Product recovery decisions within the context of Extended Producer Responsibility

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Business & Mgmt

Published on February 20, 2014

Author: IanMcCarthy

Source: slideshare.net

Description

Environmental and economic evidence is increasingly supporting the need for better analytical tools for evaluating the recovery of consumer products. In response, we present a novel mathematical model for determining what we call the Optimal Recovery Plan (ORP) for any given product. The ORP is based on an evaluation and optimization of the economics of remanufacturing consumer products versus demanufacturing in the context of Extended Producer Responsibility (EPR) legislation, a driving force behind the adoption remanufacturing initiatives by firms. We provide an illustrative application of the model and then discuss its implications for scholars and practitioners concerned with sustainable business development.

PRODUCT RECOVERY DECISIONS WITHIN THE CONTEXT OF EXTENDED PRODUCER RESPONSIBILITY Michael R. Johnson and Ian P. McCarthy Beedie School of Business Simon Fraser University, Vancouver, Canada Johnson, M.R., McCarthy, I.P., Product recovery decisions within the context of Extended Producer Responsibility. J. Eng. Technology Management (2014)

PRODUCT REMANUFACTURING “product remanufacturing is where a used product is returned (or collected through take-back schemes such as leasing or deposits), followed by a process of product disassembly, cleaning and rebuilding the product to specifications of the original manufactured product” (Johnson & McCarthy 2014)

PRODUCT DEMANUFACTURING “demanufacturing attempts to salvage any remaining economic value in the EOL product through disassembly and promotes material recycling over disposal” (Johnson & McCarthy 2014)

EXTENDED PRODUCER RESPONSIBILITY (EPR) • Extends financial responsibility for managing the product’s end-of-life back onto the producer of the product • Two Examples: WEEE Directive European Union’s Directive on End of Life Vehicles (ELV) • Forces manufacturers to consider: – Product design and its relationship with life-cycle – Cost-effective and efficient management of products at the end-of-life (EOL)

PRODUCT RECOVERY AS A REMANUFACTURINGDEMANUFACTURING CONTINUUM Source: Johnson & McCarthy (2014)

THE GAP OUR MODEL ADDRESSES • Existing research focuses on remanufacturing and demanufacturing as separate and independent processes • Existing research also overlooks: • Decision support for OEMs seeking to evaluate lower level material recycling activities of demanufacturing versus the transitional element of whole product remanufacturing (multiple product life-cycles) • The context of EPR on the above issue and its changing emphasis on “reuse” over “recycling”

OUR INTEGER PROGRAMMING MODEL • Can be used to evaluate the economics of ‘whole’ product remanufacturing versus whole product demanufacturing in the context of EPR • Reveals remanufacturing profitability and offers a sensitivity analysis for understanding of the economic drivers of remanufacturing products.

INTEGER PROGRAMMING MODEL • Remanufacturing Optimization Model - Overview [CRM i How to Rebuild Product? [CNPi CAi 100% Remanufacturing of Product Complete Rebuild of Product No need for New Components CDi ] Variation of New and Optimal Economic Plan? Remanufactured Parts CAi CDi ] MaxMROi CLFi 100% Demanufacturing of Product - recycling, shredding and landfill only No Rebuild of Product Build Product from New ComponentsOnly

INTEGER PROGRAMMING MODEL Inputs Integer Programming model Economic Parameters Physical Product Parameters Optimal Remanufacturing Plan (ORP) • List of parts and subassemblies that are economical for remanufacturing • List of parts and subassemblies that should be demanufactured. • Optimized decision-making associated with EPR restrictions – achieving mandated recovery rates at lowest cost

APPLICATION OF THE MODEL Two telephones:: 1. Consumer telephone –Used as a test-bed for developing the model 2. Business telephone – ubiquitous in NA businesses today Two different model scenarios were investigated to develop the model: Model 1: Data collected on the current economic conditions of remanufacturing the telephone at the end-of-life. EPR constraints not imposed. Model 2: Recovery-Reuse Constraints of WEEE Directive imposed.

MODEL 1 RESULTS – EPR CONSTRAINTS NOT IMPOSED Material Destinations of Model 1 I. New versus Reuse Total Mass of New Parts Total Mass of REMAN and Reused Parts Total Mass II. Material Destinations Mass Remanufactured and Reused (Kg) Mass Recycled (Kg) Mass Landfilled (Kg) Total Mass Mass (Kg) 1.69 0.30 1.99 Mass (Kg) 0.30 0.15 1.54 1.99 % of Total Mass 84.92% 15.08% 100.00% % of Total Mass 15.08% 7.54% 77.39% 100.00% Economic Output of Model 1 Economic Totals Total Rebuild Cost Total Cost of New Parts (sum of CNP) Total Remanufacturing Costs (sum of CRM) Total Demanufacturing Costs (Landfill and Recycling) Total Demanufacturing Revenue (Reuse and Recycling) Total Disassembly & Assembly Costs (sum of CA and CD) -$ -$ -$ -$ $ -$ Amount 7.48 5.40 1.63 0.17 0.12 0.40

MODEL 1 – SENSITIVITY ANALYSIS +4 00 % +8 00 % +1 00 % +2 00 % +5 0% +2 5% 0% -2 5% -5 0% -1 00 % #1 ) (n ot e Total Rebuild Cost of Telephone % Change of Each Economic Varaible $-$2.00 -$4.00 -$6.00 -$8.00 -$10.00 CD and CA -$12.00 CRM -$14.00 CNP -$16.00 CLF The Total Rebuilt Cost (and total % of the Rebuilt Product) is most sensitive to cost of new parts and remanufacturing costs.

MODEL 2 RESULTS – EPR CONSTRAINTS IMPOSED Material Destinations of Model 2 I. New versus Reuse Total Mass of New Parts Total Mass of REMAN and Reused Parts Total Mass II. Material Destinations Mass Remanufactured and Reused (Kg) Mass Recycled (Kg) Mass Landfilled (Kg) Total Mass Mass (Kg) 0.2 1.79 1.99 Mass (Kg) 1.79 0.15 0.05 1.99 % of Total Mass 10.05% 89.95% 100.00% % of Total Mass 89.95% 7.54% 2.51% 100.00% Economic Output of Model 2 Economic Totals Total Rebuild Cost Total Cost of New Parts (sum of CNP) Total Remanufacturing Costs (sum of CRM) Total Demanufacturing Costs (Landfill and Recycling) Total Demanufacturing Revenue (Reuse and Recycling) Total Disassembly & Assembly Costs (sum of CA and CD) Amount -$9.41 -$1.04 -$6.19 -$0.002 $0.12 -$2.29

DISCUSSION • Existing research focuses on “why” firms should undertake product recovery. • Our study examines “how” individual products can be evaluated to maximize economically the substitution effects of remanufacturing versus demanufacturing. • We show that whole product remanufacturing can be economically justified over demanufacturing for certain products within an EPR environment. • The sensitivity analysis demonstrates that lower labour costs of developing nations favor product remanufacturing over demanufacturing (recycling) activities.

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