Sustainable SC through the complete reprocessing of end-of-life products by manufacturers: A traditional versus social responsibility company perspective

Highlights

• Environmental sustainability through the reprocessing of end-of-life products.

• Traditional perspective and social responsibility perspective analysis.

• Critical aspects for sustainability in supply chain design are analysis.

• Transportation efficiency maximization through closed loop transportation system.

Abstract

Every item produced, transported, used and discarded within a Supply Chain (SC) generates costs and creates an impact on the environment. The increase of forward flows as effects of market globalization and reverse flows due to legislation, warranty, recycling and disposal activities affect the ability of a modern SC to be economically and environmentally sustainable. In this context, the study considers an innovative sustainable closed loop SC problem. It first introduces a linear programming model that aims to minimize the total SC costs. Environmental sustainability is guaranteed by the complete reprocessing of an end-of-life product, the re-use of components, the disposal of unusable parts sent directly from the manufacturers, with a closed loop transportation system that maximizes transportation efficiency. Secondly, the authors consider the problem by means of a parametrical study, by analyzing the economical sustainability of the proposed CLSC model versus the classical Forward Supply Chain model (FWSC) from two perspectives: Case 1, the ‘traditional company perspective’, where the SC ends at the customers, and the disposal costs are not included in the SC, and Case 2, the ‘social responsibility company perspective’, where the disposal costs are considered within the SC. The relative impact of the different variables in the SC structure and the applicability of the proposed model, in terms of total costs, SC structure and social responsibility, are investigated thoroughly and the results are reported at the conclusion of the paper.

Introduction

Recent legislation, social responsibility, corporate image and customer awareness are forcing manufacturers not only to provide more environment friendly products, but also to recover used products at their end-of-life. In the electric/electronic sector, the WEEE European Directive (Waste Electric and Electronic Equipment) of February 2003 requires the collection and recycling of such equipment (Directive 2002/96/EC), and defines the individual obligation of each manufacturer in these activities. The draft directive addresses collection and treatment requirements and sets re-use, recycling and recovery targets (50–80%, depending on the type of equipment and whether it is recovered or recycled/reused) (Rosenbach and Lindsay, 2002). According to the recovery activities of the recent recast of the WEEE directive (http://ec.europa.eu/environment/waste/weee/index_en.htm), the demands are more pressing. The proposal is clear:

• Art 5.2: when supplying a new product, distributors shall be responsible for ensuring that such waste can be returned to the distributor.

• Art 7.1: producers/third parties acting on their behalf achieve a minimum collection rate of 65%.

• Art 8.3: producers/third parties acting on their behalf, in accordance with Community legislation, set up systems to provide for the treatment of WEEE using best available treatment, recovery and recycling techniques. The systems may be set up by producers.

• Art 128: each producer is responsible for financing the operations of recovering and re-using products relating to the waste from his own products.

In the last decade, other countries (Japan, USA) have tried to adopts similar approaches (Rosenbach and Lindsay, 2002), and the strategies adopted by manufacturers and distributors, for the recovering of used products, are applicable in other industrial sectors, following specific directives provided by the legislation.

According to Daniel et al. (2003), the recovery of used products after the end of their life cycle is a mean for environmental protection and a source of business profit through their handling. This has increased the importance of the reuse and remanufacture of used products, so reducing the utilization of materials. Consequently, manufacturers have turned to a better design of their products for maximum material reuse and recycling. This includes the concept of the ‘green supply chain’ design that, according to Tsoulfas and Pappis (2006), is influenced by different principles of environmental sustainability: product design, packaging, collection and transportation, recycling and disposal, greening the indoor and outdoor environment and other management issues. A system is sustainable if it has the ability to endure. Planning a ‘green supply chain’ requires the additional function of recycling and thus, reverse logistics is a necessary infrastructure for material flow (Wang and Hsu, 2010). In addition, if the returned products are not handled or transported efficiently, manufacturers incur larger costs that can increase the cost of the new products (Mutha and Pokharel, 2009). Tsoulfas and Pappis (2006) affirm that “by extending the useful life of equipment items, additional raw materials are not needed to produce new items. Primary raw materials should be used only in cases where there would be no stock of secondary ones.” and that “transportation and the consequent environmental effects can be significantly limited if the recovery of used products can occur at the same time or in combination with the distribution of new products”.

In accordance with these concepts, this paper proposes a sustainable CLSC in which all end-of-life products return to the plants, where all the reprocessing activities take place. Some parts will be reused as raw materials and components for new products and the other parts will be transported to be disposed properly. On one hand, the reuse of end-of-life products reduces the need for raw materials, improving the economical sustainability of the process. On the other hand, it allows for a reduction of the quantity of disposable products, by improving their environmental sustainability. Economic and environmental sustainability are also guaranteed by the use of closed loop shipments, in which the collection of end-of-life products occurs at the same time as the delivery of new products. According to Yildiz et al. (2010) the unit cost (i.e. cost per pound per mile) of round-trip carriers is significantly less than the one-way unit cost: the model considers that the reverse routes are the same as the ones in forward flow, including the same transportation model. This reverse transportation model is already widespread in some SCs: for example, in the automotive industry, high value, used spare parts (such as engines and transmissions) are collected and returned to the manufacturers by the same vehicles with closed loop shipments, and are destined for regeneration purposes, allowing economies of scale benefits through the use of the same vehicle, without designing specific reverse logistics, but having, instead, a reverse SC integrated with a forward one (Kannan et al., 2010).

The main objectives of this paper are to define the following issues:

• What is the mathematical model that aims to design such SC?

• Is this design model economically sustainable?

• From what company perspective it could be sustainable?

• What are its critical aspects for its sustainability in respect to classical SC design?

The study considers an innovative sustainable closed loop SC problem. It first introduces a linear programming model that aims to minimize the total SC costs. Later, authors analyze the problem in a parametrical study, benchmarking the proposed CLSC structure, where all the products at their end-of-life are returned and reprocessed as described before at the production plant, with the Forward Supply Chain (FWSC) structure seen from two different standpoints: the case of a ‘social responsibility company perspective’, whereby the disposal costs are considered inside the SC, and the case of a ‘traditional company perspective’, where the SC ends at the customers, and the disposal costs are not considered in the SC, as normally happens with companies. This second part of the study aims to:

• Define the function of the two analyzed perspectives, in terms of which factors and how they combine impacts on SC costs in case of CLSC and FWSC structure.

• Define, using a parametrical analysis, a decision making tool that, for a given product and network with certain specific characteristics, allows a decision on whether it is possible to modify the classical forward SC structure to a ‘Green Closed Loop SC’.

• Study what are the elements that influence the choice of SC structure and details of in what way and how these factors influence each level of the CLSC, in terms of number and location of elements.

The next section presents a brief review of the existing literature on SC, focusing of CLSC and its environmental impact from a generic and cost point of view. Section 3 introduces the proposed CLSC design model, concluding with an applicative case derived from an industrial application in Northern Italy. In Section 4, the authors analyse the problem by using a parametrical study, benchmarking the proposed CLSC structure with the FW structure, illustrating the most relevant results. Our conclusions wrap up the paper in Section 5.