Strategic response to EEE returns:

Abstract

In this paper we study how industry should strategically respond to imposed producer responsibility by regulation such as the WEEE-directive. Product eco-design covers both Design for Disassembly and Recovery (DfX) and Product Data Management (PDM). On the process side, X-ray technologies and Post-shredder Separation Techniques (PST) can also improve the overall efficiency of recovery strategies. We revisit the Roteb case on monitors published in some of our previous work and add characteristics to make it up-to-date. We develop four scenarios with each three different information levels on the disassembly Bill Of Material (dBOM) and on return quality, namely perfect information, partial information, and a scenario with no information. For the three information scenarios, we deploy different decision support models, namely an integer program in case of perfect information, a number of decision rules in case of partial information, and a default strategy in case of no information. Within each scenario, we carry out a sensitivity analysis on those operational parameters affected by the strategic choices mentioned. We conclude with recommendations to OEMs on strategic response related to recovery and elaborate on future research using our modeling approach in the EEE and other types of industry.

Introduction

Advances in technologies, shortening life cycles and globalization of economies have led to a massive growth of discarded consumer electronics products. In Europe alone, the annual volume of e-waste (i.e., electrical and electronic waste) generated is estimated around 6–7 million tons per year (Van Wassenhove et al., 2004). As a result, industry is facing governmental regulations in Europe but also in parts of Asia.

The Directive 2002/96/EC (EU, 2003) of the European Union on Waste Electrical and Electronics Equipment (WEEE) imposes on all EU member states to develop legislation based on Extended Producer Responsibility (EPR). EPR makes the Original Equipment Manufacturer responsible for take-back and recovery of returned products. Its main aim is to promote reuse and recycling by imposing collection and recovery quota and to reduce e-waste by enhancing the eco-design of products. Also, certain product recycling information must be made public and product marking must be applied to products new on the market.

This so-called WEEE-directive distinguishes 10 product categories both concerning B2B and B2C markets. For each category, three recovery options are allowed: component reuse, material recycling and incineration (or energy recovery). There are two types of quota defined: the consumer electronics market has to meet a number of targets that define minimum rates, such as minimum rate of recovery of 70–80%, which includes incineration with energy recovery, and a minimum rate of component, material and substance reuse and recycling (represented by so-called weight balances) of 50–70%. In addition, treatment of the collected products is required to remove fractions or groups that contain hazardous materials, such as batteries, printed circuit boards, cathode ray tubes, and external electric cables. The mandatory isolation of (mostly) hazardous contents fixes a minimum degree of disassembly for products containing these substances and also the recovery route is prescribed in detail; see Annex II of the Directive (EU, 2003).

An operational End Of Life (EOL) consumer electronics recovery system should have been ready as of August 13, 2005 (Toffel, 2003, EU, 2003). Although many member states have not met this deadline, there is little doubt that enforcement will become firmer, and that in the long run member states need to comply.

Industry faces a set of complex choices that no doubt will result in costs at the short term. However, pioneering companies have shown that with the right choices, reverse logistics systems can be profitable (Krikke et al., 1999). At least a fraction of the materials in EEE returns have an economic value. For example, the increasing scarcity of raw materials in the global economy has boosted the market value of recycled electronic scrap; see e.g. a ferrous market analysis by Nijkerk (2007). Remanufacturing, i.e., the recovery of components and products into “as good as new” condition, is still limited but in some business cases has proven to be very profitable (Krikke et al., 2003b). It therefore deserves exploration.

In order to comply with the directive, industry needs to develop a product recovery strategy. Such a strategy describes the degree of disassembly to be applied as well as the type of recovery to be applied to the product or its released components. Apart from these decisions, which relate to operations, a product recovery strategy needs to address decisions on the strategic level in order to create opportunities.

The type of strategic choices to be made by industry can be roughly divided into two categories: product eco-design, thereby improving take-back and recovery characteristics of the product, or new advanced process technologies to make the reverse channel more robust, thereby accepting existing design characteristics of the product. A review of research on the engineering aspects of product life cycle management, considering amongst others eco-design, disassembly, and product recovery, is given in the survey paper by Gungor and Gupta (1999).

Product eco-design includes Product Data Management (PDM) decisions, where some kind of hardware is built into the product to store critical parameters throughout the lifecycle. Product data management here involves the capture, storage and processing of data relevant to collection, disassembly and recovery. It is common knowledge that the body of products that are sold and that reside in the market, the so-called installed base, is a “terra incognita” due to a lacking of good product PDM systems.

The need for information management in reverse channels, in particular related to product data, has received considerable attention; see for example (Krikke et al., 2003a, Kokkinaki et al., 2004, Van Nunen and Zuidwijk, 2004). The need for (partial) product data relevant to disassembly and recycling is reflected by the development of “recycling passports”; see for example (Spengler et al., 2003). Return quality can be revealed by monitoring the usage of products. For example, Klausner et al. (1998) describe how a memory chip registers important use related parameters (such as running hours) that are specific for the individual product, and that are used for assessing reparability after return by the customer.

In view of reuse and recycling, products need to be designed such that disassembly and recovery processes are easier to apply. Design for ‘X’ (DfX) stands for reusability at large and focuses on improvements of the product design regarding the end-of-life phase of the product. In view of the WEEE-directive, including potential application of remanufacturing, DfX has a number of aims: (1) to lower disassembly costs, (2) to make material fractions more homogeneous so they can be separated more easily, and (3) design in a modular way and use standardized design.

Recently introduced Post-shredder Separation Technology (PST) no longer requires materials to be separated in uncontaminated material groups so that full disassembly (hence high cost) is not needed. To achieve the highest material recycling rates, full disassembly is often necessary with traditional recycling technology. PST allows products and modules to be shredded as a whole, after which physical separation provides sufficiently pure materials for economically sound reuse. The economic gain is that less disassembly effort is needed, but quality hence revenues may be somewhat less. The key question will be whether or not PST generates sufficiently pure material fractions for recycling as defined by the EU Directive. Interesting from an economic point of view and possibly environment friendly as well, component reuse (as the Directive calls it) is included in the quantitative quota of the EU.

Optimizing product recovery strategies is often hindered by a lack of information on the return flow. New technologies enable efficient information extraction from products such as X-ray equipment that assesses the material composition of returned products (Dalmijn and de Jong, 2006). X-ray primarily focuses on information relevant to disassembly and partially replaces PDM. Using terminology from the survey paper on disassembly sequencing (Lambert, 2003), this paper deals with disassembly on batch or reverse logistics level, and the approach is the hierarchical tree approach. We presume a minimum level of disassembly for the removal of hazardous materials.

In Table 1 we summarize pros and cons of product eco-design and process innovations. Choosing the one or the other or possibly a combination of the two has a major strategic impact. The term dBOM in the table refers to disassembly Bill of Material, to be explained in more detail in Section 2.

To the knowledge of the authors, product eco-design and new advanced process technologies have barely been studied in an integrated way. Krikke et al. (2003b) are among the few who show how product modularity and the process recovery options should be considered concurrently. This lack of attention may be caused by the fact that product and process improvements are studied in different (academic) disciplines and that they are managed by decision makers that are often found in separate roles in the supply chain. Nevertheless, as this paper shows, an integrated approach is rewarding, as these two types of innovations may interfere.

In this paper, we compare the two types of possible industry responses to the WEEE-directive or similar situations facing massive EEE returns. In Section 2, we develop an integer program and a decision scheme that can be used to determine recovery strategies under different levels of information. In Section 3, we apply the decision models to a case on the recycling and remanufacturing of computer monitors. We develop scenarios taking into account different levels of product information, as obtained by different PDMs or the application of X-ray, and in which we compare the introduction of DfX versus the use of PST. For each scenario, a sensitivity analysis is carried out to test the impact of external factors like return quality and (increasing) EU recovery quota. In Section 4, we discuss the results of the scenario analyses. We also discuss whether or not innovations in product eco-design and recovery process technologies are mutually exclusive. In Section 5, we formulate our conclusions and recommendations, and discuss possibilities to generalize the modeling approach.