An Application of Pareto Analysis and Cause-Effect Diagram

for analysis of the adversities that influence the reverse

logistics of e-commerce
Leonardo Santos Camargo1, Matheus Henrique Rossini1, Rodrigo Pereira Macedo1
1
Universidade Estadual Paulista Júlio de Mesquita Filho (UNESP), Itapeva Experimental Campus, São Paulo, Brazil.

Abstract: The technology is advancing each time more, and many sectors that were previously manual, now
become computerized, such as trades. Previously, everything was done manually, face to face. However, now all
this happens virtually, using the internet, without the consumer having physical contact with the product they are
purchasing. However, with the many benefits that this can bring forward, there are also new problems to be
solved, such as purchases processing, exchange, order return, among other issues to be analyzed. From this, you
can use reverse logistics concepts and quality control tools such as Pareto diagram, Ishikawa diagram, to solve
problems and improve this new form of commerce, called e-commerce, specifically addressing a store online of
sports uniforms.
Keywords: E-commerce, Reverse Logistic, Pareto Analysis, Quality, Root Cause

I. Introduction

The emergence of the Internet has provided a new approach where a computer connected to a network,
brought a new way to conduct trade. The advent of this new technology, took place in the 1990s in the United
States, having a rapid spread to Europe and other populations already more developed around the world.
Because of its great potential, e-commerce has developed very quickly, and before long, it was an
essential technology for all, and of course, already had a highly competitive market for retailers. Thus, to
establish in the online market, retailers must always be renewing their processes to increase their profits, cut their
losses, and cultivate their reputation with the virtual world.
Thus, in this paper will treated to some studies based on quality control tools to analyze the reverse
logistics of this online trading process to its improvement and an effective improvement.
______________________________________________________________________________________
II. Background Of The Study
2.1 E-commerce
Since the moment men begin to perform the exchange of services and goods, for cash, the word
commerce first comes up. Increasingly, the way these trades happen, have been renewed, and follow the
technological development of society. According to Novaes (2007), formerly, control of the payment of a product
or service, was done manually, but the realization of such transaction by electronic means is currently growing
increasingly. As this new form of commerce, called "e-commerce".
The big growth of this market can be confirmed analyzing the following graphic:

Graphic 1: E-consumers growth in Brazil since 2013.

According to Fernandes et al. (2011), the definition of e-commerce is linked to the computer and the
Internet, however, 30 years ago, a commercial transaction carried out by means of electronic equipment was
already considered e-commerce, making the meaning of the word changes, only adapting to the current context.
 Kotler, cited Scandiuzzi (2011) defines e-commerce as commerce purchases and sales made online, and
shows seven ways to be successful in this environment: conduct business research, provide information about the
product or service, promote debate, offer training, and offer products and services through bits (online).
The following chart shows the increase in online sales amount.
Graphic 2: Online sales growth (consumer goods) in Brazil from the first half of 2011.

2.2 Reverse logistics

Reverse logistics, is a logistics concept that can be considered recent. The first studies and activities of
the area are dated back to the 70 and 80. At first, the focus was directed to return goods with the purpose of use
for recycling thereof (Hernández et al., 2012).
According to Rogers and Tibben-Lembke (1998), the reverse logistics concept includes the same scope of
activities of direct logistics; the difference is that it covers such activities in a inverse way.
However, over the past decades, reverse logistics has been covered to new interests, such as creating
and/or recovery value, after sales returns and also returns after consumption (Leite, 2012).

2.3 Reverse logistics influence in e-commerce

As the E-bit report:
When making a purchase, consumers feel more secure and confident when you know you can
exchange or return the product in case of problems. In electronic commerce, the availability of
these services and the ease of using them are important, especially because the contact
between customer and store is not face by face (E-BIT, 2014, p. 22). Thus, reverse logistics
can be considered an essential variable in the case of electronic marketing scenario, which the
client does not have physical access to the product prior to purchase, which may increase the
chances of intent to exchange / return the same when this comes in the consumer's hands.
Thus, you can check the level of importance that reverse logistics has in e-commerce, as it will
influence whether the customer will or will not continue to make purchases, or will directly affect the loyalty and
reputation of the company.

III. Methodology

This study makes use of quality tools to minimize reverse logistic effects. It presents the theoretical
ideas about reverse logistic effects and quality tools specially Pareto Analysis and Cause-Effect diagram. The
case study research conducted on the selected e-commerce company of sportive uniforms “iSports”. This step
includes the understanding about the quality control system of the selected business and how this could be
improved. The conceptual development includes solutions analysis that could minimize these effects, then will
be related to their respective major areas. Finally, the last step consists in a theoretical and math analysis about
the quality control on ecommerce logistic. Steps involved in the study:

Step 1: Company Selection

After gathering information, we made contact with some sportive articles companies that entered the
ecommerce recently, to help in their development applying our knowledge on quality control. Then, we have
selected a particular sportive uniforms company in São Paulo, Brazil.
 Step 2: Conducting of Case Study
Finally we conduct our research work in a particular sportive uniforms company named “iSports”
established in 2010 which situates in São Paulo, Brazil. The demography of the situated organization is
presented in Table 1.

Table 1. Demography of “iSports”

Company Name iSports

Location São Paulo, Brazil
Established 2010
Product type Sportive uniforms
Number of production line 1
Total worker 20
Production capacity per day 5000 units
Working hour per day 10 Hours (maximum)
Buyers Brazil

Step 3: Gather Information

In this step, we have gathered information on the Quality Control system of the logistic section
of the selected ecommerce company. Here we have collected data of reasons for products return through
reverse logistic provided by the management which is used for the Analysis purpose of the study.

Step 5: Identify the Problem

Identification of the major return reasons to minimize the reverse logistic effects was next step.
According to the observation and using management data, we detected some common reasons for products
return. Therefore, we tried to do our research work on this section, which is our major concern.

Step 6: Analysis and Suggestions

In this step Pareto Analysis is performed which is important to identify the principal products
return reasons. After that, we constructed a Cause- Effect Diagrams for principal reasons. Then we have
provided some respective suggestions to minimize those frequency.

IV. Findings And Data Analysis

In the previous section we discussed the identification of possible reasons that lead to the reverse
logistics phenomenon. From our observation and data provided by the company management, we have seen
that there is a reasonable amount of products return to the company for various reasons, causing waste of time
and human resources, and increase the company's costs. Based on this, we try to focus on the main reasons in
order to minimize the amount of products returned. For this, we use Pareto analysis to identify the main
reasons for consumer dissatisfaction, and then built a cause-effect diagram to analyze the cause of these
problems. Finally, a list of suggestions has been developed that can help to minimize this problem.

4.1 Process Overview

We conducted our study in an e-commerce company of sports uniforms called "iSports" established in
2010 in São Paulo, Brazil. Our research was conducted in all business processes, considering that it does not
have a production line, but only a distribution center for the rest of the country. In this center we have the
processing of claims and payments, checking stock, product packaging, and distribution. Figure 1 shows a
general outline of the process.
 Figure 1: Flowchart of process paths

4.2 Data Collection

For our research work, we collected data from the past five months, except current, comprising the
period from May to September 2016. The Customer Service of the company provided the data for this study.
Each product that returns is recorded in a Quality Control Check Sheet shown in Figure 2. Supervisors meet this
sheet with the customer name, order number, the specification of returned/canceled/changed product, the amount
of this product and the reason for the return/cancellation/exchange. The company on which made this study uses
codes to identify the reasons for return/cancellation/exchange of a product. From the data analysis, we identified
7 different reasons from 12 issues of the process. This different reasons and their codes are given in Table 2. The
data relating various reasons with the process issues are presented in Table 3.

Figure 2: Sample of a Check Sheet

Table 2: Process defects with their corresponding codes

Sl No. Defect Type Defect Codes
1 Wrong Model A
2 Wrong Dimensions B
3 Wrong Amount C
4 Product Damaged D
5 Product Exchange E
6 Delivery Problems F
7 Waiver G
 Table 3: Five months combined data of reasons and process issues.

Defect Type →
A B C D E F G TOTAL
Defect Position ↓
Choice of Product
Missing photo 4 6 2 0 0 0 0 12
Incomplete description 8 5 0 0 0 0 0 13
Wrong information provided by the customer 32 38 25 0 37 0 0 132
Wrong information provided by the store 43 29 27 0 54 0 0 153
Order processing
Wrong product identification 3 2 7 0 4 0 0 16
Stock organization issues 27 31 43 0 53 0 0 154
Wrong package picked 5 2 1 0 4 0 0 12
Shipping
Missing address information 0 0 0 0 0 17 2 19
Wrong address information 0 0 0 0 5 9 6 20
Distributor overloaded 0 0 0 0 0 4 1 5
Unsecure packages 0 0 0 0 11 7 0 18
Customer absent at delivery 0 0 0 0 0 13 8 21
Total 122 113 105 0 168 50 17 575

Table 3. Shows the combined data of the reasons with the process issues, collected in the last five months, except
current. Red cells represent the process problems and green represent different reasons .

4.3 Pareto Analysis

We have carried out our Pareto analysis based on the last five months by combining the return reasons of
products with the process problems. From this analysis, we identify the major points in the process that influence
the return of products. The analysis is shown in Figure 3, where the horizontal axis represents the process
problems and vertical axes of the right and left, respectively represent the percentage and quantity of occurrence
of the problems.

Figure 3: Pareto Analysis for top defects types

4.3.1 Observations from Pareto Analysis for Top Defects Positions

1. Stock organization issues is the most frequent defect with 26,8% of the total.
2. Wrong information provided by the store is the second most frequent defect with 26,6% of the total,
follow wrong information provided by the customer within 23% of the total.
3. These three defect types area the “vital few” representing 76,3% of total defects occurred.
 4. We must to improve further Pareto Analysis on those top defect position to identify and characterize
the vital few defect types that are responsible for maximum amount of defect.

4.3.2. Further Pareto Analysis for Defect Types

We have performed further Pareto Analysis for Stock Organization issues and Wrong information
provided by the store and customer. From these analysis we identified news “vital few” defect types for each
defect type out of the process defects.
Pareto Analysis for Stock Organization issues is represented in Figure 4.

Table 4: Stock organization issues defect data

Stock organization issues

Defect Types Defect Codes Defect Amount
Product in wrong department E 12
Product missing C 8
Not enough amount of the product C 3
Wrong product identification E 67
Stock count out of date C 64
TOTAL 154

Figure 4: Pareto Analysis of Stock organization issues

Observation from the Analysis:

 Wrong product identification is the defect that has de more frequent data out of the total of
defects descendant from Stock Organization issues, with 43,5%
 Stock count out of date contribute with 41,6%
 These two defects combine, represent 85,1% of the total

Pareto Analysis for Wrong information provided by the store is shown in figure 5

Table 5: Wrong information provided by the store defect data

Wrong information provided by the store

Defect Types Defect Codes Defect Amount
Color did not match A 58
Size did not match B 75
Brand did not match A 9
Silk did not match A 4
Product out of stock C 7
TOTAL 153
 Figure 5: Pareto Analysis of Wrong information provided by the store

Observation from the Analysis:

 Wrong size did not match is the defect that has the more frequent data with 49% of the total.
 Color did not match has a frequent 37,9%.
 These two defects combine, represent 86,9%.

Pareto Analysis for Wrong information provided by the Customer is shown in figure 6

Table 6: Wrong information provided by the customer defect data

Wrong information provided by the customer

Defect Types Defect Codes Defect Amount
Size unities issues B 49
Chose wrong color A 12
Chose wrong model A 11
Chose wrong silk A 13
Forgot to remove from cart C 33
Chose wrong brand A 14
TOTAL 132

Figure 6: Pareto Analysis Wrong information provided by the customer

 Observation from the Analysis:
 Size unities issues typed is the defect that has the more frequent data with 37,1%..
 Forgot to remove from cart has a frequent 25%.
 These two defects combine, represent 62,1%.

Major Concerning Areas:

Figure 7: Major Concerning Areas

4.4 Result of the Pareto Analysis

After Pareto Analysis, it was found seven types of defect that represent the Major Concerning areas from
the company “iSports”. The defect types and the corresponding Process Defects within their respective defect
amount are show in table 8.

Table 7: Total Amount of Defects in Major Concerning Areas

4.5 Analysis of data.

Table 8: Percentage of defects in major concerning area

575
Total number of defects
Total number of defects in major 439
concerning area
Percentage of defects in major concerning 76,35%
area

Table 9: Percentage of major concerning area

Total number of concerning areas 12

Total number of major concerning area 3

Percentage of major concerning area 25%

By analyzing the Tables 10 and 11, we can see that if we focus our efforts on 25% of key process
problems, we could reduce errors that lead to 76,35% of reasons of return/cancellation/change of products.

4.6 Hierarchy of Cause and Cause-Effect Diagram

By Pareto Analysis we have identified the process problems and analyzing more sink was possible to
identify three main. The main ones are: Stock organization issues, Wrong information provided by the costumers
and Wrong information provided by the store. These process issues occur due to some specific causes. From our
observation and data provided by Customer Service supervisors, we identified the causes for each type of
problem. These causes were arranged in a hierarchy according to frequency of occurrence. The hierarchy of
causes is shown in Tables 10, 11, and 12. Then it was built one cause-effect diagram for each process issue using
4M (Man, Machine, Materials and Methods) bones. The diagrams are shown in Figures 8, 9 and 10.

Table 10: Hierarchy of Causes for Stock organization issues.

SL. NO. CAUSES FREQUENCY

1 Inefficient operator 27
2 Product with wrong label 14
3 Product stored in the wrong place 08

Table 11: Hierarchy of Causes for Wrong information provided by the customers.

SL. NO. CAUSES FREQUENCY

1 Typo 29
2 Error on selection of specification 17
3 Polluted layout 08
4 Error on the website 05

Table 12: Hierarchy of Causes for Wrong information provided by the store.

SL. NO. CAUSES FREQUENCY

1 Typo 15
2 Server error 06
 Figure 8: Cause-Effect Diagram for Stock organization issues

Figure 9: Cause-Effect diagram for Wrong information provided by the costumers

 Figure 10: Cause-Effect diagram for Wrong information provided by the store

4.7 Suggestions to reduce top defects percentage

From our observations, literature review and consultation with the company's employees, we proposed
some solutions to reduce the percentage of errors.

Table 13: Suggested Solutions for Stock organization issues

Causes Types Causes Suggested Solutions
Provide adequate training to the
Inefficient operator
operators
Man Create an identification system in
Product stored in the wrong place stock which allows the separation
of the products by sectors

Integrating the system of arrival

of products to the identification
Machine Product labeled wrong system, allowing you to create
proper identification labels for
each product that comes to stock

Table 14: Suggested Solutions for Wrong information provided by the costumers
Causes Types Causes Suggested Solutions
Typo
Make website simple and more
Man practical for providing user
Error on selection of specification informations

Contact the developer or change it

Machine Error on the website
to minimize errors on the website
Wipe the website layout to make
Method Polluted layout
the information more visible
 Table 15: Suggested Solutions for Wrong information provided by the store
Causes Types Causes Suggested Solutions
Improve and simplify
Man Typo information integration platform
for the site
Hiring company that makes
Machine Server error
periodic server maintenance

4.7 Suggested Additional Features for Distribution Center

- Constant maintenance of website

- Keep organization in the workplace
- Do not change the location of stock products without prior authorization
- To maintain synchronization between stock and system
- Create a system of communication between employees
- System of communication between consumer and employees
- Ask for suggestions to customers

By following the above topics, along with the suggestions made above, the process can be improved by
reducing the reverse logistics, and consequently satisfying its customers

4.8 Result

We have found that up 76,35% defect can be reduced by concentrating only on 25% areas. We have
provided some suggestions related to those defect types. It is almost impossible to achieve zero defect. But by
taking effective measure it is possible to reach near zero defect. So the more successfully those suggestions can
be applied, the more the defects can be minimized.

V. Conclusion
Within an increasingly competitive market, companies must always be conducting a continuous
improvement in its processes. The quality tools are those of the utmost importance for this development. Among
the various quality tools, we made use of the Pareto diagram, and also Ishikawa diagram, which were crucial to
find the roots of the virtual store “iSports” problems.
After several data analysis and Pareto diagram realization, it was found that 76.35% of problems exist
due to 25% of causes. So, from all defects that were analyzed, the sectors in which they were being generated
were found, thus we were able to solve the problem directly from where it came.
However, as we find out which sectors were generating 76.35% of problems, from the Ishikawa
diagram, it was possible to verify if the causes of these problems were by people, machines, methods or
materials.
Thus, by bringing together all cause-effect analysis, the suggestion of improvements to 25% of causes
for 76.5% of the webshop was possible.
Therefore, it can be concluded that quality tools are extremely efficient for solving the store's
problems, along with reverse logistics, which made the whole process of the company much more clear, so we
were able to analyze and improve them, helping to keep the reputation of store in the virtual environment, by
reducing problems involved in RL (keep buyers). It also valuable to note the importance of reducing costs for a
company, and only carry out the expansion of profit.

VI. References

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[2] E-BIT. Webshopper. 2014 – 29 ed. http://portal.ebit.com.br/Webshoppers. (Date of retrieval: Sep 25, 2016)

[3] FERNANDES, F. J. M., SIMÕES, J. S. P., PÁDUA T. P. M., BARROS, E. S. Compras Virtuais: Como a
Logística tem se firmado como Componente Essencial para o E-commerce? VIII Convibra Administração –
Congresso Virtual Brasileiro de Administração, 2011.
[4] HERNÁNDEZ, C. T.; MARINS, F. A. S.; CASTRO, R. C. Modelo de gerenciamento da logística reversa.
Gestão & Produção, São Carlos, v. 19, n. 3, p. 445-456, 2012.

[5] LEITE, P. R. Direcionadores estratégicos em programas de logística reversa no Brasil. Revista Alcance:
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[6] NOVAES, A. G. Logística e Gerenciamento da Cadeia de Distribuição. Elsevier. Rio de Janeiro, 2007.

[7] ROGERS, D. S.; TIBBEN-LEMBKE, R. S. Going backwards: reverse logistics trends and practices.
Nevada: Reverse Logistics Executive Council, 1998.

[8] SCANDIUZZI, F., OLIVEIRA, M. M. B., ARAÚJO, G. J. F. A logística no e-commerce B2C: Um estudo
nacional multicascos, 2011. http://online.unisc.br/seer/index.php/cepe/article/viewFile/1983/1690. (Date of
retrieval: May 10, 2012)