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April 9, 2009 / or4green

On the Potential of Closed-Loop Supply Chains

A recent OR Forum article by Guide and Van Wassenhove reviews the evolution of research in Closed-Loop Supply Chains. These are supply chains in which a product makes its way back to a company as a result of a return, end of use or end of life. The article provides a nice history of the field complete with a solid list of references. A post on the OR Forum blog by Michael Trick describes the article and two commentaries written in response to it.

Guide and Van Wassenhove repeatedly emphasize that they are writing from a “strong business perspective” where by this they mean a “focus on profitable value recovery from returned products”. And the paper is true to this point of view. Now one could argue that the business perspective could extend beyond “profitable value recovery” to include the notions of corporate social responsibility, which can have all kinds of benefits for a company, both tangible and intangible. This point is made in the commentary (pdf) by Robert Klassen:

Guide and Van Wassenhove (2009) noted the relevance of green or sustainable supply chain issues, but then positioned them as being outside business value. Arguably, these issues should be encompassed within, not in addition to, business value – particularly for closed-loop supply chains. Not only have environmental issues motivated much research and managerial discussion about CSLCs over the last 15 years, either driven by customer or regulatory requirements, but they also off er a pivotal option to improve sustainability.

Later on, he writes:

First, how might business value be better modeled as multiple dimensions of performance? This may become somewhat easier in the near future as some externalities, such as CLSC’s carbon footprint, are priced by capacity-and-trade regulations or carbon taxes into the forward and reverse supply chains. At a minimum, economic and environmental criteria need to be included simultaneously rather than translating business value into only economic terms.

It seems to me that the enormous potential of CLSC’s lies not in the value to be recovered from retrieved products, but as a key component in the drive towards sustainability by remaking the notion of a product altogether. Into what? One designed with the re-use, re-manufacture, or at worst, recycling it will undergo upon its return to the manufacturer in mind. The manufacturing of a product uses natural resources, vast amounts in some cases. The CLSC can keep waste out of landfill, raw materials from being mined/harvested/etc., energy from being used, and so on, all by taking a product back. There is great potential for OR to optimize this system – maximize the utility of the retrieved product; through design, maximize the ability to quickly disassemble it into its component materials and use it in new products; optimize models of service for products built to last instead of to become quickly obsolete, etc. This is cradle-to-cradle OR.

For more on cradle-to-cradle, see this summary of the book by that name as well as an article by its authors (McDonough and Braungart) in the Sustainable Business special issue of Interfaces (May-June 2000, Vol. 30, No. 3). An earlier writing on CLSC’s by Guide and Van Wassenhove is mentioned briefly in this post.

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