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Recycling as a Strategic Supply Source

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  • Gal Raz
  • Gilvan C. Souza

Abstract

We investigate how recycling can be a strategic source of supply in the presence of a changing supply market. This research is inspired by the metal cutting tools industry, where challenges regarding a key raw material present an opportunity for the manufacturers to create an alternative supply source by recycling. In this study, there is a virgin material market that supplies two manufacturers differentiated in their recycling ability. The problem is formulated as a game, where the manufacturers first make a decision to recycle or not, and then decide on their respective production quantities, and recycling rates. Depending on the fixed recycling cost relative to the unit cost of the virgin material, as well as the recycling cost structure of the two manufacturers, there are four possible equilibria: both manufacturers recycle, neither manufacturer recycles, only the more recycling†capable manufacturer recycles, or a scenario with two Nash equilibria (either manufacturer recycles whereas the other does not). We show that recycling is indeed a strategic supply source resulting in higher quantities and profits. Interestingly, a manufacturer may recycle less if the unit cost of the virgin material increases, at high recycling rates. This result emphasizes the importance of carefully modeling the recycling cost structure. Although a recycled unit has necessarily a lower life†cycle environmental impact than a unit made of virgin materials, the industry†wide environmental impact can be higher in a recycling scenario due to higher production quantities overall. Welfare, however, is higher with recycling.

Suggested Citation

  • Gal Raz & Gilvan C. Souza, 2018. "Recycling as a Strategic Supply Source," Production and Operations Management, Production and Operations Management Society, vol. 27(5), pages 902-916, May.
  • Handle: RePEc:bla:popmgt:v:27:y:2018:i:5:p:902-916
    DOI: 10.1111/poms.12851
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    Cited by:

    1. Ehsan Shekarian & Simme Douwe Flapper, 2021. "Analyzing the Structure of Closed-Loop Supply Chains: A Game Theory Perspective," Sustainability, MDPI, vol. 13(3), pages 1-32, January.
    2. Schlosser, Rainer & Chenavaz, Régis Y. & Dimitrov, Stanko, 2021. "Circular economy: Joint dynamic pricing and recycling investments," International Journal of Production Economics, Elsevier, vol. 236(C).
    3. Zhang, Abraham & Wang, Jason X. & Farooque, Muhammad & Wang, Yulan & Choi, Tsan-Ming, 2021. "Multi-dimensional circular supply chain management: A comparative review of the state-of-the-art practices and research," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    4. Liu, Jing & Xia, Senmao & Wang, Zhaoxing & Nie, Jiajia & Ameen, Nisreen & Yan, Cheng & Lim, Ming K., 2023. "How to balance economic profits and environmental protection: The impacts of cash hedging on remanufacturing firms," International Journal of Production Economics, Elsevier, vol. 258(C).
    5. Iyer, Ananth V. & Vedantam, Aditya & Lacourbe, Paul, 2023. "Recycled content claims under demand benefit and supply uncertainty: Multi-period model and application to glasswool insulation," European Journal of Operational Research, Elsevier, vol. 309(2), pages 745-761.
    6. Ma, Deqing & Hu, Jinsong, 2022. "The optimal combination between blockchain and sales format in an internet platform-based closed-loop supply chain," International Journal of Production Economics, Elsevier, vol. 254(C).
    7. Khan, Syed Abdul Rehman & Yu, Zhang & Sharif, Arshian, 2021. "No Silver Bullet for De-carbonization: Preparing for Tomorrow, Today," Resources Policy, Elsevier, vol. 71(C).
    8. Wang, Yong & Jiang, Qiong & Guan, Xu & Guan, Xiangyang, 2023. "Recycling channel design and coordination in a reverse supply chain with customer green preference," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    9. Sheu, Jiuh-Biing & Choi, Tsan-Ming, 2019. "Extended consumer responsibility: Syncretic value-oriented pricing strategies for trade-in-for-upgrade programs," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 350-367.
    10. Jalali, Hamed & Ansaripoor, Amir H. & De Giovanni, Pietro, 2020. "Closed-loop supply chains with complementary products," International Journal of Production Economics, Elsevier, vol. 229(C).
    11. Yang, Rui & Tang, Wansheng & Zhang, Jianxiong, 2021. "Technology improvement strategy for green products under competition: The role of government subsidy," European Journal of Operational Research, Elsevier, vol. 289(2), pages 553-568.
    12. Tianqin Shi & Dilip Chhajed & Zhixi Wan & Yunchuan Liu, 2020. "Distribution Channel Choice and Divisional Conflict in Remanufacturing Operations," Production and Operations Management, Production and Operations Management Society, vol. 29(7), pages 1702-1719, July.
    13. Chen, Jianxin & Hou, Rui & Xiao, Lu & Zhang, Tonghua & Zhou, Yongwu, 2023. "Dynamic corporate social responsibility adjustment strategies of a closed-loop supply chain with fairness concerns and supply chain financing," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    14. Yang, Lei & Hu, Yijuan & Huang, Lijuan, 2020. "Collecting mode selection in a remanufacturing supply chain under cap-and-trade regulation," European Journal of Operational Research, Elsevier, vol. 287(2), pages 480-496.
    15. Deqing Ma & Pengcheng Ma & Jinsong Hu, 2024. "The Impact of Blockchain Technology Adoption on an E-Commerce Closed-Loop Supply Chain Considering Consumer Trust," Sustainability, MDPI, vol. 16(4), pages 1-41, February.
    16. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing & Zhang, Guoqing, 2022. "Implications of government subsidies on shipping companies’ shore power usage strategies in port," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    17. Chang, Jiyoun C. & Graves, Stephen C. & Kirchain, Randolph E. & Olivetti, Elsa A., 2019. "Integrated planning for design and production in two-stage recycling operations," European Journal of Operational Research, Elsevier, vol. 273(2), pages 535-547.

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