PRODUCT RECOVERY DECISIONS WITHIN THE CONTEXT OF EXTENDED

PRODUCER RESPONSIBILITY

Michael R. Johnson and Ian P. McCarthy

Beedie School of BusinessSimon 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 REMANUFACTURING-DEMANUFACTURING 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”

• 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.

OUR INTEGER PROGRAMMING MODEL

• Remanufacturing Optimization Model - Overview

INTEGER PROGRAMMING MODEL

How toRebuild Product?

100% Remanufacturing of ProductComplete Rebuild of ProductNo need for New Components

100% Demanufacturing of Product- recycling, shredding and landfill onlyNo Rebuild of ProductBuild Product from New ComponentsOnly

Variation of New andRemanufactured Parts

Optimal Economic Plan?

][ iCDiCAiCRM

iCLFiMaxMROiCDiCAiCNP ][

INTEGER PROGRAMMING MODEL

Integer Programming

model

Economic Parameters

Physical Product Parameters

Inputs

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.

Economic Output of Model 1

Economic Totals Amount Total Rebuild Cost -$ 7.48 Total Cost of New Parts (sum of CNP) -$ 5.40 Total Remanufacturing Costs (sum of CRM) -$ 1.63 Total Demanufacturing Costs (Landfill and Recycling) -$ 0.17 Total Demanufacturing Revenue (Reuse and Recycling) $ 0.12 Total Disassembly & Assembly Costs (sum of CA and CD) -$ 0.40

Material Destinations of Model 1

I. New versus Reuse Mass (Kg) % of Total Mass Total Mass of New Parts 1.69 84.92% Total Mass of REMAN and Reused Parts 0.30 15.08% Total Mass 1.99 100.00% II. Material Destinations Mass (Kg) % of Total Mass Mass Remanufactured and Reused (Kg) 0.30 15.08% Mass Recycled (Kg) 0.15 7.54% Mass Landfilled (Kg) 1.54 77.39% Total Mass 1.99 100.00%

MODEL 1 RESULTS – EPR CONSTRAINTS NOT IMPOSED

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MODEL 1 – SENSITIVITY ANALYSIS

The Total Rebuilt Cost (and total % of the Rebuilt Product) is most sensitive to cost of new parts and remanufacturing costs.

Economic Output of Model 2

Economic Totals Amount Total Rebuild Cost -$9.41 Total Cost of New Parts (sum of CNP) -$1.04 Total Remanufacturing Costs (sum of CRM) -$6.19 Total Demanufacturing Costs (Landfill and Recycling) -$0.002 Total Demanufacturing Revenue (Reuse and Recycling) $0.12 Total Disassembly & Assembly Costs (sum of CA and CD) -$2.29

Material Destinations of Model 2

I. New versus Reuse Mass (Kg) % of Total Mass Total Mass of New Parts 0.2 10.05% Total Mass of REMAN and Reused Parts 1.79 89.95% Total Mass 1.99 100.00% II. Material Destinations Mass (Kg) % of Total Mass Mass Remanufactured and Reused (Kg) 1.79 89.95% Mass Recycled (Kg) 0.15 7.54% Mass Landfilled (Kg) 0.05 2.51% Total Mass 1.99 100.00%

MODEL 2 RESULTS – EPR CONSTRAINTS IMPOSED

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.