 35 

Figure 16: An illustration of the time spent on pallet handling in relation to the total working 

time. .......................................................................................................................................... 36 

Figure 17:Cost aspects considered when establishing the internal pallet price. ...................... 37 

Figure 18: A correlation between defect levels and weather is indicated for three errors. ...... 39 

Figure 19: The dashed red line shows the consumption rate the calculations have been based 

on. ............................................................................................................................................. 42 

Figure 20: New structure of the pallet warehouse. ................................................................... 43 

 

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List of Tables 
Table 1: A summary of the different logistics return systems, adapted by (Kroon and Vrijens, 

1994). ........................................................................................................................................ 12 

Table 2: Factors that affect the outcome of visual inspections. Adapted from Marie et al., 

2016. ......................................................................................................................................... 16 

Table 3: A summary of the literature used. .............................................................................. 22 

Table 4: A summary of interviewees contributing to this study and the data collection 

methods used in interviews. ..................................................................................................... 23 

Table 5: Numbers describing the different errors. ................................................................... 32 

Table 6: The delivery of pallets to SCA Edet mill during week 13, 2017. .............................. 34 

Table 7: Handling process related to inbound deliveries of pallets. ........................................ 36 

Table 8: The correlation of determination stated for the three errors presented in Figure 18.. 39 

Table 9: Activities related to the pallet handling process regarding the new design of the pallet 

warehouse. ................................................................................................................................ 44 

Table 10: A comparison between the capacity levels for the different staffing alternatives. .. 45 

 



 

 

vii 

 

List of Abbreviations 

AfH – Away from home, a business segment defined by SCA 

IDC – International distribution center 

LSP – Logistics service provider 

SCM – Supply chain management



 

 

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1. INTRODUCTION 

This chapter starts with introducing the background to the study, in which information related 

to the studied area and the firm where the thesis took place is presented. Further, 

implications on the firm’s operations as a result of the studied area are discussed and is 

followed by the aim and research questions. An explanation of the research questions is 

presented aimed to provide more detailed information regarding the planned activities of 

each research question. Finally, the scope as well as limitation related to this thesis is 

identified and the chapter is concluded with an outline of the thesis. 

1.1 Background 

During recent years, the traditional way of conducting business has experienced a shifting 

trend towards increasing globalization. New marketplaces have arisen and industries have 

prospered which has led to a significant growth in the world trade (Hood and Young, 2000). 

Factors facilitating the globalization trend can be related to the use and availability of 

technology, fewer barriers concerning trade and investment as well as the development of 

communication, which has promoted the spread of knowledge (Enright, 2000). As a 

consequence of the globalization trend, the environment in which firms compete have 

changed and resulted in an increased competitiveness among firms. In order to handle the 

current significant competition in the market due to increased number of actors, firms have 

been forced to either decrease their profit margin or find new income sources (Weele, 2014). 

Further, the knowledge of resource depletion and the potential source of profit that can be 

realized by a more efficient use of natural resources has gained significant attention by firms 

when aiming to achieve competitive edge towards its competitors (Matopoulos et al., 2015). 

A rather new area identified by managers as a potential for increasing returns has received 

great attention (Harps, 2003). Industry analysts predicts that approximately 450 million EPAL 

Euro pallets are in constant circulation in the world (EPAL, 2017). Traditionally, pallets have 

been disregarded and perceived as a source of cost with the single mean to transport products 

to customers. However, a study conducted by Guzman-Siller (2009) shows that actors in a 

supply chain of fast moving consumer goods perceive pallets in a total cost approach and, 

hence, as significant for the overall result of the supply chain. The change in perception of 

value regarding pallets have increased the attention aimed at this area and managers are 

starting to direct more focus to the reverse logistics, including the return flow of empty 

pallets. Thus, although pallets traditionally have been recognized as a low-cost consideration, 

they represent a great potential to increase the efficiency and decrease the costs for actors in 

the supply chain. For instance, some companies have been able to reduce costs by more than 

50 percent by directing their focus on reverse logistics (Harps, 2003). 

In parallel with an increased attention of the pallets importance on the supply chain 

performance, a shift towards an increased utilization of pallet pooling systems has been 

indicated (McCrea, 2016). Previously, common practice regarding pallet management 

strategies relate to sales of pallets between actors. Outbound flow of goods from a firm to a 

downstream customer is met with a monetary flow in the opposite direction, whereas the full 

value of the pallets carrying the goods is included. However, a constant increase in raw 



 

 

2 

material prices as well as costs associated with repair, maintenance and recovery of pallets has 

increased the utilization of pallet pooling systems (Pierce, 2011). 

Historically, articles and journals published in this area has been focused on three major 

topics (Elia and Gnoni, 2015). Studies related to the design problem of pallets have frequently 

been conducted, where different materials impact on the performance of material handling 

activities is analysed (Soury et al., 2009; Bush et al., 2002). Subsequently, several methods 

have been presented to evaluate different materials in pallet designs as well as methods 

facilitating the use of technology for monitoring and ensuring the quality of the pallets (Kim 

et al., 2009; Patricio and Maravall, 2007). Publications related to the loading problem of 

pallets represent the second major topic. Here, studies regarding how pallets should be loaded 

as well as optimization of the loading levels in order to decrease operations and transportation 

costs are covered (Kocjan and Holmström, 2010; Lau et al., 2009). Lastly, the third major 

topic relates to the logistics system design and covers issues regarding reverse flows of pallets 

as well as whether an open or closed loop logistics network should be implemented (Gnoni 

and Rollo, 2010; Silva et al., 2013; Kim and Glock, 2014). Further, this thesis will contribute 

to the area of logistics system design related to pallets. 

1.1.1 Company description 

This thesis will take place at SCA Hygiene in Lilla Edet, which is a subsidiary of the global 

SCA brand. The parent company operates in the hygiene and forest products market with 

approximately 44 000 employees worldwide. Total sales in 2016 amounted to SEK 117bn and 

the holding company is divided into three business areas. The Personal Care business area 

develops, produces and sells incontinence care products, baby diapers and feminine care 

products. In relation to these product segments, wet wipes, soap, lotion, baby oil and cotton 

pads are offered by SCA. Forest Products are comprised by solid-wood products, pulp, 

kraftliner, publication papers. Also, this business area supplies products to the energy sector, 

such as pellets and other biofuels, district heating and green electricity. The third business 

area is Tissue which is divided into the two sub segments of consumer tissue and Away-from-

Home tissue (AfH). The product portfolio of the consumer tissue segment includes toilet 

paper, household towels, handkerchiefs, facial tissues, wet wipes and napkins. These products 

are marketed and sold under the SCA Hygiene Group’s global and regional brands, such as 

Lotus, Regio, Tempo and Zewa as well as under retailer’s own brands. The AfH segment 

comprises toilet paper, paper towels, napkins, hand soap, hand lotion, hand sanitizers, 

dispensers, cleaning and wiping products, sensor technology, services and maintenance for 

institutions and companies under the brand Tork. Further, the distribution of the tissue 

business segment can be divided into the three major channels of retail trade, online sales and 

distributors (SCA, 2017). The SCA Hygiene’s mill in Lilla Edet, or the SCA Edet mill as it 

often is referred to, supplies the market with products related to the Tissue business area. 

1.2 Problem description 

Monthly, tens of thousands of pallets loaded with goods are delivered to customers from the 

SCA Edet mill. To satisfy this high demand pallets are both purchased as well as utilized 

through memberships in pallet pooling systems. As illustrated by Figure 1, pallets purchased 

represent approximately 33 % of the total number of pallets consumed in 2016. 



 

 

3 

According to Roy et al. (2016) purchasing pallets is more expensive than leasing through 

pallet pooling systems. Thus, the management’s objective at the SCA Edet mill is to reduce 

the number of purchased pallets. However, this decision has several implications, one of 

which relates to the difference in time for the ordering deadline of empty pallets and the 

established production schedule. More specifically, empty pallets for the coming week needs 

to be ordered before the corresponding production schedule is set. In essence, it is not possible 

to use the predicted number of pallets consumed from the production schedule as a basis for 

the ordering of empty pallets. 

 

Further, SCA has a policy stating that customers have the right to return empty pallets to the 

nearest international distribution center (IDC). This is illustrated by Figure 2, where the mill 

in Lilla Edet is represented as SCA IDC 2. The dark blue arrows aim to describe the flow of 

goods, while the yellow arrows describe the return flow to the closest IDC and the green and 

light blue arrows shows the exchange of monetary units. This granted right forces the staff 

responsible for the ordering of empty pallets to allow the return of pallets from customers and 

cover the rest of the demand by utilizing pallet pooling systems. At several occasions, the 

management at the SCA Edet mill experiences overflow of empty pallets due to a lack of 

information sharing from customers returning pallets. Consequently, pallets have to be stored 

outside due to the lack of storage capacity available. This outcome leads to large cost 

increases in the handling process, where pallets have sometimes been transported to a third-

party warehouse in order to be defrosted. 

When pallets are returned to the SCA Edet mill by customers or made available through pallet 

pooling systems they are subject to a quality control. Thus, the pallets undergo an inspection 

and sorting process where they are accepted, refurbished or disposed. Since customers who 

receives deliveries from the SCA Edet mill complains about defected pallets beyond the 

normally accepted levels, questions have been raised whether the quality control of arrived 

empty pallets at the SCA Edet mill is inadequate and if the established routines and standards 

should be improved. 

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Figure 1: Illustrates the percentage of purchased pallets compared to consumption over the year of 2016.  



 

 

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Placed orders with pallet suppliers related to pooling systems are met with a confirmation 

stating the date of delivery. Thus, the planning of pallet deliveries is the LSP’s task, who 

usually is the owner of the pallet pooling system. This leads to that the LSP decides when to 

deliver pallets and the number of shipments required. Since no regard is shown to the SCA 

Edet mill’s preferences related to the inbound delivery of pallets, LSPs continuously deliver 

shipments on an irregular basis. Pallet deliveries can vary from five deliveries per day to no or 

a single delivery per day. Moreover, the time of delivery is not communicated between LSP 

and the receiving end, which further complicates the process leading to SCA Edet mill not 

being able to plan in advance regarding the pallet handling process. Also, the available 

capacity is not sufficient to handle five deliveries per day. 

The same problem, related to the inability of planning their own time slots for deliveries, 

occurs with customers who want to return pallets. Since it is single customers who book the 

transports to the SCA Edet mill, the time of delivery is under the control of customers and 

hauler. As previously mentioned the lack of information sharing, similar to the issues with 

pooling systems, complicates the handling process of pallets at SCA Edet mill. Recently, the 

management has started to direct more focus on issues related to the pallet process. More 

specific, management has expressed concerns over the uneven inbound flow of pallets and a 

vision towards a Just-In-Time flow related to the pallet process has been emphasized. 

 

 

1.3 Aim and research questions 

Following the problem description an aim has been identified stating the following “map the 

pallet logistics process at SCA’s production plant in Lilla Edet and evaluate the inspection 

control process related to the inbound delivery of empty pallets”. The aim has been broken 

down into three research questions that need to be addressed in order to fulfill the aim. 

RQ1. Is the current inspection control process regarding received deliveries of empty pallets 

complying with established standards and routines? 

The first research question focuses on, as stated in the aim, evaluating the current inspection 

control process of received empty pallets. In order to address this issue, established standards 

Figure 2: Pallet process for Euro pallets. 



 

 

5 

and routines associated with the inbound delivery of empty pallets as well as the pallet 

warehouse will be reviewed and examined. Interviews will be held with employees directly 

responsible for the inspection control process of received empty pallets. The interviews 

should also include employees responsible of the administrative tasks related to the empty 

pallets. Visual inspections of the storage area as well as of the handling process will be 

conducted. Further, additional data will be collected from electronic files and paper 

documents. 

RQ2. When based on actual demand, how should the inbound delivery of empty pallets be 

structured and managed?  

To address this issue, the pallet demand at SCA Lilla Edet needs to be calculated as well as 

the number of empty pallets needed in storage to cover for the demand during the weekends, 

since no shipments are delivered during the weekends. Further, the warehouse capacity 

related to the staffing and inventory levels will be analysed. The solution of this should result 

in a suggested design of the process regarding empty pallets. Data needed to address this task 

will be gathered from computer files, paper documents as well as interviews. 

RQ3. How is the current pallet logistics designed regarding the tissue business segment to the 

Norwegian and Danish markets? 

To answer the third research question data needs to be collected both internally from SCA and 

from the SCA sales organizations in Norway and Denmark. Data regarding the invoicing of 

pallets to the different markets will be gathered and compiled. Also, information 

corresponding to the number of credited pallets related to the return flow from the different 

markets will be collected from SCA Edet mill. Moreover, the design of the pallet logistics will 

be reviewed and mapped based on information collected from SCA and third parties 

responsible of both the pallet pooling systems and the transportations. This research question 

will be focused on the design, costs and policies associated with the different flows to the 

Norwegian and Danish markets. 

1.4 Scope and delimitations 

The expressed desire, by the management at SCA Edet mill, to achieve a more even flow 

related to the pallet logistics defines this thesis. Focus will be directed on creating the right 

conditions internally in order to facilitate a future Just-In-Time flow. Studying the pallet 

logistics requires studying both the inbound and outbound flow since many of the pallets are 

often linked to return systems. However, this thesis emphasizes the inbound delivery and 

improvement measures will be focused at the inbound delivery of empty pallets. Nuss et al. 

(2015) argues that forward supply chains and reverse supply chains are to some degree 

interdependent which forms the basis for circular supply chain networks, as illustrated in 

Figure 3. According to this illustration, the scope of the thesis includes the Distribution in the 

forward supply chain and both the Product Return Management and Reprocessing Operations 

of the reverse supply chain. Further, wooden pallets are subject of this study and the pallet 

management strategies used in the flows related to the Norwegian and Danish markets will be 

emphasized. The decision to why the Norwegian and Danish markets will be highlighted in 

this study is based on the experienced difficulties in managing these particular flows at the 

SCA’s mill in Lilla Edet.  



 

 

6 

 

 

1.5 Outline 

A brief summary of the chapters constituting this thesis is presented below, with the exception 

of the introduction chapter. 

Chapter 2 – Theoretical framework 

The theoretical framework consists of literature which the thesis has been based on. This 

chapter starts with discussing the reverse logistics and its relation to the supply chain. 

Following, the design of the reverse logistics is covered in terms of return logistics systems 

and pallet management strategies. Finally, quality related to visual inspection is discussed and 

the chapter is concluded with a section on supply chain coordination. 

Chapter 3 – Methodology 

The method used to conduct the thesis is presented. The research design is discussed and 

follows by a description of how the data was collected. Reliability and validity related to the 

thesis is discussed before concluding with a section regarding methods that has been used for 

the analyses. 

Chapter 4 – Empirical findings 

The empirical findings of both the qualitative and quantitative data collection is presented. 

Data presented in this chapter constitutes information in which the analysis will be based on. 

Chapter 5 – Analysis 

This section analyses the studied area based on the theoretical framework and empirical 

findings. Issues related to the pallet logistics process are presented and follows by an analysis 

of the identified improvements. 

Chapter 6 - Conclusion 

In this chapter, the main findings are presented by answering the research question. Future 

work of this thesis will be covered as well as a generalization of the results.  

Figure 3:An illustration of a circular supply chain network as described by Nuss et al. (2015). 



 

 

7 

2.  THEORETICAL FRAMEWORK 

This section presents the theoretical framework and models in which the study is based on. 

The framework starts with introducing the reverse logistics role in the supply chain 

management as well as issues related to the reverse logistics. A brief description regarding 

the design of reverse logistics is covered which is followed by detailed theories and models of 

pallet logistics and pallet management strategies. The section is concluded with highlighting 

theories related to visual inspection and a description associated with supply chain 

coordination. 

2.1 Supply chain management 

In general, a supply chain can be described as at least two independent organizations that are 

linked together by material, information and financial flows (Stadtler, 2015). In practice, this 

statement relates to the forward movement of products and services from suppliers to 

manufacturers, distributors and wholesalers, retailers and finally to the end-customers 

involving activities of transportation, information exchange as well as exchange of funds. 

Accordingly, Chopra and Meindl (2016) states that a supply chain consists of several actors, 

as stated above. Simchi-Levi et al. (2003) support this argument by analysis of case studies 

showing that firms integrated in a supply chain have increased from 2,2 firms in the mid-70’s 

to 5 firms at the beginning of the 21st century. Moreover, the three flows of material, 

information and finance are not single downstream or upstream flows from supplier to end-

customers. Instead, a supply chain consists of both divergent and convergent flows between 

the different actors resulting in a more network based structure of the supply chain, as 

illustrated in Figure 4 (Simchi-Levi et al., 2003). 

Figure 4: Illustration of a supply chain network (Simchi-Levi et al., 2003). 



 

 

8 

The overall objective of a supply chain is to maximize the supply chain surplus, hence the 

profitability of an individual stage in the supply chain will not result in a maximized surplus 

unless it results in profits for all stages involved in the chain (Chopra and Meindl, 2016). As a 

result of this, a network level approach is emphasized when aiming to increase efficiency and 

profitability in the supply chain since all facilities impacting costs needs to be considered. 

Interdependency between actors in a supply chain is significant and managing the 

relationships between these is of essence to enhance value and reduce costs. 

2.1.1 Supply chain management and reverse logistics 

Supply chain concepts have traditionally been described as a single downstream flow from 

supplier and manufacturer to end customer (Dekker et al., 2004; Cohen and Roussel, 2013). 

Therefore, focus has been directed on the forward logistics in which a firm’s outbound 

distribution is designed to allow the forward movement of goods in an efficient and effective 

way (Harps, 2003). Since the emphasis previously has been on the forward logistics it has 

resulted in reverse logistics being perceived as lower priority and, hence, receiving low 

attention from management (ibid.). The supply chains of today include reverse flows or 

upstream flows from customers and retailers to manufacturer and supplier. These flows have 

not been mentioned in traditional supply chain definitions, however, since these processes 

affects the supply chain it is vital to apply a comprehensive approach in order to optimize the 

value creation. Thus, as a result of the importance of the reverse logistics the term “closed-

loop supply chains” has arised (Lebreton, 2007). 

Since reverse logistics being perceived as a significant element of supply chain management, 

Dekker et al. (2004) claims that it should be analysed in the same way as when a traditional 

supply chain is investigated. Further, the authors argue that a trade-off is present when firms 

design their supply chains and a decision must be made whether it should be based on a cost 

approach or service approach. The correlation between the two approaches can be described 

as a supply chain that is responsive incurs higher costs. Which direction to lean towards in the 

trade-off is ultimately decided by the customer who determines if a higher service level is 

justified (ibid.). 

2.2 Return reasons for reverse logistics 

Reasons concerning returns through the reverse logistics system have been discussed by 

several authors (de Brito and Dekker, 2002; Jack et al., 2010; Lambert et al., 2011) who 

describes reasons related to the senders. 

Return reasons related to the sender are divided into manufacturing returns, distribution 

returns, and customer returns (de Brito and Dekker, 2002). Manufacturing returns relates to 

the recovered components and products from production. Specifically, such recoveries are 

defined in terms of surplus of raw materials, components or products that have not passed 

quality checks and needs to be returned, or production leftovers (Vercraene et al., 2014). 

Further, distribution returns aim to describe the returns that arise during the distribution, such 

as product recalls, commercial returns among business-to-business firms, stock adjustments, 

and functional returns (Kleindorfer et al., 2005). The type of return mentioned last is of 

essence in this thesis since it concerns packaging, carriers, and other types of distribution 

items. Finally, the reasons for customer returns are expressed as business-to-customer 



 

 

9 

commercial returns, warranty returns, service returns, end of use- or life returns (Barky, 

2016). 

2.2.1 Realizing value in reverse logistics 

Toktay et al. (2004) claims that in order to increase the value realized from returned items 

firms need to manage the quantity and timing of the returns. In practice, this means that 

managers responsible for the reverse flow of returned items should design the reverse chain 

with the aim to enhance visibility and increase speed throughout the chain, which ultimately 

would result in an increase in the value potential being realized (Guide and Van Wassenhove, 

2001). In response to how to design a reverse logistics chain Toktay et al. (2004) describe two 

modelling approaches that can be utilized to study the interdependence between return flow 

characteristics and system structure. The first approach relates to analysing the value of 

incentives in terms of return allowance, trade-in offers, and buybacks through creating 

principle-agent models (Debo et al., 2001). The second approach aim to assess the influence 

of several relevant factors through a regression analysis (Toktay et al., 2004). 

Further, the trade-off between cost and service level, as mentioned in the previous sub 

chapter, is of significance when considering returned items (Chopra and Meindl, 2016). 

Return policies are usually a response to the competitive environment firms experience that 

aims to increase the customer satisfaction levels (Mukhopadhyay and Setaputra, 2011). A 

consequence of return policies is that they could lead to high costs since they are associated 

with direct transportation costs and inspection costs. Thus, when studying and examining the 

return policies it is of essence to evaluate other return policies alternatives (Setaputra, 2005). 

2.2.2 Implications related to return flows 

Implications arise when goods are returned to its sender due to insufficient quality control of 

the goods which results in significant uncertainty. To handle these issues, it becomes of 

essence to establish a dynamic ability of the flow and to adjust to different markets and 

customers. Thus, developing knowledge and insight on how the various markets works and 

how the goods are handled in each market is vital (Blumberg, 2005). Also, when addressing 

these issues, and more specifically managing return flows, relevant information must be used 

meaning that outdated or irrelevant information does not have a purpose in these contexts. 

Regarding the handling of information difficulties emerge in terms of the design of the 

distribution of information across different actors. In order for the return flow of materials to 

be as effective as possible the different processes need to be coordinated between the actors 

involved in the return flow. To handle the high uncertainty of the return flow high flexibility 

in facilities and transport systems becomes evident (Fleischmann, 2001). Thus, the quality of 

the information available is of significant importance and results in a better decision making 

process of the transports, staffing, and facilities which ultimately leads to a cost-efficient 

handling of return flows (Blumberg, 2005). Further, Fleischmann (2001) highlights some 

differences between return flows and traditional logistic flows. The author argues that 

uncertainty and variation related to the forecasts impedes on the quality and quantity of 

materials returned. This is the reason that the uncertainty in the forecasts are perceived as a 

complex area. Further, due to the large number of actors that are involved in the supply chain 

network, the return flow becomes more complicated as the risk for a lack of information 

sharing increases (Fleischmann, 2001). 



 

 

10 

2.3 Reverse logistics network design 

Profits realized by the reverse logistics chain are to a large degree dependent on the network 

design of the chain. Facilities and other logistics infrastructure needs to be designed in a way 

that enhances the inbound flow of returned goods if the highest value possible is going to be 

realized. Thus, the location of the reverse chain’s processes as well as the links between these 

and the actors, such as transportation and storage, are crucial to understand the reverse 

logistics chain. Further, the reverse logistics functions have been described as collecting, 

testing and sorting, reprocessing, and redistribution (de Brito and Dekker, 2002). Figure 5 

aims to illustrate this view of the reverse logistics chain. 

The structure, as illustrated by Figure 5, could be perceived as a many to many distribution 

network, were the inbound part that is associated with the collection and acquisition of the 

returned goods receives deliveries from multiple locations and the outbound part delivers 

shipments to several locations (Fleischmann et al., 2003). Further, Fleischmann et al. (2003) 

argues that although the inbound part has traditionally been perceived as reverse logistics it 

could obstruct an analysis of the reverse logistics since the inbound and outbound flow are 

interrelated. 

 

2.3.1 Return logistics systems 

Lützebauer (1993) distinguishes between the three different return logistics systems, which 

are described below. 

Switch pool systems are characterized by each member having their own number of containers 

which they are responsible for. Due to this, every member of the pool system is in charge of 

the cleaning, control, maintenance and storage of the containers (Elia and Gnoni., 2015). Pool 

systems usually include multiple actors, however the two most common types are that the 

members consists of senders and receivers or by senders, carriers, and receivers of the goods 

(Kroon and Vrijens., 1994). 

In pool systems that consists of senders and receivers both the actors own a number of 

containers. Containers are transferred between the sender and receiver when the goods are 

delivered to the receiver’s facilities (Lützebauer, 1993). A carrier is usually responsible for 

transferring the goods between the two actors and either transport containers filled with goods 

from sender to receiver or empty containers in the opposite direction to the sender’s facilities. 

Figure 5: Reverse logistics network structure (Fleischmann et al., 2003). 



 

 

11 

For the carriers to achieve economic benefits from these transportations and not drive with 

empty trailers on the way back, the sender in the end need to ensure the carrier that the 

volume of the number of containers transported to the receiver is the same number of 

containers that is shipped back from the receiver to the sender (ibid.). 

In the second alternative of switch pool systems the carrier also has a number of containers. In 

this case, when containers containing goods at the sender’s facility are loaded onto the carriers 

truck empty pallets corresponding the number of pallets loaded are provided to the sender 

(Kroon and Vrijens, 1994). Thus, the sender is not responsible for the managing the return 

flow of shipped containers. A pallet exchange like the one described is the norm in this type 

of switch pool systems. 

In systems with return logistics all the containers belong to a central agency which is 

responsible for the containers also after they have been emptied by the recipient (Lutzebauer, 

1993). Thus, the central agency is responsible for transferring all containers between different 

actors, however, the agency require that the empty containers are bundled and stored by the 

receiver until a sufficient number of containers has been accumulated which enables a cost 

efficient collection by the agency (Elia and Gnoni, 2015). Lützenbauer (1993) distinguishes 

between the following two systems: 

• Transfer system. This system is characterized by the sender constantly utilizes the 

same type of containers since the transfer system only manage the return flow of 

empty containers from receiver to sender. Instead the tracking and tracing of 

containers, cleaning, maintenance, and storage are under the sender’s responsibility. 

Further, the sender also manages the flow of containers ensuring a sufficient number 

(Lützebauer, 1993). 

• Depot system. The overall idea of this system is that containers are stored at 

predetermined depots. The depot provides the sender with the required number of 

containers and when the containers have been transported to the receiver empty 

containers are transported back to the depot and stored until needed again by the 

sender. During the time of storage, the containers are maintained if required. This 

system can further be divided into two sub groups (Cobb, 2016). 

o The book system is characterized by the central agency conducting a thorough 

review of the flow of containers. When the agency delivers a certain number of 

containers to the sender the corresponding amount of the containers are then 

debited in the sender’s account by the agency. On the other hand, when the 

sender ships containers to a receiver the sender’s account is credited for the 

number of containers shipped, while the receiver’s account is debited (Roy et 

al., 2016). Thus, the agency requires the sender to provide complete 

information on shipments, place of receiver, and the number of containers 

involved in the shipment. This information combined enables the agency to 

monitor the flow of containers (Yang et al., 2016). 

o In the deposit system, the sender is required to pay for every container that is 

utilized and the deposit reflects at least the value of the containers (Lutzebauer, 

1993). When the sender sends a shipment to the receiver the containers are 

debited to the receiver who in turn debits them to their customers. At the end 

of the chain, when the goods have arrived at the end customers, the containers 

are collected by the agency which in turn pays the value of the collected pallets 



 

 

12 

to the actor they are collected from (Roy et al., 2016). The deposit in a system 

like the one described should be sufficient to cover loss, theft, and damages to 

the containers which in turn results in a monitoring track and trace system to 

manage the flow of containers is not required. Further, since the deposit system 

includes cash flows between different actors it enables a fast return rate of the 

containers as a result of the actors need to get their money back (Kroon and 

Vrijens, 1994). 

In systems without return logistics the containers in the system are also under the central 

agency’s ownership. When the sender requires containers, they are rented from the agency 

and returned back when they are not needed. The system is characterized by the sender having 

the full responsibility of the containers when it comes to controlling, cleaning, maintenance, 

and storage as well as return logistics (Elia and Gnoni, 2015). An advantage with systems 

without return logistics is that it possesses a potential for the sender to reduce its costs by 

renting containers instead of purchasing them (Roy et al., 2016). 

The type of return system a sender chooses to use is dependent on the goods involved. For 

instance, the type, weight, structure, and quantity of the goods affects the selection of return 

system. However, other factors do also affect this decision. The scope of the return system 

(international, regional, national), coordination between actors, willingness to invest, 

available storage space, control possibilities, size of the organization as well as the acceptance 

in the market are all factors that have an impact on the selection of return systems. Further, 

Table 1 summarizes the different logistics return systems that have been described (Kroon and 

Vrijens, 1994). 

Table 1: A summary of the different logistics return systems, adapted by (Kroon and Vrijens, 1994). 

 

 

 

Systems Essence Partners Responsibility Possibilities

Switch pool Every partner has 

an allotment

Sender, recipient Every partner is 

responsible for his 

own allotment

Direct switch

Sender, carrier 

and recipient

Exchange-per-

exchange switch

With return 

logistics

Return logistics by 

agency

Agency, sender, 

carrier, recipient

Agency Transfer system

Depot system with 

booking

Depot system with 

deposit

Without return 

logistics

Rental of the 

containers

Agency, sender Sender, also for the 

return logistics

Rental of the 

containers



 

 

13 

2.3.2 Design a pallet management system 

 

Figure 6: The decision making process in pallet logistics design (Elia and Gnoni, 2015). 

Elia and Gnoni (2015) presents a decision-making framework concerning the design of a 

pallet logistics process which is divided into three steps, as illustrated by Figure 6. The first 

step relates to defining the structure of the logistics network regarding pallets. Two different 

models are used to describe pallet logistics processes (ibid.). An open network is characterized 

by an upstream firm sending goods loaded in pallets to a downstream firm, which in turn do 

not return the empty pallets to the upstream firm. Instead, the downstream firm credits the 

upstream firm, not only for the goods, but also for the pallets carrying the goods (Hariga et al., 

2016). On the other hand, if a closed loop network is in place, the pallet logistic process is 

characterized by the need to manage empty pallets between downstream and upstream firms 

in a reverse flow (Roy et al., 2016). 

Both the open network and the closed loop network has their benefits. For instance, closed 

loop networks are more complex and requires larger resources to manage the reverse flow of 

empty pallets from customers. This affects the inventory and logistics activities for the 

companies involved since it results in the decision initiating the reverse flow is made by the 

downstream firm. Thus, the inventory levels at the upstream firm is volatile to the reverse 

flow of the empty pallets from the downstream firm since these return deliveries are not 

notified in advance (Glock, 2017). However, the costs associated with the replenishment of 

the pallet logistics process can be reduced with the closed loop network and managing the 

inventory of the empty pallets becomes easier. This is achieved since the empty pallets related 

to the closed loop network is utilized several times in the system (Elia and Gnoni, 2015). 



 

 

14 

Has an open network been selected in the first step of Figure 6, the next step is to set up the 

management system of the inventory and design the empty pallet storage warehouse, in terms 

of replenishment models and warehouse capacity (Elia and Gnoni, 2015). 

If, however, the pallet logistics process is designed based on the closed loop network the 

logistics introduced with the reverse flows represent another element of the design problem, 

as referred by the second step in Figure 6. An essential cornerstone when aiming to design a 

closed loop network is to consider the role of the logistics service provider. This is relevant 

since both the forward and reverse flows needs to be organized and handled. The flows that 

the logistic service provider usually handles are depicted in Figure 7 (ibid.). 

 

Figure 7: The closed loop pallet management system according to a LSP point of view (Elia and Gnoni, 2015). 

Regarding the definition of the organizational scenarios for the reverse logistics network, as 

illustrated by the second step in Figure 6, there are two different systems concerning the 

interchange of empty pallets; direct and postponed systems. Both these systems and their 

respective activities are illustrated in Figure 8 (ibid.). 

 

Figure 8: Direct and postponed pallet interchange schemes (Elia and Gnoni, 2015). 

A direct interchange system is characterized by the logistics service provider making a 

delivery to a downstream firm, while at the same time arranging for the reverse flow of empty 

pallets that are collected from the same firm (Hariga et al., 2016). Systems like this relates to 

that the same number of palletized loadings delivered to the downstream firm needs to be 

delivered back to the logistics service provider. The described synchronization between 

forward deliveries and reverse flow of empty pallets requires the courier delivering goods to a 

downstream firm to wait a considerable time, resulting in non value added activity, while the 



 

 

15 

goods are unloaded and the empty pallets are loaded onto the truck. However, there is no 

established standard that is recognized as common, instead different standards for pallets 

applies universally. The standardization in this sense refers to agreed size and materials of 

pallets. Regardless of this, the courier should still be able to accept pallets corresponding to 

the standard of the area of business (Li, 2006). Thus, the courier should accept standardized 

empty pallets at the premise of the downstream firm, instead of waiting for its own pallets to 

be unloaded from goods and loaded onto the truck. Consequently, waiting times at the 

downstream firm will be reduced for the courier, which will only have to check whether the 

standard corresponds to that of those pallets delivered (Elia and Gnoni, 2015). If the 

downstream firm is not able to provide empty pallets whose standards does not corresponds to 

the pallets delivered by the logistics service provider, the downstream firm becomes 

responsible to compensate the courier for the number of empty pallets that have not been 

delivered back (Roy et al., 2016). 

The postponed interchange is characterized by the courier not waiting for empty pallets to be 

loaded to the truck at the time of delivery. Instead, after the downstream firm has inspected 

the pallets delivered for any defects, it initiates a pallet voucher (Elia and Gnoni, 2015). Here, 

the empty pallets offered to the pallet voucher also needs to be quality inspected in order to 

assess the number of pallets corresponding to the agreed rules on accepted pallets (Glock, 

2017). However, empty pallets do not need to be offered urgently to the pallet voucher, since 

it is possible for the downstream firm to postpone the delivery of empty pallets and not issue a 

pallet voucher immediately (Hariga et al., 2016). According to the European interchange 

system this postponement of empty pallets has been limited to three months (ECR, 2006). 

Thus, the number of pallets corresponding to the number of delivered pallets, whose quality 

has been verified, should be offered to the pallet voucher before the stated time limit. Further, 

if the downstream firm does not offer the empty pallets in time, they will be forced to 

compensate the logistics service provider for the cost corresponding to the value of the empty 

pallets. When the logistics service provider receives the delivery of empty pallets, a quality 

inspection needs to be performed since the quality needs to be verified in order for a 

comparison to be made with the numbers of pallets that the voucher has stated as accepted 

(Elia and Gnoni, 2015). 

Finally, both the postponed and the direct interchange systems possess strengths and 

weaknesses. Analysing the postponed interchange system from a logistics service providers 

view, it can be concluded that waiting times at the downstream will be avoided (Roy et al., 

2016). However, the weakness of such a system relates to the delay time, resulting in no direct 

availability of empty pallets to the logistics service provider. If instead a direct interchange 

system is in place, the inventory management will be facilitated. Further, due to the lack of 

reverse flow of empty pallets the level of replenishment will increase (ibid.). 

2.4 Quality control 

Bergman & Klefsjö (2012) define quality as a products’ ability to satisfy, or preferably 

exceed, the needs and expectations of the customers. The authors further claim that customers 

can be divided into external and internal ones, where the latter are represented by the staff 

within a firm. To satisfy both these customers’ needs the focal firm needs to be able to 

perform its processes with a high and even quality level. Moreover, when managing the 

quality of the current process it is essential to analyse and prevent any variation from the 



 

 

16 

quality levels that has been established (Grigori et al., 2001). A method commonly used to 

analyse the quality of a firm’s processes is through visual inspection (Marie et al., 2016).  

2.4.1 Visual inspection 

The essence of visual inspection on incoming deliveries is emphasized by several scholars 

within the quality control as well as total quality management areas (Klefsjö and Bergman, 

2012; Marie et al., 2016; Peris-Ortiz et al., 2015). Sablatnig (1997) defines visual inspection 

as a process that determines whether a product differs from the given specifications. There are 

multiple existing methods that comprise the concept of visual inspection, for instance 

automated machines, machines that require an operator, and human inspections. The latter one 

is the most common method used and Marie et al. (2016) claims it to be the best method for 

detecting deteriorated products. Although visual inspections being performed by humans are 

reported to be effective there are still limitations as well as complications to this method 

(Klefsjö and Bergman, 2012; Shilling, 1982; Liker, 2009). For instance, Table 2 provides 

references to some studies concerning the complication that arises from the result of visual 

inspections performed by humans. Accordingly, Hendricks and Singhal (2001) states that 

investing in relevant tools and systems can reduce the errors from visual inspections, but it 

cannot completely eliminate the errors. Further, literature on different types of visual 

inspections reports error rates of 20-30 percent (Hendricks and Singhal, 2001; Marie et al., 

2016; Klefsjö and Bergman, 2012). In order to manage the high error rates, firms are directing 

their focus towards the opportunity to train controllers that performs the inspections rather 

than allocating this activity to manufacturing workers. Moreover, studies show that training 

employees to detect deferring products results in a lower error rates while improves the 

operator’s decision making ability (Wiener, 1975; Marie et al., 2016). 

Table 2: Factors that affect the outcome of visual inspections. Adapted from Marie et al., 2016. 

Visual acquity McCormick (1950), Courtney (1985) 

Eye movement Findlay (1997), Näsänen et al. (2001) 

Age Ball et al. (1988), Cerella (1985) 

Tiredness Jebaraj et al. (1999a), Lin et al. (2009) 

Concentration (Sagi, 2010) 

Training/Feedback Chabukswar et al. (2003), Wang et al. (1997), Rebsamen et al. (2010) 

Memory Shore and Klein (2001), Maxwell et al. (2003) 

Motivation Rousseau (1977), Hays and Hill (2001) 

 

Further, the outcome of visual inspections is affected by the repeatability and reproducibility 

of the performed inspection (Marie et al., 2016). Repeatability is the difference in 

measurement that results from measuring the same feature on a specific part, while 

reproducibility is the average variation in measurement caused by workers when measuring 

the same feature on a specific part (Klefsjö and Bergman, 2012). These terms are 

interdependent on the worker’s capacity to detect defected products and to evaluate these 

defects. Marie et al. (2016) claims the repeatability and reproducibility to be closely related to 

the exploration and evaluation of defects. Despite visual inspection has been subject to several 

studies, still the exploration of studies or the detection of defects are perceived as the major 

part of the concept of visual inspections. Factors that affects the number of detected defects 

has been argued and visual acuity, lighting, inspection time, and feedback are aspects reported 



 

 

17 

to have an impact of the detection of defects (Courtney, 1985; Näsänen et al., 2001; Ball et 

al., 1988; Megaw, 1979; Lin et al., 2009; Sagi, 2010; Chabukswar et al., 2003; Hays and Hill, 

2001). 

Marie et al. (2016) claims that defects are often known and that the workers performing the 

visual inspections have knowledge of the defects they are supposed to detect. Further, the 

authors mention that the controllers can have easy access to pictures illustrating the defects. 

The overall objective of performed visual inspections is to detect any defects and at the same 

time fulfill the expectations imposed by customers. This could be achieved by not only 

detecting any defects but to also identify any irregularities that can be perceived as a defect by 

customers. Given the difference between extensive and limited inspection controls, some 

customers might detect defects that has not been detected by other customers (ibid.). 

2.5 Supply chain coordination 

Traditional supply chains as well as supply chains that considers the reverse flow are 

characterized by multiple interactions and extensive involvement by decision makers within 

and across firms regarding the efficiency and profitability of the supply chain (Debo et al., 

2001). Despite extensive interactions across firms within the supply chain, decision makers 

might still pursue their own local objective without considering the overall profitability of the 

supply chain. Thus, some level of coordination between firms within a supply chain is of vital 

importance in order to align all decision makers with the same objective of creating highest 

possible overall efficiency of the supply chain. According to Debo et al. (2001), supply chain 

coordination can be achieved by focusing on incentive alignment, information sharing, and 

functional integration. 

Multiple firms are usually included in a supply chain, where each firm has its own objectives. 

In order for the supply chain to achieve high levels of customer service and become cost 

effective it is necessary for all the members of the chain to work toward the same goal. Thus, 

overall profitability of the supply chain can be maximized if the goals and incentives of the 

members in the chain are aligned. This means that risks and rewards as well as costs of 

conducting business are fairly shared between the different actors in the supply chain 

(Narayanan and Raman, 2004). However, in case the incentives are not aligned the overall 

profitability of the chain will not be optimized, resulting in excess inventory, stock outs, 

incorrect forecasts, inadequate sale efforts, and poor customer service. 

Narayanan and Raman (2004) claims that there are three reasons why issues related to 

incentives appears in the supply chain. The first reason concerns firms’ lack of insight and 

knowledge related to other firm’s activities, making it difficult to ensure these firms activities 

are in line with those of the supply network. Further, the authors emphasize that actions that 

cannot be observed are present all along the supply chain. Moreover, aligning objectives when 

firms in the supply chain have access to different information and knowledge is another 

reason to incentive obstacles appear in the chain. This is illustrated in situations where 

suppliers do not want to share their cost data with the manufacturer in fear of the data being 

used by the manufacturer against the suppliers to reduce their profit margins (Debo et al., 

2001). Consequently, the suppliers will be unwilling to share data and involve in activities 

with the manufacturer if it implies that the supplier’s data would be gathered. As long as the 

conditions for sharing information between supplier and manufacturer are not fair the supply 

chain will not be as efficient as possible. The third reason, as described by Narayanan and 



 

 

18 

Raman (2004), relates to that incentive schemes often are not designed properly. Chopra and 

Meindl (2016) illustrate this by describing badly designed sales force incentives as a major 

limitation to achieve coordination in the supply chain. A manufacturer usually measures sales 

as the amount of sold products to the distributors (sell-in) instead of the amount sold to the 

end customer (sell-through) which represents the real demand. Measuring the sell-in instead 

of the sell-through is characterized by the manufacturers sales force not managing the sell-

through. Sales force incentives that are structured based on sell-in instead of sell-through give 

rise to higher fluctuations of placed orders than the actual variability of customer demand 

(Chopra and Meindl, 2016). 

Three measures can be taken to achieve supply chain coordination; rewrite contracts, reveal 

hidden information, or develop trust (Narayanan and Raman, 2004). By rewriting contracts 

with members of the supply chain that are based on the actual outcome of the chain instead of 

outcomes between single stages lead to aligned incentives. Rewriting contracts is essential 

when sales force incentives are improperly structured. For instance, contracts based on sell-

through instead of sell-ins would stop sales staff from pushing products and stimulate forward 

buying resulting in reduced order variability (Chopra and Meindl, 2016). Incentives within a 

supply chain can also be aligned by reveal hidden information through sharing information 

across the chain. If a member in the supply chain share information of the actual demand with 

the rest of the chain, it becomes possible for the other members to forecast future demand 

based on the actual customer demand. With all stages sharing information it leads to less 

information being distorted since the available information creates opportunities for each 

member of the supply chain to respond to the same information. Further, by developing trust 

within the supply chain incentive obstacles can be reduced. Trust is a precondition for 

facilitating the process of achieving coordination between the stages across the supply chain. 

For instance, an upstream actor in the supply chain does not need to allocate resources to 

establish and maintain forecasts if it trusts the information received from an actor 

downstream. Also, an actor can reduce its inspection quality control if it trusts the quality and 

quantity delivered by its supplier.  



 

 

19 

3.  METHODOLOGY 

The following chapter describes the methods used for this thesis. A presentation of the 

research design is followed by a description regarding how the data was gathered. Further, 

the literature review and the interview sample is presented. The reliability and validity of the 

study is described before the section concludes with a presentation of the methods used for 

analysis. 

3.1 Research design 

A case study approach on SCA Edet mill was used to conduct this thesis and the topic used in 

the study is pallet logistics. According to Bell (2010) the benefits of a case study is presented 

in its ability to provide individual researchers an opportunity to study a specific area in detail 

during a limited time period. Further, in order to achieve a good understanding of the studied 

area it is essential to gather information from different sources (Patel and Davidson, 2003).  

3.1.1 Hermeneutic approach 

Various approaches and methods of analysis can be used to make interpretations and gain 

knowledge of the studied event. A hermeneutic research approach is based on this concept 

and aims to study the meaning of thinking, actions, experiences, culture, and texts by 

subjectively assessing and interpreting the researched phenomena. According to (Patel and 

Davidson, 2003) the ultimate goal of a hermeneutic research design is to examine and 

understand individuals subjectively experienced world, by collecting information through the 

use of a qualitative approach and non-directive interview techniques. Further, the distance 

between the subject who conducts the study and the object of study is not clear since gaining 

understanding of experiences cannot be accessed through a true/false analysis (Hunter, 2004). 

Instead, the researcher adopts a comprehensive approach in which broad knowledge of the 

field of study is obtained. According to Wallen (1996) four principles defines a hermeneutic 

research approach. The first principle concerns interpreting the meaning of thinking, actions, 

experiences, culture, and texts. Secondly, the researcher should have some knowledge relating 

to linguistics and culture before performing the study. The third principle relates to the fact 

that the researchers often switch between interpreting the field of study based on a 

comprehensive view and a more specific view. Finally, Wallen (1996) emphasizes the essence 

of conducting an interpretation based on a context. 

Adopting a hermeneutic research approach is necessary in answering the first research 

question. When answering if standards and routines are being complied with regarding 

received deliveries of empty pallets, it is necessary to study the thinking and actions of the 

concerned staff, which is why a hermeneutic approach were deemed relevant. Further, 

interviews with staff responsible for this inspection quality control will be held since their 

professional experience in that area will be of significance later when presenting solutions 

aiming at improving the current situation. 

3.1.2 Abductive approach 

Abductive research methodology aims to address the weaknesses of associated with deductive 

and inductive approaches and is thus perceived as a combination of these two approaches. 

Deduction approach takes its starting point in established theories and concepts to lead to 



 

 

20 

observations and later on a confirmation of the original theory. Thus, utilizing this approach 

has a strong impact on the type of information to be collected. Since theories and concepts are 

highly valued in deductive approaches it reduces the scientist’s potential to include own 

thoughts which constrains the possibility to realize new findings (Trochim, 2006). 

An inductive approach differs considerably from deductive approaches and are often 

perceived as the opposite to deductive approaches (Trochim, 2006; Patel and Davidson, 2003; 

Kvale, 1996). This type of research approach takes its starting point in specific observations 

and ends in generalizations and new theories. As understood, inductive approaches are more 

exploratory in nature leading to addressing certain issues without a base of established 

theories and concepts. In contrary to the deductive approach, inductive research is 

characterized by that the scientist’s own thoughts are significant in the creation of new 

theories (Trochim, 2006). 

The research approaches mentioned in this section have often been described as opposites to 

each other in research approach literature. However, since deductive and inductive approaches 

are the inverse of each other they can be combined into a process that continuously shifts 

from theories to observations and back to theories again. A process, that combines deductive 

and inductive approaches, is defined as an abductive approach (Thagard and Shelley, 1997). 

Since this thesis combines both established theories within reverse- and inbound logistics and 

aims to realize new opportunities within these areas, the abductive approach becomes useful 

to apply. Thus, the abductive research of this thesis can be described as utilized theories of 

reverse and inbound logistics, which corresponds to the deductive approach, as well as 

collected data and information based on the author’s ideas and thoughts, which relates to the 

inductive approach. 

3.2 Data collection methods 

The data collection methods used will be discussed in this thesis. A mixed methods approach 

was used, implying that both qualitative and quantitative methods were utilized when 

collecting data. 

3.2.1 Qualitative data collection 

Collecting data using a qualitative approach is essential when studying the underlying 

processes and causes of a specific field of study or behind stated results. Thus, a qualitative 

data collection provides information more complex than the objective and accurate 

information retrieved from standardized methods (Patton, 2005). Further, Eklund (2013) 

claims that qualitative data collection should be characterized by researchers aiming at using 

triangulation to achieve a higher credibility of the study. The objective with using 

triangulation is to collect data from several sources in order to verify the accuracy of the data 

(Trochim, 2006). Specifically, this can be translated to interviewing multiple people from 

various positions and responsibilities, which is why forklift drivers, team leaders, transport 

planners, warehouse managers, and factory logistics managers have been chosen. 

The operators handling the empty pallets, which is the forklift drivers, were interviewed with 

the objective to gain an understanding of the everyday operations and to get an insight of their 

thought regarding the current inspection quality process of received deliveries of empty 

pallets. Team leaders, transport planners and warehouse managers were chosen to gain 



 

 

21 

knowledge of established standards and routines regarding the empty pallet process as well as 

to gather information regarding the administrative part of the process. Finally, it was 

considered important to give the factory logistics manager the opportunity to express thoughts 

and ideas of the vision regarding the empty pallet process. 

Relating the quantitative data collection to the research questions, it can be stated that the 

quantitative method was found useful in answering all three research questions. However, the 

main goal with the qualitative data collection was to address the first research question, in 

which this method had a major contribution to the presented results. Further, by giving 

multiple employees the opportunity to express their thoughts the collected data could easily be 

verified which ultimately contributed to securing the accuracy of the collected data. 

3.2.2 Quantitative data collection 

The objective with quantitative data collection is to make use of information expressed in 

numbers to measure or assess a certain field of study (Eklund, 2013). Collecting data with this 

method is characterized by the use of structured and standardized methods, making it easy for 

others interested in the field of study to achieve the same results (Björklund and Paulsson, 

2012). Information gained from a quantitative data collection presents rather objective and 

considerably accurate results compared to the qualitative data collection. In order verify the 

collected data, researchers that adopts a quantitative approach uses internal validity which 

represents the level of which obstacles to internal validity have been considered (Trochim, 

2006). The major obstacles to internal validity relates to the history of data, in which the data 

collected should be relevant in time, and selection of data, meaning that the data collected 

should represent the actual field of study (Eklund, 2006). 

A majority of the quantitative data utilized in this thesis were collected from SAP, which is 

the ERP system the firm uses, and from Microsoft Excel files. The latter source of 

information constituted a variety of reports regarding the number of empty pallets delivered, 

the stock of empty pallets, number of empty pallets per delivery, number of empty pallets per 

truck, etc. Also, a business intelligence software tool was used to access data regarding 

volumes relating to certain countries. The countries were restricted to Norway and Denmark 

and the data collected represented figures from the previous year (2016) until the present year 

(2017). Further, data were collected from different pallet pooling systems in order to 

understand the various conditions of each pooling system. 

3.2.3 Literature review 

The majority of the literature review was accessed through Chalmers library databases and 

Google Scholar. Additional information could be gathered from lectures of professors at the 

SCM programme at Chalmers and from the intranet of SCA. The references used in this thesis 

are mainly based on scientific journals and edited books from different publishers, as 

illustrated in Table 3. Further, the various search terms used to find journals and books can 

also be found in the table. 

 



 

 

22 

Table 3: A summary of the literature used. 

Search terms 
"pallet logistics”; "reverse logistics"; "closed-loop supply chains"; "reverse supply chains"; “inbound 
logistics"; "inspection quality control"; "pallet management strategies"; "returnable containers"; 
“product return management”; “reprocessing operations"   

Scientific Journal of Operations Management (Elsevier) 

journals Supply Chain Management: An International Journal (Emerald) 

  International Journal of Physical Distribution and Logistics Management (Emerald) 

  Manufacturing and Service Operations Management (Informs) 

  Production and Operations Management (Wiley) 

  International Journal of Management Reviews (Wiley) 

Edited books Reverse Logistics - Quantitative Models for Closed-Loop Supply Chains (Springer) 

  Supply Chain Management and Reverse Logistics (Springer) 

  Supply Chain Management (Pearson) 

 

3.3 Interview structure 

In this study interviews are one of the primary sources of data, where the respondents have 

been provided with the opportunity to express their thoughts and concerns related to the pallet 

logistics at the SCA Edet mill. Since this study is based on the theories of a case study, 

gathering relevant data and gaining a complete understanding of the studied area is essential. 

In order to achieve this a selection of interviewees must be made carefully, in which the 

interviewer should rely on multiple information sources that could complement the issues 

expressed by the respondents (Bohlin, 2015). Interviews associated with a qualitative research 

approach are less structured if compared with those related to quantitative research methods. 

Thus, unstructured and semi-structured interviews are used frequently in qualitative studies 

since the focus of is based on the respondent’s experience. On the other hand, structured 

interviews are the general method in quantitative study areas, where the interviewer’s 

questions are the focus of the interview. Specifically, this means that the possibility is present 

to let the respondent decide which direction to take during the interview. This is not the case 

in quantitative research approaches since a predetermined questionnaire controls the interview 

(Kvale, 1996). 

Given that a mixed method approach was utilized in this study both qualitative and 

quantitative based interviews were considered as appropriate. At the beginning, unstructured 

and semi-structured interviews were mainly performed in order to gain knowledge of the 

studied area. Thus, no established theory was used as a basis for the interviews, instead the 

questions were open and focused more on the respondents. As the interviewer gained a 

broader understanding, the interviews became more structured to extract quantitative data. In 

this case, interview questions were designed based on the information obtained from the 

qualitative interviews, observations, internal documents as well as theory related to the 

subject. Further, questions were adjusted between the interviews depending on the 

responsibilities of the respondents. 

3.3.1 Sample of interviews 

Table 4 summarizes the interviewees that contributed to this study. Several interviews with 

respondents were based on different data collection methods. However, it should be noted that 



 

 

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no combined approach was used in single interviews. Instead, different approaches were used 

in separate interviews with the respondents. 

Table 4: A summary of interviewees contributing to this study and the data collection methods used in interviews. 

 

Forklift drivers were interviewed based on their active role in the process regarding empty 

pallets. These employees handle the operative part of the process where they inspect, sort and 

decide whether to dispose or refurbish the pallets. Consequently, their experience when it 

comes to the physical handling and inspection process of the empty pallets is highly valued in 

order to understand the problematics regarding this process. Team leaders were also selected 

to be part of the interview process as a result of questions related to the staffing and time 

allocated to the handling of empty pallets. Conducted interviews with the forklift drivers were 

usually performed in the empty pallet warehouse but also in conference rooms in the office 

building. Interviews performed in the warehouse were usually short and of a descriptive 

nature where the forklift drivers described their tasks and activities as well as answered 

simple questions. On the other hand, interviews performed in the office were deeper where 

the respondent expressed concerns over the current process and where questions related to the 

inspection control process where emphasized.  

Also, team leaders were interviewed in the office building. Interviews were performed in the 

office building due to the calmer environment which would help the respondents to easier 

focus on the questions. Further, transport planners are also represented in the sampling due to 

their role in the administrative part of the empty pallet process. Transport planners dispatches 

empty pallets from LSPs, handles the inbound delivery from customer returns, as well as 

decides the number of pallets needed to be delivered to the mill. Thus, questions related to 

these topics where discussed with the transport planners. The warehouse manager’s 

perception of the process and expertise regarding replenishment models, warehouse capacity 

and inventory levels formed the focus of this interview. Also, the factory logistics manager 

was included in the sample of interviews, in which the performed interviews were more of a 

descriptive nature. Thoughts regarding a potential future state of this process and previous as 

well as current improvement work were expressed during these interviews. 

Interviews were also conducted with external partners, where a discussion with the customer 

service manager at SCA’s office in Gothenburg was held. Here, the topic related to 

Interview Category Designation of Interviewee Data Collection Method 

Key stakeholders Forklift drivers Qualitative 

 

Team leaders  Qualitative 

 

Transport planners Qualitative/Quantitative 

 

Warehouse manager Qualitative 

 

Controller Qualitative/Quantitative 

 

Transport manager Qualitative/Quantitative 

 

Raw materials controller Qualitative 

 

Logistics manager Qualitative/Quantitative 

External Customer service manager Qualitative 

 

Logistic service providers Qualitative/Quantitative 



 

 

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agreements with pallet pooling systems. Further, LSPs were included in the interviews in 

order to gain an understanding of the pallet logistics from their point of view. 

3.4 Reliability 

Reliability relates to the quality of a study and is perceived as a measure on how repeatable or 

consistence a performed measurement is (Trochim, 2006). Thus, the field of study is thought 

to be reliable if the result of the study is not affected by random variables that have a negative 

impact on the expected result (Eklund, 2013). More specific, this means that if the study is 

performed during similar conditions an identical outcome should be expected. Random 

variables affecting the result of the study can be divided into human factors and 

environmental factors (Trochim, 2006). The human factors relate to the person’s mood, if 

they are tired or fell ill. While the environmental factors relate to the light, noise and other 

environmental factors that could have an impact on the outcome. Further, Ejvegård (2003) 

claims that the outcome of a study does not have any value if it is not reliable. 

Relating the qualitative data collection to the concept of reliability it can be stated that noise 

could be perceived as a valid concern to the reliability of this study. Handling empty pallets in 

the warehouse exposes the employees to loud noises from other forklifts, the sorting machine 

and other warehouse related activities. However, these environmental factors are not 

continuously present. For instance, the sorting machine give rise to loud noises only when it is 

operating. Still, it may be difficult to understand the forklift driver’s expressions. Due to this, 

interviews with forklift drivers where held in a more peaceful environment. These interviews 

were then combined with observations of the activities when handling the empty pallets. By 

first listening to the forklift drivers and then observe them increases the reliability of this 

thesis since the observations provide some kind of assurance to how much of data collected 

during the interviews corresponds to the actual situation. 

Regarding the quantitative data collection reliability could be ensured through repeated 

measurements which provides an overview to how much the different measurements differ 

from each other. Also, by double checking calculated figures and receiving response from 

employees further increased the reliability. Specifically, this can be related to the calculation 

on the number of empty pallets, storage space required and calculations of the sorting 

machines capacity were double checked by observations and measurements in the warehouse 

and through the feedback from employees directly involved with these tasks. 

3.5 Validity of data 

Validity refers to how well the researcher has been able to study the intended problem and 

relates to the validity of the measurement (Ejvegård, 2003). In order to achieve a high 

validity, it is essential to ensure the observation of the actual problem and not the observation 

of an adjacent problem (Eklund, 2013). Thus, validity is a measurement of the ability to study, 

analyse and interpret the intended and relevant objects of the study. Obstacles affecting the 

validity is described as systematic errors and is perceived as bias in a performed measurement 

(Trochim, 2006). 

There were two activities that helped ensure the validity of this thesis. Firstly, the initial 

interviews that were held with concerned staff guided the researcher to study and observe the 

actual problem. For instance, as presented in subchapter 4.1, forklift drivers expressed 



 

 

25 

concerns for the sorting machine, which is one step in the inspection process of empty pallets, 

claiming that it was not accurate. This guided the researcher to study the accuracy of the 

sorting machine in order to fully understand the problematics with the empty pallets. 

Secondly, to handle the systematic errors as described by Trochim (2006) several calculations 

were performed to calculate the same object. For instance, when calculating the capacity of 

the sorting machine the time were measured for each pallet to be processed through the 

machine. This was then compared to the calculations of the demand and inbound delivery of 

empty pallets resulting in a capacity that corresponded to the previous approach. Since these 

two methods does not have the same systematic errors it was possible to receive feedback of 

whether the collected data is representative to the actual problem and the intended study. 

3.6 Methods for data analysis 

Methods used for analysing the collected data are based on both quantitative and qualitative 

methods. The methods used for the research question will not be identical. For instance, the 

first research question is analysed with a different method than the second and third research 

question. 

3.6.1 Regression analysis 

A regression analysis is a statistical method that aims to evaluate the impact between two or 

more variables. When performing a regression analysis, the variables are divided into 

dependent and independent variables, see Figure 9. Factors that are of interest for the study or 

essential for the understanding of the study are termed as dependent variables. On the other 

hand, independent variables are related to factors that are thought to have an impact on the 

dependent variable (Gallo, 2015). 

 

Figure 9: Illustration of a regression analysis, where the line emphasizes the relationship between two variables (Gallo, 

2015) 

Further, regression analysis can be of two different types; single and multiple. Single 

regression analysis refers to the use of two variables as previously mentioned. When instead 

conducting a multiple regression analysis one or several control variables (regressors) are 

used. Regressors are defined as variables that are thought to impact the actual relationship and 

should therefore be eliminated from the analysis (Watson, 2007). 

A regression analysis is performed in order to investigate if a correlation exist between the 

different errors when pallets are stored outside without any protection from the weather. 

Simultaneously, the hypotheses states that “is there a relationship between weather and 



 

 

26 

errors”, in which 12 different regression analyses have been performed – one for each error. 

The independent variables relate to the temperature during the sampling of the pallets. During 

the months of February and Mars, empty pallets that had been stored outside were inspected 

and for each inspection the temperature was noted. Dependent variables in the conducted 

regression analysis relates to the number of pallets with errors. The first inspection of pallets 

comprised 288 pallets in which the appearance of the different errors in this inspection were 

noted. The complete time series can be found in Appendix A. 

Regression analysis has been used as a method for analysis related to the first research 

question and aims to reflect the impact of standards and routines not being complied. 

3.6.2 Decision making process in pallet logistics 

The framework illustrated in Figure 6 as presented by Elia and Gnoni (2015) will in this study 

be used as a method for analysis. Steps 1 and 2 of the figure will be used to analyse the third 

research question where the outcome will establish the design of the different flows to 

Norway and Denmark. The last step of the figure will be used to answer the second research 

question where the current design of the pallet warehouse will be reviewed. Here, the 

outcome will focus on the warehouse capacity and inventory levels.  



 

 

27 

4.  EMPIRICAL FINDINGS 

This section presents the empirical findings from the collected data. It starts with describing 

the pallet demand at the SCA Edet mill and continuous with the ordering process of pallets. 

The pallet handling is then described and followed with a presentation of the current storage 

and warehouse capacity. Finally, the section is concluded with a description of SCA’s export 

pallet process. 

4.1 Pallet demand at SCA Edet mill 

A declining trend in the number of ordered pallets has been present during the majority of 

previous year, see Figure 10. Such a large variation in the ordered quantity of pallets is rare at 

SCA Edet mill and is not indicated by a decrease in customer demand. Instead, it can be 

related to an initiated project which included exchanging a producing machine with a more 

effective machine. Thus, the disassembly of the machine resulted in a reduced capacity at the 

mill leading to less pallets needed. The increase in ordered number of pallets, starting from 

week 40, relates to when the new machine was assembled and started producing. However, 

the machine will not reach its fullest capacity during the first periods of use since all the 

settings need to be adjusted gradually. 

 

Figure 10: Ordered number of pallets per week, during 2016. 

A comparison between the number of ordered pallets and consumed pallets is illustrated in 

Figure 11. It should be noted that consumed pallets between week 28 and 33 is not associated 

with a sudden drop and increase in demand. Rather this deviation is explained as the lack of 

documentation of the consumption during these weeks. Nevertheless, the figure clearly 

indicates the difference between ordered and consumed pallets, in which the number of 

ordered pallets does not follow the graph of consumption. Further, the two graphs contradict 

each other at times when the consumption decreases while the ordered pallets increases. 

Specifically, the graphs can be related to both overflow as well as lack of pallets at the SCA 

Edet mill. 

0

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5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

N
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Figure 11: A comparison between ord