Extended Producer Responsibility by Cradle2Cradle?

by dr ir H.R. Krikke, Tilburg University

Reverse Logistics Magazine, Jan/Feb 2008

The environment is keeping us busy. Since Al Gore's "Inconvenient Truth" it is impossible not to know about the greenhouse effect and its main cause: carbon dioxide. Although sustainability involves many more aspects (such as hazardous materials, resource depletion, etc.), it certainly has made a tremendous impact.

Most companies however, are still concerned with their bottom line. Businesses are expanding into international markets, requiring the ability to manage manufacturing and distribution on a global basis. (Out-) sourcing strategies have led to complex supply chain networks, with different locations for different activities.

Globalization increases energy use and hence CO2 emissions, and causes many other inefficiencies as well. The manufacturing boom in China for example creates a volume imbalance in the global transport system. From European mainports, 41 percent of the containers return empty to Asia. Not only are the volumes of returned empty containers a problem, also the number of products and packaging returned, continue to grow. Reverse Logistics is becoming a strategic issue because returns costs are staggering, materials and energy become scarcer and customers demand green policies.

Now the environment is everybody's problem. So, politics joins in. Legislators increasingly hold Original Equipment Manufacturers (OEMs) responsible for greening their products and supply chains. This is often referred to as Extended Producer Responsibility or EPR for short. Its implementation is found worldwide, but mostly within the European Union. One of the most important industries is Electronics, both for professional and consumer markets.

The European Union was the first to tackle the fast increasing Waste stream of Electrical and Electronic Equipment (WEEE) in order to prevent growing quantities of equipment from being incinerated or land-filled and to reduce environmental pollution as a result of the uncontrolled release of toxic materials. Also Norway and Switzerland and some Asian countries, like South Korea, Japan, and Taiwan are adopting similar though not as far reaching legislation.

Other areas of the world, for instance China, are also opting for EPR as a policy tool. In the USA, on a voluntary basis and under the influence of various mandatory state regulations, e-waste is subject to national recovery and recycling targets.

Directives that apply to EEE-industry include the WEEE-Directive, the RoHS directive, packaging directive, REACH, and the battery act. This generates volumes of returns flows, possibly destined for Far-East production. To regulate exports of (hazardous) European waste we find more directives, in particular (EVOA, 1994/2007). More recently, the EU has discovered the carbon footprint and develops policies driven by energy concerns.

Many comments have been put forward on their environmental effectiveness as well as economic impact. Rebound effects include increased energy use through mandatory recycling, illegal exports to developing countries, conflicting objectives of directives, no level playing field for business and little effective conservation of natural resources. Moreover, perceived high cost create reluctance with industry.

In response, industry is adopting Cradle-to-cradle or C2C approaches, aiming for optimal customer service, low cost and environmental friendliness (read carbon footprint) simultaneously. Now if waste = food then it might as well be raw material. In fact this is what Baumgart and McDonough are claiming.

It is common knowledge that there is a huge market for recyclables in the Far-East. This flow can contribute to solving the container imbalance because (part of) the logistics routes concur. The efficiency can be improved, resulting in fewer (empty) container miles and henceforth lower emissions to the environment and lower energy use. The application of recovery (i.e. reuse and recycling) can in many cases improve the energy profile through the so-called substitution effect. Capacity constraints in global main-ports can be relaxed, lowering prices. Staggering energy prices also emphasize economic aspects.

In conclusion, if well managed, economy and environment go hand-in-hand. As one knows the perpetuum mobile does not exist, and we don't believe a closed loop supply chain can be fully autarkic –and that would be C2C n'est pas? But energy and material savings up to 25% can be achieved.

In the ECO project of Transumo, we have done a number of cases with multinational companies in amongst others automotive, copier, electronics and aviation. Below we discuss the case of an industrial fridge, which was published in 2003.

Industrial refrigerators are used in slaughter houses, warehouses, hospitals and laboratories. The firm already had done a study in product design for life cycle, in corporation with Tokyo Metro University. Product modularity was optimized for three alternative product designs: Two of them are specifically designed for maintenance and recovery, 'PMPP' is an intermediate design. The Bills of Material consist of modules, components and materials (in decreasing order of hierarchy). The designs are equal in terms of quality and functionality and utilize the same 25 components (see Figure 1) and the same materials. However, because the products have different modular structures, they have different costs and environmental impact functions (measured by energy and mass balances), and have different feasibility for recovery and disposal options at various degrees of disassembly. Figure 2 represents the closed loop supply chain. One can see that it actually implements the C2C concept since reuse on the original supply chain is enabled by product reuse, component and module remanufacturing and material recycling. If this is not wanted for some reason there is still the option of energy recovery.

We optimized closed loop supply chain network for each product design within the EU. It should be noted that neither customers nor suppliers were present outside the EU in this case. Clearly, the EPR applies to this case by means of the WEEE directive, RohS was not an issue at the time.

Supply chain decisions involve number, capacities and locations for supply chain process facilities combined with allocation of goods flows in the system. Goods flows represent intermediate flows between facilities, inbound supply flows, outbound market deliveries, inbound return flows and outbound disposal/thermal disposal flows. Inbound and outbound flows relate to supply points (i.e., suppliers of raw materials), market locations and disposal/thermal disposal locations. The supply chain network structure has most impact on costs, whereas the product design has most impact on energy and waste. We applied a Mixed Integer Linear Programming model to support solving this optimization model.

A centralized supply chain network by far outperforms a decentralized supply chain network in terms of costs. Product design, using modularity as the main instrument, can reduce opposing behavior of costs, energy use and waste functions. Overall, it appears that intermediate design PMPP is best as it is most flexible. Figure 3 compares results on cost, energy use and waste for all three supply chains, specifically designed for the three product designs and compared with a traditional design (where all is disposed). A suggested management strategy would be a centralized chain network in Eastern Europe combined with the PMPP product design. Figure 3 shows that the application of reuse and recycling not only improves material balance but also energy and hence carbon footprints.

Next to optimizing the supply chain design, the impact of recovery targets based on EPR-based EU-legislation was put to the test. They proved to be ambivalent. On the one hand it reduced waste but on the other hand it increases energy use and costs. In other studies, amongst which for Auto Recycling Nederland, a national Dutch automotive recycler, we showed that in achieving eco-effectiveness, optimal recycling is not equal to maximal. In other words, in some cases energy recovery is to be preferred. We also showed in several studies that universal quota (e.g. 70% recycling for brown goods) work out completely differently in various product categories or even branches and in different geographic areas. The method used in optimizing closed loop supply chains should be standardized rather than the desired outcomes. In global networks, this argument applies even stronger.

Harold Krikke is the head of the operations research team of CentER Applied Research of Tilburg University. He and his team develop advanced planning tools for supply chain optimisation and reverse logistics. Clients of CentER Applied Research include large industrial corporations, training institutes and government bodies. Dr. Krikke may be reached at krikke@uvt.nl