An online monthly research publication by the Ivey Business School 

Volume 13, Number 8
August 2007

Managing ‘end of life’

Robert Klassen shows how firms capture value from their products once consumers are done with them

Interface, one of the world’s largest carpet manufacturers, designs its carpets so that materials can be recovered and reused in future products. The advantages are three-fold: customers get rid of their used carpet, less waste is land-filled, and the firm potentially saves money.

The research of Professor Robert Klassen focuses on how Canadian firms can build sustainable value across a range of products similar to that offered by Interface. One of his research streams looks at the management of the reverse supply chain – what to do with a product when the customer is finished with it.

Laws in Europe require firms in many industries to take ‘end-of-life’ responsibility for their products. “European managers are actively wrestling with the issues of how to recover value from their used products,” says Klassen. “We wondered if Canadian firms, especially those with an international presence, were thinking along the same lines.”

In a major research study, he and some colleagues surveyed a large number of Canadian firms in four industries: fabricated metal products, machinery, electrical equipment, and transportation equipment. The purpose of the study was to see how Canadian firms are managing their reverse supply chains, and to identify any emerging patterns.

Firms that retrieve their products have a number of options: low-value recovery, such as waste management and recycling, and high-value recovery, such as reconditioning or re-use. Xerox is a good example of a company that invests in high-value recovery, taking parts from returned photocopiers and using them in new ones.

In one part of the study, soon to be published in Journal of Operations Management, Klassen found that Canadian firms invest significantly more in low-value recovery of their end-of-life products. On average, 48 percent of a firm’s products are recycled, and 34 percent simply disposed as waste. This compares with 13 percent that are reconditioned and 5 percent reused. “Although I had hoped for more high-value recovery, I was pleased to see such a high proportion of recycling,” says Klassen.

The study also found that a large proportion of firms do not take primary responsibility for their returned products when they simply recycle or dispose them. In these cases they generally turn over these activities to an independent third party. By contrast, a firm takes much more control of the process when it reconditions or reuses its products. Says Klassen: “The message to managers is this: as you try to capture more and more value, the likelihood is that you are going to be managing the reverse supply chain, not somebody else.”

The study also looked at linkages between investing in the forward and reverse supply chains. Klassen found that firms who invested heavily in the forward supply chain also tended to invest in recycling and disposal, but not necessarily in high-value recovery. “Managers are not actively thinking about reconditioning or reusing their products, and we feel there are big opportunities here,” he says. “In addition to the environmental benefits, there are competitive benefits because you are capturing some of the value rather than creating it new each time.”

Klassen is now looking at the design practices of firms that focus on high-value recovery of their end-of-life products. This requires a firm, when designing a new product, to think about how it might make use of a part or component in subsequent iterations. For example, a plastic part that wears out quickly might be replaced with a metal part that can be reused a number of times.

Another area of study is to link investments in the reverse supply chain to overall manufacturing performance outcomes. This is a two-stage process, says Klassen. “Our first step is to see how adding more value through the reverse supply chain affects performance outcomes. The next is to see if we can show a three-way linkage between the forward supply chain, the reverse supply chain, and performance.”

Our understanding of the reverse supply chain and its relationship to the forward supply chain is still in its early stages, says Klassen, and companies are just beginning to explore the options. “There is a great deal of uncertainty about how best to manage these issues, but I believe that companies that invest time and effort in the forward supply chain will also enjoy benefits and synergies that emerge from the recovery of their products.”

Robert Klassen is the Hydro One Faculty Fellow in Environmental Management.
 

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