DEPARTMENT OF TECHNOLOGY MANAGEMENT AND ECONOMICS 

DIVISION OF SUPPLY AND OPERATIONS MANAGEMENT 

CHALMERS UNIVERSITY OF TECHNOLOGY 

Gothenburg, Sweden 2020 
www.chalmers.se 
Report No. E2020:016 

 

Reverse Logistics in the 
Transition Towards Circular 
Economy  
A Case Study of Customer Returns at IKEA 
Master’s thesis in Supply Chain Management Master’s Programme 
 

Karin Malmgren 
Karl Mötsch Larsson 

 

 



 

  



 
REPORT NO. E 2020:016 

 

 

 

 

 

Reverse Logistics in the Transition Towards 
Circular Economy 

A Case Study of Customer Returns at IKEA 
 

Karin Malmgren 
Karl Mötsch Larsson 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Department of Technology Management and Economics 
Divison of Supply and Operations Management 

CHALMERS UNIVERSITY OF TECHNOLOGY 
Gothenburg, Sweden 2020  



 
 
 
 
 
 
 
 
 
 
 

Reverse Logistics in the Transition Towards Circular Economy 
A Case Study of Customer Returns at IKEA 
Karin Malmgren 
Karl Mötsch Larsson 
 
 

© Karin Malmgren A, 2020. 
© Karl Mötsch Larsson, 2020. 
 
 

Report no. E2020:016 
Department of Technology Management and Economics 
Chalmers University of Technology 
SE-412 96 Göteborg 
Sweden 
Telephone + 46 (0)31-772 1000 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Gothenburg, Sweden 2020



 

Reverse Logistics in the Transition Towards Circular Economy  
A Case Study of Customer Returns at IKEA 

Karin Malmgren  
Karl Mötsch Larsson 

Department of Technology Management and Economics 
Chalmers University of Technology 
 
 
 
SUMMARY 
The world is facing an era of resource scarcity and worsened climate externalities. These 
challenges can partly be linked to industries embracing linear business models, producing 
beyond the limits of our planet. IKEA has addressed this issue by aiming to transform their 
current linear business into a circular business by 2030. The development of a closed-loop 
supply chain can support closing the loop of production and consumption by prolonging 
product lifecycles. Greater focus can be given to reverse logistics to enable product returns 
and recovery. 

The thesis aimed to analyse how IKEA’s transition from a linear to a circular economy affects 
customer returns and reverse logistics. This was achieved by examining the current reverse 
flow and exploring initiatives taken within IKEA that serve to facilitate a circular economy. This 
was done together with an analysis of how a transition towards a circular business model is 
affected by involved actors in the supply chain (i.e. customers, companies, and society). 
Interviews were carried out to identify important challenges and opportunities for IKEA in the 
transition towards a circular business model.  

During the study, three initiatives at IKEA were analysed; buy-back and take-back services, 
offering after sales parts, and usership models, to conclude how IKEA can collect and restore 
value in second-hand products. The thesis has shown a need for customer convenience in 
the return process to increase the return rate of end-of-life and end-of-use products. To avoid 
unnecessary transportation and handling, the thesis has shown the importance of early 
inspection and separation of products. Also, potential benefits could be seen in performing 
recovery close to the point of use. To facilitate recovery, the thesis identified product design, 
resource allocation, and availability of spare parts as critical factors. To accelerate the 
transition, it is important to understand customers and their attitudes toward second-hand 
products. Improved customer communication can increase understanding and promote 
circular behaviour. Based on this study, IKEA has to adapt mind-sets and processes to give 
larger attention to reverse logistics and the recovery of products to facilitate a circular 
economy. 

 

 

 

 

 

 

 
 
 

Keywords: Reverse Logistics, Circular Economy, Product Recovery, Circular Business Model, 
Retailing.  



 

 



 i 

Acknowledgements 
This Master’s Thesis was written during the spring of 2020 at Chalmers University of 
Technology as the final part of the Supply Chain Management Master’s Programme. The thesis 
was conducted at IKEA of Sweden in collaboration with the Plan Balance Sales and Supply 
division. 

We would like to express our sincere gratitude to IKEA for providing us the opportunity to 
conduct this thesis and to all the employees who have shared their vast knowledge and offered 
us support. A special thank you to our supervisor Stefan Holmberg at IKEA of Sweden for all 
the assistance during the spring.  

Last but not least, our sincere thanks to our tutor and examiner, Kajsa Hulthén, for providing 
us with valuable input and guidance throughout the thesis.  

 
 
Karin Malmgren  
Karl Mötsch Larsson  
 
Gothenburg, June 2020



 ii 

Table of Contents 
1 Introduction ....................................................................................................................... 1 

1.1 Background .......................................................................................................................... 1 
1.2 Linear and circular economy .............................................................................................. 2 

1.2.1 Shifting to a circular business model .............................................................................................. 3 
1.3 Problem description ............................................................................................................ 4 
1.4 Aim ........................................................................................................................................ 5 

2 Empirical background ...................................................................................................... 6 

2.1 IKEA Group ......................................................................................................................... 6 
2.1.1 Inter IKEA Group ........................................................................................................................... 7 
2.1.2 Ingka Group .................................................................................................................................... 8 

2.2 The logistic supply chain of IKEA from a flow perspective ............................................ 8 
2.3 Challenges and opportunities in a transition towards a circular business model.......... 9 

3 Theoretical Framework .................................................................................................. 13 

3.1 Reverse Logistics ............................................................................................................... 13 
3.1.1 Driving forces behind Reverse Logistics ...................................................................................... 13 
3.1.2 Reasons for customer returns ........................................................................................................ 15 
3.1.3 Reverse Logistics Activities ......................................................................................................... 16 
3.1.4 Recovery processes ....................................................................................................................... 17 
3.1.5 Characteristics of a logistics system ............................................................................................. 18 

3.2 Factors influencing the design of reverse logistics activities .......................................... 24 
3.2.1 Collection ...................................................................................................................................... 24 
3.2.2 Inspection and separation .............................................................................................................. 26 
3.2.3 Reprocessing ................................................................................................................................. 28 
3.2.4 Redistribution ............................................................................................................................... 30 

3.3 Product-service systems .................................................................................................... 30 
3.3.1 Product-oriented ........................................................................................................................... 31 
3.3.2 Use-oriented .................................................................................................................................. 32 

3.4 Problem discussion ............................................................................................................ 33 
3.5 Research questions ............................................................................................................ 34 
3.6 Research model .................................................................................................................. 34 

4 Method ............................................................................................................................. 35 

4.1 Research Strategy .............................................................................................................. 35 
4.2 Research Process ............................................................................................................... 35 
4.3 Research Design: Case Study ........................................................................................... 36 
4.4 Data Collection ................................................................................................................... 36 

4.4.1 Primary Data ................................................................................................................................. 37 
4.4.2 Secondary Data ............................................................................................................................. 41 

4.5 Data Analysis ..................................................................................................................... 41 
4.5.1 The trustworthiness of findings in a qualitative research .............................................................. 42 



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5 Empirical findings and identified challenges and opportunities .................................. 43 

5.1 Customer returns at IKEA ............................................................................................... 43 
5.1.1 Handling customer returns ............................................................................................................ 43 
5.1.2 Current reverse flow ..................................................................................................................... 45 
5.1.3 Challenges in IKEA’s current reverse logistics activities ............................................................. 47 

5.2 Challenges for IKEA’s transition towards a circular business model .......................... 49 
5.3 Ongoing initiatives at IKEA and how they affect the return flows ............................... 50 

5.3.1 IKEA’s approach to improving the handling of customer returns ................................................ 50 
5.3.2 Buy-back and take-back services .................................................................................................. 51 
5.3.3 After Sales Parts ........................................................................................................................... 54 
5.3.4 Usership Models ........................................................................................................................... 57 

6 Analysis of challenges and opportunities related to involved actors ............................ 59 

6.1 Challenges and opportunities for IKEA in relation to customers ................................. 59 
6.1.1 Incentives and convenience .......................................................................................................... 59 
6.1.2 Knowledge and communication ................................................................................................... 59 

6.2 Challenges and opportunities in relation to companies ................................................. 60 
6.2.1 Product offering ............................................................................................................................ 60 
6.2.2 A shifting mind-set ....................................................................................................................... 61 
6.2.3 Supporting infrastructure and network ......................................................................................... 62 
6.2.4 Product visibility ........................................................................................................................... 63 

6.3 Challenges and opportunities in relation to society ........................................................ 63 
6.3.1 Stricter regulations on material choice and production ................................................................. 64 

7 Analysis of initiatives and recommendations for future reverse logistics activities ..... 66 

7.1 Reverse logistics activities for a buy-back and take-back service ................................. 66 
7.1.1 Collection ...................................................................................................................................... 66 
7.1.2 Inspection and separation .............................................................................................................. 69 
7.1.3 Reprocessing ................................................................................................................................. 71 
7.1.4 Redistribution ............................................................................................................................... 75 
7.1.5 Future state recommendation ........................................................................................................ 77 

7.2 Reverse logistics activities for offering after sales parts ................................................ 79 
7.2.1 Collection ...................................................................................................................................... 80 
7.2.2 Inspection and separation .............................................................................................................. 82 
7.2.3 Reprocessing ................................................................................................................................. 83 
7.2.4 Redistribution ............................................................................................................................... 85 
7.2.5 Future state recommendation ........................................................................................................ 87 

7.3 Reverse logistics activities for a usership model ............................................................. 89 
7.3.1 Collection ...................................................................................................................................... 90 
7.3.2 Inspection and separation .............................................................................................................. 91 
7.3.3 Reprocessing ................................................................................................................................. 92 
7.3.4 Redistribution ............................................................................................................................... 94 
7.3.5 Future state recommendation ........................................................................................................ 95 

8 Conclusion and future recommendations ...................................................................... 98 

8.1 Answers to the Research Questions ................................................................................. 98 
8.2 Future recommendations for IKEA ............................................................................... 101 
8.3 Recommendations for further research......................................................................... 103 

References ............................................................................................................................. 105 



 iv 

Appendix A – Template of interview questions with internal specialists at IKEA ................. I 

Appendix B - Template of interview questions with external actors .................................... III 
 



 

 

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1 Introduction 
This master thesis is written on behalf of and in collaboration with IKEA of Sweden. This 
section covers the background of the research area, as well as a description of the underlying 
problem that has initiated the thesis. The aim and research questions that the report addresses 
are then presented.  

1.1 Background 
The linear ‘take-make-dispose’ model that dominates producer-consumer relationships is 
reaching its limits. It is a model according to which companies extract materials to manufacture 
products that are then sold to consumers. When the product no longer brings value to the 
customer it is discarded. This has led to unsustainable extraction of raw materials and extensive 
waste generation as products are disposed of after use (Ellen MacArthur Foundation, 2012).  

Negative climate impact can to a great extent be attributed to unsustainable consumption of 
resources and constitutes a problem ever more critical as population and consumption continue 
to increase (Hanumante, Shastri and Hoadley, 2019). Issues such as resource scarcity and 
climate externalities are worsened by industries that have embraced linear models (Ellen 
MacArthur Foundation, 2015). The application of a linear model leads to landfills and 
emissions that hurt our planet and people. New ways are therefore needed to meet customer 
needs and gain profits without compromising the life of future generations. Companies are also 
becoming aware of the financial risks of linear business models as the scarcity of raw material 
causes prices to rise (Ellen MacArthur Foundation, 2012).  

Material Economics (2019) finds that there is a gap between current climate policies and the 
goals of the Paris Agreement (United Nations, 2015) to create an economy with net zero supply 
side, including the development of industrial processes and increased use of non-fossil fuels. 
By instead turning to the demand side, actions can be taken to make better use of what is already 
produced, thus reducing the need for new production (Material Economics, 2019).  

The furniture cooperation IKEA Group, hereinafter referred to as IKEA, is addressing this issue 
by aiming to, by 2030, transform the currently used linear business model into a circular 
business model (Ingka Holding B.V., 2020c). The vision of IKEA ‘To create a better everyday 
life for the many people’ is challenged by growing threats to our planet but the vision also 
forces IKEA to take measures to transform into a sustainable business that increases the well-
being of a growing number of people and the currently poorly treated planet.  

The transition towards a circular economy serves to eliminate waste and facilitate reuse of 
resources and entails changes throughout the business. The complete range of products needs 
to be designed using principles that enable circulation in different loops such as reuse, 
refurbishment, remanufacturing, and as a last resort, recycling (Inter IKEA systems B.V., 
2019). In such a system, customers play an increasingly important role also after the point of 
purchase as the products need to go back into the system after use. In addition, the supply chain 
needs the capabilities and resources to handle the circular loops to prolong the lifecycle of 
products and materials.  



 

 

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1.2 Linear and circular economy  
The concept of a circular economy offers an opportunity to focus on demand side actions as it 
questions the linear model and hence the currently dominating way of producing and 
consuming goods. By facilitating circulation of products and materials in different loops, the 
product lifecycle can be extended, resulting in a reduced need for raw material and decreased 
waste generation (European Environment Agency, 2017). A transition to a circular economy 
is increasingly important for a sustainable future and includes changes in internal processes as 
well as in external behaviour (Hanumante et al., 2019). Kirchherr et al. (2017, p. 229) define 
the circular economy as “…an economic system that replaces the ‘end-of-life’ concept with 
reducing, alternatively reusing, recycling and recovering materials in production/distribution 
and consumption processes”. This system can be described by different loops, which in turn 
can be divided into inner and outer loops depending on the distance to the consumer and the 
value that is built into the products in the different stages (European Environment Agency, 
2017). The outer loops focus on recycling and refurbishment/remanufacturing whereas the 
inner loops consist of maintenance/prolonging and reuse/distribution according to Figure 1 
(Ellen MacArthur Foundation, 2015). 

 
Figure 1. Model adapted from Ellen MacArthur Foundation (2015) illustrating the flows generated by 
a circular economy 

The aim is to keep products circulating in the inner loops for as long as possible, thereby 
keeping the value of products high while minimising the need for new inputs. Product design 
determines products potential for circularity whereas the degree to which this potential is 
utilised is determined by activities taking place throughout the complete lifecycle (European 
Environment Agency, 2017). Capturing this potential requires a system that can coordinate the 
collection, refurbishment activities as well as redistribution, depending on the condition of 
products in the reverse flow (Goltsos et al., 2019). 



 

 

3 

1.2.1 Shifting to a circular business model  
The furniture industry is characterised by the linear business model with the take, make, and 
dispose perspective. The industry faces the challenge of meeting customers’ demands while 
remaining profitable without compromising the life of future generations (European 
Environmental Bureau, 2017). 

IKEA addresses this challenge by striving to enable the prolongation of product and material 
life through the four circular loops; reuse, refurbishment, remanufacturing, and recycling. 
These are described in the following paragraphs as defined by IKEA (IKEA of Sweden, 2019). 
The reuse loop consists of the customer use of a product and starts directly when a product is 
acquired. For IKEA the concept includes all phases of regular use and maintenance of a 
product, such as sustaining its condition and adapting it to changing needs and preferences. 
This definition means that customer use, second-hand markets, and other ways of passing on 
products form part of the reuse loop from IKEAs point of view.  

The refurbishment loop consists of products in need of processing and thereby include used, 
damaged, or non-compliant products that are to be refurbished and sold as new with only small 
improvements needed. The repairs or upgrades can be done either by customers, IKEA, or 
external after-market service providers. The process includes activities such as evaluation, 
cleaning, repair, upgrades and recertification to release the product back into the market.  

The outer loops, remanufacturing and recycling, focus on utilising parts and materials from 
products in the production of new products, hence these loops only indirectly contribute to 
product circulation. However, these loops create a potential for cost savings in the supply chain.  

A challenge is to keep the product value high for as long as possible by striving to keep products 
as close to the customer as possible and view recycling as the last resort and thus focus on what 
Ellen MacArthur Foundation (2015) refers to as the inner loops. For IKEA this translates into 
the reuse and refurbishment loops visualised in Figure 2.  

 
Figure 2. The four circular loops in a circular economy defined by IKEA, adapted to focus on the inner 
loops close to the customer (Inter IKEA systems B.V., 2019) 

A transition to a circular economy requires changes in how and where IKEA interacts with its 
customers and an ability to influence customers to embrace circular thinking in their behaviour. 
Customer behaviour is changing and the awareness of sustainable consumption increases (Ellen 



 

 

4 

MacArthur Foundation, 2015). Despite this, the financial and functional aspects are still the 
prioritised aspects when making a purchase (European Environmental Bureau, 2017). For 
IKEA to adapt circular business practices, new service concepts must be offered to customers 
to find incentives and convenient ways to pass on, repair, and adapt products to extend the 
product lifecycles (Inter IKEA systems B.V., 2019). Current trends are that people buy second 
hand to a greater extent, rent products and products are bought as a service or subscription 
(European Environmental Bureau, 2017). All these changes increase the value of a product 
since it can be used multiple times. However, it also puts pressure on the design, product flow 
channels, and after-sale services. A challenge with a more service-oriented offering is that work 
is often taxed higher than material. Higher taxes on work can result in linear consumption 
remaining more attractive for customers if buying new products are cheaper than repairing old 
ones. To drive change, it is important to make sustainable solutions more attractive than 
alternatives.  

Another critical part is that the products must be designed for the circular loops from the very 
start. IKEA tackles this challenge by incorporating circular design principles in the product 
design. The principles promote designing for standardisation, adaptability, renewable, or 
recycled materials, remanufacturing, care, repair, disassembly, reassembly, and recyclability 
(Inter IKEA systems B.V., 2019). To unleash the value of these efforts, supply chain 
development is needed to fit into a circular business model. The current development means 
that new channels and actors are entering the system and with them new challenges and 
opportunities arise.  

1.3 Problem description  
Rising concern over the environmental impact of supply chain systems along with increased 
regulations has given rise to an increased interest in reverse logistics (Wang and Disney, 2016). 
The transition towards a circular economy impacts business in all aspects and development of 
the IKEA supply chain is necessary. To facilitate this development there is a need to investigate 
how IKEA can enable customers to return products to ensure they re-enter the system. The 
collection, inspection, reprocessing, and redistribution activities pose challenges for a circular 
economy (Fleischmann, Krikke, Dekker and Flapper, 2000). These additional activities in the 
reverse flow create new uncertainties compared to traditional forward flows. Products enter 
reverse loops for various reasons and in different conditions and it is important to understand 
the character of these reverse flows and what resources are required to enable circular supply 
chain development and adequate planning (Goltsos et al., 2019).  

In a traditional reverse flow, it is mainly unsatisfied customers returning products, but in a 
circular economy, products are also returned to extend their lifecycle. The changes a circular 
economy brings to the reverse supply chain in turn create a need for changes in the design of 
the involved activities. The transitioning into a circular business means that volumes in the 
reverse flow will increase as products are collected to enable second use. This requires new 
resources as well as extended capacity in the reverse flow activities. Today, the possibility to 
handle returns in the IKEA stores is limited which according to customer care specialist 
(personal communication, February 18, 2020), restricts the recovery processes and thus forces 
returned products with potential for recovery to be disposed of.  



 

 

5 

To plan for the customer return flow for previously used products, knowledge on when and if 
products will be returned is required, as well as information on quantities and conditions 
(Santibanez Gonzalez, Koh and Leung, 2019). These variables can be described by timing, 
quantity, and quality (Goltsos et al., 2019) and the uncertainties that they create must be 
managed to take care of products after use and improve reverse logistics performance. Hence, 
IKEA has seen a need to investigate how customer returns can be managed in the reverse flow 
to facilitate a circular economy and identify challenges and opportunities in the involved 
activities.  

IKEA is driving many initiatives to facilitate a transition to a circular economy, for instance 
buy-back and take-back services, offering after sales parts and usership models. These novel 
ways to collect and handle previously used products from customers results in the design of 
new reverse flows and changes in the existing return flow activities to allow products to re-
enter the supply chain and facilitate a circular economy where customers and IKEA extend 
products lifecycles.  

1.4 Aim 
The thesis aims to analyse how IKEA’s transition from a linear to a circular economy affects 
customer returns and reverse logistics. The thesis explores initiatives taken within IKEA that 
serve to facilitate a circular economy. The initiatives are analysed with identified challenges 
and opportunities in the current reverse flow to serve as inspiration for the future design of 
reverse flows.  

 

 

 

  



 

 

6 

2 Empirical background 
In the following chapter, the empirical background for the thesis is presented. Firstly, IKEA’s 
organisation is explained. The information provided is based on IKEA’s official 
communication, internal documents as well as interviews with employees at IKEA. An 
understanding of the complex IKEA organisation is needed as a transition to a circular 
economy affects all aspects of IKEA businesses. The following chapter gives an understanding 
of the context for this master thesis. Secondly, the chapter includes background information 
regarding challenges and opportunities in a transition towards a circular business model, 
provided by two external researchers within the circular economy. This can be seen as a 
complement to theory by providing an understanding of challenges facing customers, 
companies, supply chains, and the environment. 

2.1 IKEA Group  
In 1943, Ingvar Kamprad founded IKEA and started selling general products to meet customer 
needs at a low cost. Since then IKEA has expanded into a global furnishing business with a 
presence in over 50 markets (Inter IKEA Systems B.V., 2018). The success of IKEA is largely 
dependent on the development of an efficient distribution network and supply chain 
optimisation. Products are produced in large quantities to allow for lower costs and to meet the 
vision of IKEA “To create a better everyday life for the many people” (Inter IKEA Systems 
B.V., 2020a). The company started by mainly selling products through mail orders but since 
then the sales channel has switched to focus on in-store purchases and in later years a growing 
portion of online sales (Inter IKEA Systems B.V., 2020b).  

IKEA is operated by a large number of companies that all run under the same IKEA brand in 
a franchise structure shown in Figure 3 (Inter IKEA Group, 2019). Inter IKEA Systems B.V., 
IKEA of Sweden AB, IKEA Supply AG, and IKEA Communications AB form the Inter IKEA 
Group. IKEA Industry also belongs to the group but is not shown in the figure as it is a supplier 
to IKEA, working close to IKEA Supply AG and other suppliers. The Inter IKEA Group is 
ultimately owned by the holding company Inter IKEA Holding B.V.  

 
Figure 3. Organisational structure of the IKEA franchise system, adapted from Inter IKEA Group (Inter 
IKEA Group, 2019) 

To the right in Figure 3, the abbreviated names of the franchisees that operate IKEA retail 
businesses are presented. Ingka is by far the largest franchisee with 374 stores (Ingka Holding 



 

 

7 

B.V., 2020c), compared to less or equal to ten stores operated by the other franchisees (Inter 
IKEA Group, 2019). Inter IKEA group and Ingka Group have the same founder but different 
management and owners. Ingka Group is owned by the Dutch foundation Stichting Ingka 
Foundation (Ingka Holding B.V, 2020d). When referring to Ingka, the parent holding company 
Ingka Holding B.V and Ingka Group are considered.  

The franchising system was set in place to expand and form a basis for mutual collaboration. 
While the franchisor, Inter IKEA Systems B.V., takes responsibility for the development and 
implementation of the IKEA Concept, the franchisee contributes with consumer and market 
understanding (Inter IKEA Group, 2019).  

2.1.1 Inter IKEA Group 
The information in the following chapter is based on Inter IKEA Group Financial Summary 
2019 (Inter IKEA Group, 2019). The strategic direction of IKEA is carried out by Inter IKEA 
Group, part of Inter IKEA Holding B.V., by connecting IKEA franchisees with product 
development and suppliers. Based on annual retail sales, the franchisees pay a franchise fee to 
Inter IKEA Group and it is from them their products are bought. 

In Figure 4, the organisational structure of Inter IKEA group is shown, consisting of the 
businesses: Franchise, Range & Supply and Industry. These core businesses aim to provide 
franchisees with the best conditions for implementing and operating the IKEA concept (Inter 
IKEA group, n.d.). They work close to franchisees and suppliers and strive for continuous 
improvements and growth.  

 
Figure 4. Organisational structure of Inter IKEA Holding B.V., adapted from Inter IKEA Group (Inter 
IKEA Group, 2019) 

The franchise business includes Inter IKEA Systems B.V. and its branches. They license the 
IKEA system and brands worldwide and work with the IKEA Concept. The franchise system 
creates flexibility and enables market expansion. The range and supply businesses have the 
task to develop and supply IKEA products. The business, therefore, spans across the total value 
chain and includes businesses such as IKEA of Sweden AB and IKEA Supply AG. The 
industry business is responsible for manufacturing products and focuses on parts in the value 
chain such as materials, manufacturing, and distribution. The business produces roughly 12% 
of the total IKEA product range. Product design takes place at IKEA of Sweden AB and to 
reach the goal of a circular business by 2030, IKEA has committed to having 100% of circular 
products and source only renewable or recycled materials by the same year.  



 

 

8 

2.1.2 Ingka Group 
A dominant share of the stores is run by the franchisee Ingka Group. The franchisee interacts 
directly with the customers. They buy products from Inter IKEA and are then responsible for 
the distribution to the end customers and the return flows. The Ingka Group is made up of three 
main business areas: IKEA Retail, Ingka Centres, and Ingka Investments. IKEA Retail is the 
part most people come in contact with, as it comprises 374 IKEA stores operating in 30 
markets. The IKEA Retail business represents around 90% of the total IKEA sales (Ingka 
Holding B.V., 2020a). 

Ingka investments ‘…make responsible investments in people and businesses that make a 
positive difference to people and planet.’ (Ingka Holding B.V., 2020b). The result of 
investment collaborations is transferred to IKEA Retail to facilitate business development. The 
investment portfolio includes different themes, one of them being investments into the Circular 
Economy.  

Ingka is part of the transition towards a circular economy and aims to create a business that 
fulfils customer needs while operating within the 2030s of the planet (Ingka Holding B.V., 
2020b). Ingka develops circular services to enable customers to acquire, care for, and pass on 
products. Pilots have been done to explore usership models, take-back and buy-back services, 
second-hand platforms, and recovery of faulty products. Ingka also gives increased attention 
to spare parts and works to make it easier to repair and complement products with the necessary 
parts (Ingka Holding B.V., 2020c). According to the Ingka Group Annual Summary and 
Sustainability Report FY19, 65 million products were returned or damaged during 2019 and 
47 million were diverted from going to waste. Over 38 million of these products were sold in 
IKEA’s bargain corners, referred to as As-Is areas, selling mainly unused returned products. 
The other products could be repaired or repacked and placed back on the shelves. All these 
figures have increased compared to the previous year.  

2.2 The logistic supply chain of IKEA from a flow perspective 
The following section is based on a presentation of the IKEA supply chain from a flow 
perspective given by a process developer at IKEA of Sweden.  

IKEA’s distribution network has been successful in lowering total logistics costs while keeping 
availability high. Goods have been distributed from suppliers to distribution centres (DC) for 
replenishment but also through direct transport to stores. In addition, customer distribution 
centres (CDC), located closer to the customers, have been supplied from larger DCs and 
directly from the production facilities. The stores have traditionally been the meeting place for 
IKEA and their customers but through more extensive online shopping the use of CDCs and 
shipping of products have increased. Figure 5 below gives a schematic picture of the IKEA 
supply chain.  



 

 

9 

 
Figure 5. Simplified overview of the IKEA supply chain. The black arrows indicate a forward flow and 
the red arrow a reverse flow. 

The distribution network of IKEA is developing, and a larger focus is given to where and how 
IKEA meets its customers. IKEA plan to introduce central parcel units (CPUs) to enable 
smoother shipping of orders, external and internal pick-up points to make it easier for 
customers to retrieve their goods and, in addition to the high flow DCs, implement low flow 
DCs closer to the markets.  

IKEA, therefore, sees the need to define processes and enable planning for resources on the 
total market and multiple customer meeting points and not only for the traditional fulfilment 
units. This requires more flows to be taken into consideration and thus makes the planning 
process increasingly complex. The customer should be able to choose what, where, and when 
to buy and pick up their products as well as what services they require. On the other hand, 
IKEA should be able to choose what, where, and when to produce, store, replenish, pick, and 
receive returns. Throughout the supply chain there is a need for processes and planning. The 
ownership of resources is divided between Inter IKEA and the franchisees. The resources 
belong to Inter IKEA until they reach stores, CPUs, or CDCs where the ownership of the 
resources is passed on to the retailer. However, the planning process is owned by Inter IKEA 
and extends from production out to the end customer and further into a return flow.  

2.3 Challenges and opportunities in a transition towards a circular business 
model  

This section aims to give the reader a background of challenges and opportunities in a transition 
towards a circular business model. The transition involves multiple actors that must be 
considered. Important aspects brought up by external researchers regarding customers and 
companies, together with challenges for the supply chain and the environment when 
transitioning towards a circular business model are presented based on conducted interviews.  

Customer challenges  

The researcher within Design and Human Factors highlights the importance of making it 
convenient for customers to contribute to the circulation of products. Customers must find 
greater value in returning end-of-use and end-of-life products, in comparison to disposal. 
Additional actions, such as cleaning and re-installation, are often necessary when customers 
want to pass on or acquire previously used products. This may lead customers to dispose of 
products or decide to buy new ones. By offering services while keeping the ownership of the 
product during customer use, companies can take responsibility for the additional steps, 



 

 

10 

referred to as offering products as a service. Offering products as a service could make it more 
convenient for customers to act sustainably given that companies help them to return products 
after use. 

Customers can be more or less positive toward leasing particular types of products, depending 
on how they are used. For products that are used temporarily, leasing is more attractive while 
it is preferred to own products that are used daily. It is therefore crucial to understand which 
products customers are willing to rent and how customers prefer to gain access to them to 
develop attractive usership models that hold advantages compared to ownership.  

Besides products as a service, communication is key to facilitate the circulation of products. 
Customers must be aware of the possibility and benefit of recovering used products. By raising 
awareness, customers can become more willing to repair products instead of throwing them 
away and buying new ones. It is today often a question of cost, but the environmental benefit 
is becoming increasingly important for many customers in their choices. The segment of 
customers that have a positive attitude towards second-hand products is growing and reuse of 
products has gained status.  

Company challenges  

If linear consumption and production remain more attractive for customers and firms, circular 
business models will not gain ground. A transition towards a circular business model requires 
large investments and changes throughout organisations. Moreover, the value of changing to 
such a business model can be hard to predict and measure.  

Yet, a trend can be seen where circular business models are becoming increasingly common 
among industries. This requires companies to change their mind-set regarding how they 
produce and sell products. The aftermarket becomes more important for companies when 
seeking to achieve prolongation and circulation of products. In a circular economy, the buying 
and selling of products is part of larger cycles that also include use and reuse. Hence, each 
purchase creates new business potential on the aftermarket where companies can create value 
by offering additional services and spare parts. On the aftermarket an increased demand for 
customised product offerings can be seen. An example brought up by the researcher within 
Design and Human Factors, is the company Superfront who offers customised fronts to IKEA’s 
kitchen cabinets. 

Different design strategies can be used to support companies in their transition toward a circular 
business model. A strategy brought forward by the researcher within Design and Human 
Factors, is designing for extended use. This strategy includes long-term utility and performance 
by making maintenance and part replacement easy and convenient and aims to ensure long-
term attractiveness among customers. This strategy is gaining popularity among companies 
since it can often be aligned with the rest of a company’s strategies regarding decisions on 
recycling and product material. Designing products for extended use is a good start, but 
pressure from society, with harder regulations and policies, is likely to make this strategy a 
must have in the near future. Companies looking to differentiate themselves from their 
competitors must thus find other ways. Design for multiple use-cycles is another design strategy 
that can be adapted to facilitate products to be used by different users over time. It focuses on 
providing clear instructions for how to use products as well as on enabling upgrades, and 
modification of products through modules. 



 

 

11 

Being able to successfully convert linear businesses to circular businesses, customers must 
demand such offerings, and companies must be able to deliver them. Policies and regulations 
can be introduced to push customers and companies towards sustainable consumption and 
production. EU directives, such as the Ecodesign Directive 2009/125/EC on Ecodesign 
requirements for energy-related products [2009] OJL285/10, sets rules to improve the 
environmental performance of certain products. This directive forces companies to rethink the 
way they design products and increase the requirements for energy labelling. The researchers 
describe that stricter requirements, which include a broader range of products and materials, 
are likely to follow for product design within the near future.  

Challenges in the supply chain  

When implementing a circular business model, new uncertainties arise in the supply chain, 
such as the assessment of product lifecycles. The concept of modified product lifecycles can 
be used to minimise such uncertainties. If companies can modify the lifecycles of products, 
they can reduce the uncertainty of when products return, and plan for the reverse flow. Many 
companies already have the technology and data to estimate product lifecycles since they are 
conducting testing to make sure their warranty times are applicable. 

There is a need for increased visibility of products in the supply chain. Many companies would 
find value in tracking products along the supply chain and at end-user. The used tracking 
technology should vary depending on product value and characteristics. Digital products such 
as computers and smartphones can easily adapt technologies such as RFID, whilst products 
such as furniture are more suited to adapt for example barcodes. It was explained during the 
interviews that barcodes can be used to access stored data about products in a product passport. 
Each furniture would for instance have documented information regarding the manufacturing 
process, materials, and returning/recycling standards. Such a product passport could also 
increase the value of a product by, for example, allowing the customer to know how many 
times the product has been reused or what materials the product consists of. 

There is large uncertainty in when and where products return, and the return flow varies over 
time. Product generations run alternately with various lifecycles. This requires a large amount 
of flexibility which is costly. In many recycling processes this uncertainty has been reduced by 
not focusing on recycling on a product level, but rather to look at a higher material level. This 
way it is easier to anticipate volumes and allocate capacity. This, however, requires a quite 
uniform flow with known materials like recycling of plastic bottles. When recovery processes 
are more product specific it is harder to plan on such a high level. However, standardisation 
from a logistical perspective by reducing part variety can make it easier to standardise these 
activities.  

Environmental challenges  

Product characteristics play a major role in the environmental benefits that are created. The 
benefits differ a lot between consumable and durable goods since it is hard to retain value in 
the consumable and often low value goods. Focusing on durable goods, it is important that they 
can be transported without being damaged. Further, environmental benefits can be created if 
bulky goods can be disassembled so that the fill rate increase and more goods can fit into a 
fewer number of vehicles. This is especially important for commercial transport and less so for 
private customers that transport low volumes. The goal should be to reduce the number of total 



 

 

12 

transportations. No additional transport occurs if a customer is driving to a store to purchase 
new products and at the same time return old products. The problem arises when customers 
need to do additional transporting to return products.  

When evaluating the environmental benefits of circulating products, the efforts and resources 
needed in all the additional activities must be considered. For example, the transportation to 
customers, the return as well as necessary recovery processes can be less sustainable than a 
pure product offering. Every change of user will result in losses in product value. Being able 
to subscribe to products for short periods can promote short-cycled consumption and thus 
negatively impact the environment, despite the circulation of products. Considering, different 
set-ups might be needed depending on whether it is a fashion seasonal product or a long-lived 
product.  

Designing products so that recovery is facilitated often requires more resources and material, 
which may initially result in increased environmental impact. To make these efforts sustainable 
the product must be used and recirculated as many times as designed for. It is important to 
measure the relative impact and effort to make sure that the intended value of product design 
can be captured.  

  



 

 

13 

3 Theoretical Framework 
This chapter presents the theoretical framework for this thesis, based on previous research 
within the areas of reverse logistics, circular economy, and product- and use-oriented business 
models. The chapter starts with an overview of reverse logistics related to customer returns and 
circular supply chains and is followed by the main factors influencing reverse logistics 
activities. Thereafter, product-service systems are presented to gain an understanding of how 
product and service offerings can be used in a circular economy and how they affect reverse 
logistics. The theoretical framework ends with the research model for the thesis and 
formulation of research questions.  

3.1 Reverse Logistics 
Reverse logistics has been defined by Rogers and Tibben-Lembke (1998; 2002) as the 
movement of products in the opposite direction of a forward flow to create or recapture the 
value of products when possible, or otherwise proper disposal. According to Fleischmann et 
al. (1997) a reverse flow can occur through an organisation’s traditional channels, through 
separate channels or in a combination of the forward and reverse channels, and is therefore not 
necessarily a mirror of the forward flow. When introducing reverse logistics to recapture the 
value of finished goods, the products enter a closed-loop network (Fleischmann et al., 2000). 
Closed-loop networks are more complex than traditional open-loop networks since it in 
addition to forward logistics need to handle reverse logistics (Tibben‐Lembke and Rogers, 
2002). CE100 (2016) describes reverse logistics as one of the core enablers of the circular 
economy. 

3.1.1 Driving forces behind Reverse Logistics 
Many companies introduce reverse logistics in their supply chains to increase profitability. 
Another reason is that organisations are to an increasing extent being held responsible for their 
actions throughout the supply chains (Akdoğan and Coşkun, 2012). This responsibility has its 
origin in legal and social applications and generates multiple driving forces for companies’ 
reverse logistics. De Brito and Dekker (2004) divide the driving forces into three categories; 
economic, legal, and social. More recent literature adds the environmental aspect as a driving 
force behind increased focus on reverse logistics and it is therefore brought up in the following 
sections where each of the forces is discussed separately.  

Economic  

From an economic perspective, returned products can offer significant advantages to a 
company. Recovery costs lower than expenses on raw material can reduce high production 
costs for new products (Akdoğan and Coşkun, 2012). De Brito and Dekker (2004) further 
explain that companies are getting involved with reverse logistics even with no profit directly 
projected, but rather as a strategic decision to reach competitiveness and preparing the 
organisation for future legislation. Fleischmann et al. (2000) describe that reverse logistics 
helps companies label their brand as sustainable to generate a positive green image. Such a 
brand image can increase sales for companies since environmental issues are increasingly 
gaining attention.  



 

 

14 

Economic incentives to support a circular economy through reverse logistics are also given 
through legislation. For instance, in Sweden, a lower tax rate on repairs of certain products was 
introduced in 2017 to increase the economic incentives for customers to choose repair over 
new products. The tax rate was reduced from 25 percent to 12 percent for repairing products 
such as bicycles, shoes, and textiles (Skatteverket, 2020). This is meant to create a higher 
demand for repair services and make it more attractive for companies to offer such services. 
Another example is the Circular Economy Action Plan brought forward by the European 
Commission as a part of the European Green Deal. The plan is formed to promote sustainable 
growth (European Commission, 2020). The action plan, among other things, requires EU 
countries to lower or deduct taxes on repair services and to make sure services are made easily 
accessible for customers.  

Legal  

Legislation in this regard refers to legal provisions stating companies’ obligations to recover 
their products and accept them back (De Brito and Dekker, 2004). For instance, certain 
industries in the European Union have been forced to increase their responsibility in product 
recovery and are held accountable for a product’s whole lifecycle (Akdoğan and Coşkun, 2012; 
Guide, Harrison and Van Wassenhove, 2003). The Extended Producer responsibility, EPR, 
aims to improve waste management and collection by shifting the cost and collection from 
municipalities to producers. EPR is applicable to certain products, such as batteries, in the 
entire European Union but extended to include a wider product range in some member states. 
Ongoing projects are looking at the possibility of extending the EPR concept to ensure a more 
resource efficient Europe (European Commission – DG Environment, 2014). Moreover, the 
European Green Deal, a set of policies, was set in place to reach the goal of a climate neutral 
Europe by 2050 and achieving greenhouse gas emission reductions of at least 50 percent 
compared to the levels of 1990 by 2030. The Green Deal advocates new business models that 
steer consumption away from disposables and focuses on leasing of products and services 
(European Commission, 2019). The European Commission also explores return systems and 
how these can benefit consumers. Included in their action plan is the proposal of a legislative 
waste reform and initiatives to stimulate a circular economy.  

The aforementioned European legislations and policies have a great impact even globally since 
companies operating internationally need to assess the legislation stated in each country of 
operation (Akdoğan and Coşkun, 2012). Legislation and policies also determine what 
responsibility companies have regarding handling defects and warranties, hence, strongly 
influences return policies and customer rights (Chan, Chan and Jain, 2012). 

Social 

Corporate social responsibility, CSR, concerns how to incorporate social responsibility into 
companies’ values and therefore pushes them to be increasingly involved in reverse logistics 
(De Brito and Dekker, 2004). CSR is increasingly important among customers (Chan et al., 
2012) and therefore motivates companies to establish an image as socially responsible 
(Akdoğan and Coşkun, 2012). CSR addresses ethical values, economic well-being, and legal 
compliance and shapes the attitude, strategy, and relationships for a company (Sarkis, Helms 
and Hervani, 2010).  

Environmental  



 

 

15 

The negative climate externalities caused by production and consumption are becoming 
increasingly alarming issues. The extraction and processing of resources are significantly 
contributing to global climate change (WWF, 2016). There is a need to make better use of what 
we already have, and scarcity of raw material is a rapidly growing issue along with the 
worsening climate externalities. World Economic Forum (2019) states that the annual global 
extraction of materials has grown from 27 billion tonnes to 92 billion tonnes during the years 
1970-2017. Present production systems and a population of about 10 billion people in 2060 are 
estimated to require around 190 billion tonnes of materials every year. However, the main 
driver is not the growing population but rather our consumption behaviour where we use more 
resources per capita (World Economic Forum, 2019). 

Reverse logistics is a key part of improving our resource utilisation since it allows products 
and material to circulate and be reused, repaired, remanufactured or recycled instead of 
generating waste and landfill. Adding reverse logistics to forward logistics allows closing the 
loop of production and consumption (Ellen MacArthur Foundation and Material Economics, 
2019).  

Bernon et al. (2018) discuss the importance of tone from the top, meaning that the attitude of 
companies toward a circular economy must come from top management by aligning circular 
economy values with the strategic directives. These values argue for a higher focus on second-
hand products and reduced sales of new products. To achieve this, the values should permeate 
the entire organisation and be reflected in performance measures (ibid).  

3.1.2 Reasons for customer returns 
De Brito and Dekker (2004) broadly describe the reason for product returns as no longer 
functional or functions no longer needed. The reasons for returns vary once the products have 
reached the customers and can be divided according to the product’s lifecycle, shown in Table 
1. Firstly, in a business to customer (B2C) context, customers have reimbursement guarantees 
which allow them to return the product if expectations are not met, regardless of underlying 
reasons (ibid). Secondly, warranty and service returns allow customers to return products with 
functional or quality errors even after the reimbursement guarantee. Returned products are 
either repaired, replaced with a product promised to meet the standard or the customer receives 
the money back (ibid). Warranty is often limited in time, but customers can still utilise 
suppliers’ repair services in exchange for a fee after expired warranty. Finally, de Brito and 
Dekker (2004) explain end-of-use (EOU) and end-of-life (EOL) returns. EOU returns often 
refers to leasing cases where the customer can return the product in a specific stage of the 
product lifecycle. EOU can also refer to returns ending up on the second-hand market (ibid). 
EOL returns are instead the products that have reached the end of the lifecycle. Krikke et al. 
(2004) describe how legislation can increase the return rate and reduce negative externalities 
such as environmental contamination. 



 

 

16 

Table 1. The customer return reasons related to the product’s lifecycle (De Brito and Dekker, 2004; 
Krikke et al., 2004) 

 

3.1.3 Reverse Logistics Activities 
This section aims to show how value can be recovered from products returned by customers 
through different activities. As previously discussed, a closed-loop network is more complex 
than an open-loop network, and the recovery is only one of the additional activities involved 
in reverse logistics. Fleischmann et al. (2000) define the activities in a reverse logistic process 
as collection, inspection, separation, reprocessing, disposal, and redistribution. Since this thesis 
focuses on prolonging the life of products and circulation, the disposal activity will not be 
further discussed.  

Collection 

Covers all activities involving collecting and physically moving the products to a point where 
further handling is performed. The collection often involves purchasing, transportation, and 
storing. This activity could be imposed by legislation, such as take-back obligations and 
responsibility for packaging materials.  

Inspection  

In this activity, products are inspected and the quality of returned product measured. Inspection 
can include disassembly, shredding, and testing of products (Fleischmann et al., 2000). 
Inspection can be done at different points in the reverse flow, in centralised models the 
evaluation is done later than in decentralised models.  

Separation 

The separation activity refers to how products are sorted depending on different characteristics 
determined by the former inspection activity. On a high level the separation is done as re-usable 
products or disposal. Separation serves to make the most profitable and suitable decision for 
disposition (Blackburn, Guide Jr, Souza and Van Wassenhove, 2004). The separation process 
results in splitting flows and includes sorting and storage (Fleischmann et al., 2000).  

Reprocessing 

Refers to the actual recovery of the product and can take different structure depending on the 
inspection and separation. The recovery process can be divided according to the processes: 
reuse, repackaging, repair, refurbishing, remanufacturing, and recycling (Sahyouni, Savaskan 
and Daskin, 2007; Thierry, Salomon, Van Nunen and Van Wassenhove, 1995). The recovery 

B2C commercial returns Reimbursement guarantees

Warranty and service returns Functional and quality 
errors

EOU returns Products reach a specific 
stage of lifecycle

EOL returns Products reach end of 
lifecycle

Reasons for Customer Returns



 

 

17 

processes reuse, repackaging, repair, and refurbishing will be explained in more detail in 
section 3.1.4.  

Redistribution 

Includes the handling of re-usable products back to a potential market. This activity often 
contains sales, leasing, transportation, storing, and marketing (CE100, 2016). 

3.1.4 Recovery processes 
This section describes the different recovery processes identified above; reuse, repackaging, 
repair, and refurbishing. Aligned with IKEA’s desire to keep product value high for as long as 
possible and do reprocessing as close to the customers as possible, remanufacturing and 
recycling are not considered in this section.  

Reuse 

The purpose of reuse is to pass on used products to second-hand markets with none or minor 
improvements (Sahyouni et al., 2007). A major challenge for the reuse activity is the process 
of collecting and passing on. Hopkinson, Zils, Hawkins and Roper (2018) identified large 
differences in customers’ willingness to return products across markets when studying a case 
of cartridges. This made it difficult to scale up and implement uniform reuse strategies in 
Europe. The authors highlight the importance of incentive structures for returns and an 
infrastructure that makes it easy for customers to pass on products rather than turning to the 
option of direct disposal.  

The customer perception of second-hand products is also a barrier to the market. Customers 
that favour previously used products over new products are still seen as a niche group and 
environmental considerations are often not highly prioritised when making a purchase 
(Hopkinson et al., 2018). Marketing has for a long time led customers to view new products as 
superior to used ones and their role can play an important part in a transition to a circular 
economy by re-educating customers to incorporate sustainability concerns in their choices 
(Hopkinson et al., 2018).  

Repackaging  

The repackaging process is done to return items to stock. Through evaluation, the items that 
can be restored by only exchanging the package are identified (Stock and Mulki, 2009). 
Repacking can take place immediately after product return if the product itself is in perfect 
condition, if packaging supplies are available at the processing facility. Due to legislation and 
other restrictions not all product returns can be sold as new after repackaging. These concerns 
products where quality and safety cannot be ensured (ibid).  

Repair 

Thierry et al. (1995) define repair as an activity involving fixing or replacing smaller parts to 
make a product functional. The ease of repair is to a large extent determined by product design 
since the product must be designed in such a way that components and worn out parts can be 
replaced. Ellen MacArthur Foundation (2016) highlights the barrier of getting customers to 
choose repair over disposal. This requires creating incentives that make it a favourable option. 
The service should be easily accessible, time efficient and offered at an attractive price.  



 

 

18 

Refurbishing 

Refurbishing aims to bring used products up to a pre-specified quality by disassembling 
specific parts into modules (Thierry et al., 1995). The modules are inspected and repaired or 
replaced and the refurbishing upgrade is, therefore, more extensive and resource intensive than 
reuse, repackaging, and repair processes. In Table 2 the main characteristics of the presented 
recovery operations are summarised.  

Table 2. Comparison between the recovery processes 

 

3.1.5 Characteristics of a logistics system 
The characteristics of reverse logistics and forward logistics have different uncertainties that 
influence managerial, financial, and strategical decisions (Tibben‐Lembke and Rogers, 2002). 
These uncertainties are further affected when introducing circular economy values. Bernon et 
al. (2018) argue that there is an absence in understanding how the values of the circular 
economy should be operationalised into reverse logistics and aligned with strategic directives.  

This section takes the previously described activities and recovery processes as a starting point 
when discussing characteristics of a logistics system, identified by Tibben-Lembke and Rogers 
(2002). The aim is to identify uncertainties arising when managing reverse logistics in a circular 
economy.  

Forecast 

Planning for a reverse flow is more complex than for a forward flow because of the 
uncertainties involved in the process (Guide et al., 2003). In forward logistics a forecast is used 
to predict needed products, and is one of the main activities to plan for seasonal fluctuation and 
other changes in the market to provide visibility (Tibben‐Lembke and Rogers, 2002). In reverse 
logistic flow, the visibility is much lower which generates a reactive flow. Companies try to 
respond to customers’ actions rather than initiate reverse flow activities in planning and 
decision making (Tibben‐Lembke and Rogers, 2002). 

Forecasting a reverse flow is, therefore, more difficult, however, a large-scale reverse flow 
tends to follow the same trends as a forward flow but with some time lag. Tibben-Lembke and 
Rogers (2002) explain that a large forward flow of products for holiday sales is most certainly 
followed by a post-holiday return flow. The same trend is found when a sale promotion of 



 

 

19 

specific products is done to increase the sales, resulting in an increased return flow of the same 
product.  

Even if reverse flows can follow forward flows on a larger scale, the difficulty is to understand 
the different return rates for the different products. Customers’ decisions to return a product is 
based on multiple factors such as how user-friendly the product is to operate, how clear the 
instructions are, and how likely it is for the customer to experience buyer’s remorse (Tibben‐
Lembke and Rogers, 2002).  

When forecasting reverse logistics in a circular economy, additional attributes need to be 
considered. A circular economy has a greater focus on products at the end of their lifecycle, 
and due to a high variety the uncertainties in the timing of product returns increase (Matsumoto, 
Umeda, Tsuchiya and Tang, 2016). EOU and EOL returns depend on customer usage and wear, 
which increase the complexity of forecasting.  

Transportation  

The number of origins and final-destination points is one of the major differences between 
forward logistics and reverse logistics (Fleischmann et al., 1997). Forward transportation is 
characterised by few origins and many final destinations. Reverse transportation is 
characterised by many origins and few destinations during collection, while redistribution is 
characterised by few origins and many final destinations (Fleischmann et al., 2000). From a 
logistics perspective, Dekker et al. (2004) therefore argue for a many-to-many distribution 
network when integrating collection with the redistribution, as shown in Figure 6. 

  
Figure 6. Product recovery network, adapted from Fleischmann et al. (2000) 

Increased e-commerce within retail has led to a more decentralised distribution system that has 
the potential to extend the geographical acquisition area when collecting goods. For example, 
home delivery results in that customers interact with retailers in their homes to a greater extent 
(European Environment Agency, 2017). However, the difference between forward and reverse 
logistics makes it complex to combine the two distribution networks. Tibben-Lembke and 
Rogers (2002) describe the difficulty of combining the transportation since forward 
transportation is often set up as milk runs and any returned goods loaded on the truck during 
the milk run must often be unloaded at each subsequent stop to allow new goods to be unloaded.  

 



 

 

20 

Introducing a circular economy means that the transportation in return flows will be 
characterised by larger volumes and higher variety due to EOU and EOL products. The 
majority of traditional return flows happen shortly after the point of purchase whereas returns 
in a circular economy happen throughout the product lifecycle. The importance of reducing 
energy consumption per unit is further highlighted in a circular economy (Bernon et al., 2018), 
resulting in higher pressure regarding a shift towards renewable energy and higher filling ratios 
during transportation. 

Product quality 

The quality of returned products is important for how they should be managed in a reverse 
flow. Tibben-Lembke and Rogers (2002) point out that product quality can be considered rather 
uniform within forward logistics whereas the product quality in reverse logistics is often quite 
uncertain and inherit a high degree of variation. Determining the product quality at an early 
stage is important for efficient handling of returns, as products in different conditions require 
different actions in the reverse logistics activities. Returned products can either possess a 
functional or material value depending on the condition. This can be captured by going through 
recovery processes that support circularity (Das and Chowdhury, 2012).  

Consideration to reverse logistics and recovery processes must be taken already in the design 
phase to facilitate the recovery and circulation of products. If products are designed to be easily 
recovered it can save both time and money (Das and Chowdhury, 2012). By applying modular 
design principles, the recovery process can be made easier which in turn reduces cost as lead 
times decrease. Das and Chowdhury (2012) explain how products can be designed at different 
quality levels depending on the intended use and reuse. A product that is designed to be 
mounted and dismounted several times must hold a higher quality compared to products that 
are disposed of after a single use. The circular design makes restoration and regeneration 
possible at the end of product lifecycles (Ellen MacArthur Foundation, 2015). Also, high 
quality products are more durable and can stay with customers for a longer time which can 
slow down consumption and reduce waste. 

Packaging quality 

New products in a forward flow are delivered in packaging to protect the goods during transit 
and allows the products to be palletised neatly to reduce storage space and risk for damage 
(Tibben‐Lembke and Rogers, 2002). In comparison, most returned products do not have 
complete packaging, some products are not properly re-packaged, and some packages are 
damaged. When shipping returned products, goods cannot be properly palletised because of 
small volumes and a large variety in size. Many of the pallets are therefore unorganised with 
different sized packages and more susceptible to damage during transport (Tibben‐Lembke and 
Rogers, 2002). 

When returning a product and the end of its lifecycle, the product likely lacks packaging 
completely due to the time from the point of purchase. Shipping unpackaged goods increase 
the risk of damaging the products which are a major challenge when aiming for maximising 
the circulation of used material (Meherishi, Narayana and Ranjani, 2019). Using recyclable or 
reusable packaging is further important in a circular economy to reduce waste (Meherishi et 
al., 2019).  



 

 

21 

Destination, routes, and channels 

In a return flow, the channels are often exception driven and reactive rather than proactive due 
to the large uncertainties that lie in when and in what condition products will be returned 
(Fleischmann et al., 2000). Reverse logistics is generally not a product of precise planning but 
rather a response to customers’ actions and therefore involves a lot of uncertainty regarding 
routes and destinations (Rogers, Lambert, Croxton and Garcia-Dastugue, 2002). Inspection and 
separation activities are needed to determine routes and destinations and are important to 
reduce uncertainty and facilitate better planning of the flows through different channels 
(Tibben‐Lembke and Rogers, 2002).  

A return flow can be centralised to varying degrees. In a centralised return flow, the handling 
of returns is done in one or a few places, such as a distribution centre, which facilitates 
consolidation. If a retailer is supplying a large number of stores, efficiency has been shown 
when picking up returns with the same vehicles that distribute goods from the distribution 
centre. De Koster, De Brito and Van de Vendel (2002) argue that this saves both time and space 
since the same resources can be used for both the forward and reverse logistics. However, the 
authors conclude that a retailer who handles a large number of returns gain efficiency by 
handling returns in a separate area. The separation is also dependent on the market if new and 
returned products are sold on the same market, integration is preferred and vice versa (De 
Koster et al., 2002).  

Bernon, Cullen and Gorst (2016) and Nuss, Sahamie and Stindt (2015) instead advocate the 
importance of multiple return points, a decentralised approach, to reduce transport time and to 
enable smooth returns for customers. Nuss et al. (2015) further present the two types of 
collection models, bring-in, and pick-up systems. The bring-in system can include services 
such as drop-off sites, take-back in-store, and parcel returns. A pick-up system refers to when 
a retailer picks up goods at the customer, either by third-party transport providers or in its 
regime. 

Hübner, Holzapfel and Kuhn (2016) highlight the importance of letting customers return 
products independent of the ordering channel. Goods ordered online should be accepted by 
stores and vice versa. This means that return services should be offered on multiple channels. 
Offering return options across channels provide a better customer experience but it is also an 
opportunity to cross-sell and up-sell according to Zhang et al. (2010).  

Pricing 

The reason for a return is often reflected in the price. A product that is returned because it did 
not meet expectations can most often be repackaged and sold as new at the same price. In a 
circular economy, products are to a larger extent returned in EOU or EOL. The closer a product 
is the end of its lifecycle, the less attractive the product becomes. Greater variety in product 
conditions leads to a larger variety in the pricing of products. If products go through recovery 
processes before redistribution, these must also be reflected in the price (Ellen MacArthur 
Foundation, 2015). The above factors increase the uncertainty of matching the price with the 
willingness to pay among customers (Tibben‐Lembke and Rogers, 2002). 

Cost 



 

 

22 

The cost structure in reverse logistics differs compared to forward logistics. A cost structure in 
forward logistics is well defined with accounting systems to manage the products through the 
chain (Tibben‐Lembke and Rogers, 2002). Reverse logistics has less visibility since each 
product is often handled individually which generates a different nature of the cost structure.  

Tibben-Lembke and Rogers (2002) describe several activities where return logistics differ from 
forward logistics in relation to cost. When collecting returned products, the shipment size is 
generally smaller, meaning that the transportation cost per item tends to be higher. In addition, 
many products require redistribution to be sold (Fleischmann et al., 2000), and therefore 
transportation often is a major cost in reverse logistics. Small shipment volumes further 
generate more material handling which increases the handling cost per item, as returned 
products need extra labour for quality inspection and separation. Cost related to inspection and 
separation is often larger when circular economy values are embedded in reverse logistics due 
to higher uncertainty regarding product quality (Bernon et al., 2018). 

Regarding inventory, holding cost is generally seen as a percentage of a product’s value. Since 
returned products have a lower value, inventory holding cost can generally be considered 
lower. The holding cost is further dependent on the product’s obsolescence and shrinkage of 
theft which affect the value of the product (Tibben‐Lembke and Rogers, 2002). With EOU and 
EOL returns, the obsolescence tends to be higher because of the time difference between the 
point of purchase and point of return. Consequently, the time difference often reduces the 
product value and the risk of theft. Tibben-Lembke and Rogers (2002) argue that the cost for 
recovery processes can be lower than manufacturing new products, depending on the context. 
This said recovery processes for obsolete products tend to be more expensive due to outdated 
assortment, resulting in a huge number of products entering the waste stream (Guide Jr and 
Van Wassenhove, 2009). 

Inventory management 

In a forward flow context, the uncertainties for inventory management are mainly dependent 
on product demand, while the selling price is considered known (Silver, Pyke and Peterson, 
1998). In a reverse flow context, product arrivals are characterised by more randomness, and 
selling price is determined at a later stage which results in difficulty when applying traditional 
inventory models (Tibben‐Lembke and Rogers, 2002). Considering that the volumes are 
generally low in reverse flows compared to forward flows, inventory management has not 
received a lot of attention in research and practise (ibid). In a fully circular economy, all 
products should be reintegrated in the supply chain after use, leading to a significant increase 
in volume. 

In general, inventory levels are highly dependent on the return process as an efficient return 
process enables products to faster become re-sellable (Hübner et al., 2016). Hübner et al. (2016) 
describe the different advantages and challenges that follow for inventory management 
depending on the chosen reprocessing location. Reprocessing in the store has the advantages 
of fast reintegration into store inventory and lower transportation costs. However, space is often 
scarce and reprocessing costs high. Having a separate recovery centre allows for specialised 
and often cheaper reprocessing but results in more time-consuming reintegration into inventory 
and additional transport costs. The trade-off between freight rates and inventory holding should 
be considered. Centralised inventory lowers the inventory costs but often results in increased 



 

 

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need for transport while decentralised inventories have higher holding costs but allow for 
shorter distance transports (Hübner et al., 2016). 

In a closed-loop supply chain, inventory management also includes the storage of spare parts 
to facilitate recovery processes. Storage of a large variety of parts during a long period incurs 
high inventory costs. Savolainen and Collan (2020) lift the opportunities of additive 
manufacturing, commonly referred to as 3d-printing, to reduce service lead-times and risk of 
inventory obsolescence. Additive manufacturing allows for spare parts to be printed on demand 
and a greater variety can, therefore, be offered. However, the use is unexplored in the retail 
business and the trade-off between stocking parts and printing on demand must carefully be 
considered (Savolainen and Collan, 2020).  

Product lifecycle 

The product lifecycle is different in reverse logistics compared to forward logistics. The main 
purpose of reverse logistics is to recapture the value of used products. The remaining value in 
a product depends on whether the product still has a demand on the market (Tibben‐Lembke 
and Rogers, 2002). If a product is phased out because that product class is replaced by an 
improved and superior product, a returned product will have low value on the second-hand 
market. On the other hand, if a product is replaced by a similar product, the value can remain 
high since the returned product might still be attractive as a substitute for the new product. 

In a circular economy, the prolongation of product lifecycles is central. Products can, for 
instance, be upgraded by replacing outdated components to improve the quality and extend the 
product lifecycle (Sahyouni et al., 2007).  

Marketing 

A major problem with marketing communication linked to returning products is that retailers 
cannot promote specific products outside the store because of the uncertainty of supply. This 
limits communication with potential buyers (Tibben‐Lembke and Rogers, 2002). A consistent 
supply of products generates reliability among customers that specific products are offered in-
store (Goltsos et al., 2019). Irregular returns in a reverse flow further risk to damage a 
company’s reliability since the availability of products are uncertain (Consumer Reports, 1998; 
Gurnani and Shi, 2006). Retailers have therefore introduced outlets only selling overstocked 
and returned products to separate forward products in regular stores from returned products.  

The marketing of returned goods is further uncertain for retailers because of the risk of product 
cannibalisation. Tibben-Lembke and Rogers (2002) describe a belief among retailers that 
customers purchase a certain number of products and selling second-hand products would, 
therefore, be at the expense of selling new products and result in lower margins.  

Iannuzzi (2017) argues that green marketing is becoming imperative to attract customers in 
many markets. Customers are to a greater extent demanding sustainable products and 
companies can see competitive advantages and added value in offering these products. A 
successful marketing strategy is built on credibility, acknowledging customer demands, and 
appropriate communication of the green attributes of products according to Iannuzzi (2017). A 
non-transparent and faulty green marketing can however severely hurt brand image and 
reliability and lead to greenwashing. Greenwashing can be defined as misleading customers 



 

 

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about environmental practices or the environmental benefits of a company’s products or 
services (ibid). 

Track and trace visibility 

To enable companies to manage reverse logistical activities efficiently, information systems 
are needed. The selection of appropriate information systems can reduce cost and increase 
visibility and the possibility of capturing value in the return process (Mahindroo, Samalia and 
Verma, 2018).  

The quantity and speed of available data have increased during recent years due to internet 
technologies and has opened up for improved visibility in the supply chain (Kumar et al., 2016). 
Available technology makes it possible to track products using for example RFID tags. The 
cost of this technology has for a long time been a barrier for implementation on low value and 
mass-produced products, but during the last years the prices have dropped significantly making 
it a more viable alternative. For example, the fast fashion industry has started to adopt RFID 
technology and has proven its cost efficient in forward logistics as it can provide useful data 
and significantly reduce handling time for inventory (Cilloni, Leporati, Rizzi and Romagnoli, 
2019). Kumar et al. (2016) discuss the opportunities that lie in the internet of things to increase 
visibility in reverse flows. Sensors embedded in products can provide companies with quality 
and usage data, information that facilitate better planning processes, and a greater 
understanding of customers’ behaviour. Improved visibility can reduce the uncertainty in the 
timing of product returns by increasing predictability (ibid).  

The need for track and trace capabilities increases in a circular economy since there is a need 
to keep track of products and materials to ensure circular processes. Werning and Spinler 
(2020) lift the lack of supply chain visibility as the major barrier for a circular economy and 
highlights the importance of clear metrics to achieve and sustain circular business models. 
Hopkinson et al. (2018) advocate investments in information management systems and 
technology to enable real-time visibility and predictive maintenance and argue that it is critical 
for circular business models.  

3.2 Factors influencing the design of reverse logistics activities  
New and changed needs arise for the activities in reverse logistics in a transition towards a 
circular economy. This section aims to describe design alternatives for the activities; collection, 
inspection, separation, reprocessing and redistribution, and identify influencing factors. The 
inspection and separation activities often take place simultaneously and are therefore presented 
jointly.  
 

3.2.1 Collection 
The collection activity is characterised by multiple origins and few destinations and occurs 
between the consumer market and recovery facilities, showed in Figure 7 (Fleischmann et al., 
2000).  

 



 

 

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Figure 7. Product recovery network with a focus on the collection activity, adapted from Fleischmann 
et al. (2000) 

The process of collecting goods can be described in three steps: incentivising returns, designing 
the collection channel, and pre-sorting of goods (Goltsos et al., 2019). There is not much value 
in designing products for reuse or recovery if they never return to the supply chain (Ellen 
MacArthur Foundation, 2020). Incentivising the customers to return products as one of the 
main challenges for retrieving goods. According to Ellen MacArthur Foundation (2020), 
customers are more willing to return products if they perceive it to have value. To incentivise 
customers the key motivators; reward and convenience are commonly used. For reverse 
logistics this translates into a convenient product return process or a system where customers 
get rewarded for returning products.  

The uncertainty in when and if products will be returned combined with the uncertainty in how 
many that will return constitutes the main challenges for designing the collection activity 
(Goltsos et al., 2019). The timing and quantity of product returns must be estimated to design 
and operate efficient collection processes. The collection of products is highly dependent on 
product value according to Ellen MacArthur Foundation (2020). If a product is characterised 
by low value, it is increasingly important that it is easy for the customers to return the products. 
The recovery of these products must be supported by local infrastructure such as home 
collection recycling. If products inherit medium value, take-back schemes can be used. This 
can be exemplified using the beverage bottle recycling model used in many countries in Europe 
where customers return bottles to easily accessible collection points and receive a deposit in 
return. For high value products, customers are in general willing to sell or swap products and 
often use platforms or third party actors to do so (Ellen MacArthur Foundation, 2020). 

Depending on the business context, single or multiple channels can be used for collection. If 
the consumer market is characterised by multiple origins, it is important to expand the 
geographical acquisition area for the collection activity (Fleischmann et al., 2000). This can be 
facilitated by offering collection through multiple channels. Different actors, such as the 
manufacturer, retailer, or a third party can be responsible for the activity. According to 
Savaskan, Bhattacharya and Van Wassenhove (2004), a collection channel operated by retailers 
is preferred in most cases since the retailers are located closer to customers. Choi, Li and Xu 
(2013) supports this argument and highlight the environmental benefits of the collection done 
by retailers as distances become shorter. The collection channel can also be operated by a 
network of actors to increase customer reach and consolidate volumes (Choi et al., 2013).  



 

 

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Vlachos, Georgiadis and Iakovou (2007) bring up stricter legislation as a reason for increased 
attention on the collection activity. Obligations, such as take-back obligations, are to a greater 
extent introduced in markets to increase producer responsibility and environmental 
consciousness. The extended producer responsibility legislation, present in the European 
Union, cause a greater need for collection of the concerned products. For low value products 
covered by the legislation, CE100 (2016) suggests the implementation of centralised collection 
schemes to achieve cost-effective collection from large geographical areas.  

Reverse channels face challenges to adapt their capabilities and capacity to handle the take-
back of products. The number of collected products is dependent on the rate of the collection 
which in turn is determined by the collection capacity and the willingness amongst customers 
to return products. To establish long term profitability in the reverse logistics, companies must 
ensure that the right volumes, in the right quality and at the right cost are collected (TU Delft, 
2017).  

3.2.2 Inspection and separation  
Traditionally supply chains have been designed to minimise processing costs of returns and not 
to recover value. Ellen MacArthur Foundation (2016) advocates the evaluation of products at 
an early stage to limit the reverse logistics flow to only include products and materials that can 
be recovered. With a thorough inspection early on, the products can be separated and handled 
more efficiently using operations tailored to flow characteristics. 

Blackburn et al. (2004) debate whether it is desirable to inspect products early or late in the 
return process based on the time sensitiveness of the value of products. Their findings are 
presented in the following paragraphs. The authors divide products into the two categories of 
functional and innovative. Functional products are less time sensitive and the marginal value 
of time is lower compared to innovative products. Innovative products are instead characterised 
by short lifecycles and high time sensitivity. The characteristics influence the supply chain 
design and for functional products an efficient supply chain can be favourable even though 
speed is sacrificed in favour of cost efficiencies. For innovative products, speed is valued 
higher than cost and a responsive chain can, therefore, be beneficial even if it is achieved at a 
higher cost.  

The key difference between efficient and responsive models lies in where the inspection 
activity occurs in the supply chain. To reach cost efficiency, the inspection activity can be 
centralised while the activity can be decentralised to gain responsiveness and quick processing 
of returns. In Figure 8 delayed and early product differentiation is visualised based on the 
findings of Blackburn et al. (2004).  

 

 

 

 



 

 

27 

Figure 8. Delayed and early product differentiation in the reverse flow, adapted from Blackburn, Guide 
and Souza (2004) 

The efficient model achieves economies of scale in both the reprocessing and transport of 
products. The lowered costs however come at the expense of delays. The model stems from 
the postponement strategy within forward logistics which delays the differentiation of products. 
In forward logistics the strategy has been successfully used to deal with the cost of variety and 
multiple inventories. The efficient model also carries benefits for third parties and retailers as 
all products can be sent to a central location without sorting. Applying postponement in reverse 
logistics is less advantageous as the product variety and condition is given already when the 
return is received. The condition might not be directly observable but can be determined 
through inspection and testing.  

In the responsive model, testing and inspection are decentralised to facilitate early process 
differentiation. The model seeks to achieve preponement by evaluating products at multiple 
locations. Directly reusable and disposable products can be diverted from the main return flow 
early on to increase speed in the handling. Directly reusable products have higher value and 
benefit the most from early differentiation. This approach serves to reduce congestion and 
queuing for products in need of recovery to keep product value as high as possible.  

One challenge to achieving this type of reverse supply chain is the needed capability to quickly 
and cheaply determine the quality of returned goods. Including technology in products can 
reduce the cost of inspection by generating data on the condition of products and the need for 
maintenance in a time efficient manner. Technology can offer the possibility of both responsive 
and efficient return supply chains as the quality inspection can be done remotely (Blackburn et 
al., 2004). Informational value is created when inspecting products (TU Delft, 2017). It gives 
valuable information about customer usage patterns, wear and tear, and customer complaints. 
This is information that can be used to improve both supply chain activities and product design.  



 

 

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3.2.3 Reprocessing 
In a circular economy it is increasingly important to recapture the value of returned products 
to avoid disposal. To be able to handle larger volumes, companies must have resources to 
recapture value efficiently (Fleischmann et al., 2000). Thorough inspection and separation are 
a pre-requisite for the reprocessing activity as the quality of products determines the feasibility 
of different recovery processes. Reprocessing can be done on material level through recycling, 
but a higher value can be generated if done on a component or product level (TU Delft, 2017). 
These are the levels considered in this section. 

The reprocessing activity includes decisions on production, handling equipment, and 
workforce size (Dekker et al., 2004). The processes face a high variety in timing, sequencing, 
and batching for resources due to a high uncertainty of volume (ibid). In closed-loop networks, 
multiple forward and reverse flows are crossing each other’s paths, and Dekker et al. (2004) 
describe the value in integrating several of these operations in the same facility to achieve 
economies of scale by sharing fixed assets and reduce overhead costs.  

To gain the most benefit of integrating flows, the flows should utilise similar operations. 
Fleischmann et al. (2000) discuss the width and depth of recovery networks. The number of 
locations with similar operations is referred to as the width of the network. The network depth 
is the number of facilities that returned products pass before they enter the second-hand market. 
These factors together determine the degree of centralisation (ibid). The possibility of 
integrating networks is very much dependent on the type of recovery processes involved in the 
reverse flow (De Koster et al., 2002). The network width is dependent on the geographical 
spread and is a trade-off regarding transportation distance and equipment setups. The network 
depth depends on recovery processes and product complexity. Therefore, the involved 
operations in the different recovery processes for this thesis are presented below to enable a 
discussion regarding the degree of centralisation and the potential of network integration. 

Reuse 

The reuse process focuses on passing on products to new customers and often require storing 
space as the passing on seldomly occurs instantly. The design of the reuse process is closely 
related to the decision of where to perform inspection and separation. The argument of having 
the retailer to be responsible for the collection is supported if many of the products are separated 
into the reuse process since the products stay close to the customer touchpoints and minimise 
the transportation and time between collection and re-selling point (Choi et al., 2013; Savaskan 
et al., 2004). Integrating the reuse process to a forward flow would however require space in 
the forward flows’ customer touchpoints.  

Repackaging 

Repackaging focuses only on package recovery and assume the product to otherwise be in new 
condition. Stock and Mulki (2009) state that repackaging can occur directly after inspection for 
products in new condition. The complexity of packaging quality in return flows results in high 
uncertainty regarding the demand for packing material (Tibben‐Lembke and Rogers, 2002). 
For instance, if most of the returned packages are damaged, the return flow might consider 
investing in equipment capable of effectively repackaging the products. If the packages on the 



 

 

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other hand are packaged incorrectly, the repackaging process instead need the capacity to 
repackage the existing packages.  

Repair 

With repair, Thierry et al. (1995) refer to fixing and replacing small parts to improve the 
product’s function. Ellen MacArthur Foundation (2016) lifts two barriers for product repairs; 
lack of repair information and lack of available spare parts. 

Firstly, there is a lack of available information on how to repair products. Repairs can be done 
directly by customers, manufacturers, or external service providers. Manufacturers are likely 
to have comprehensive information about the products while customers and external actors 
seldom do. The more complex a product is, the harder it becomes for these actors to 
successfully repair the product. Ellen MacArthur Foundation (2016) hence identify the 
availability of repair information as crucial to avoid disposal of products tha