Recovery Network arrangements – the WEEE case

Paulina Golinska1Arkadiusz Kawa2,

1 Poznan University of Technology,2Poznan University of Economics,

arkadiusz.kawa@ue.poznan.pl, paulina.golinska@put.poznan.pl

Abstract. The life cycles for electric and electronic equipment get shorter every year. It results in a growing amount of waste which needs to be reused or disposed. Legislative regulations in number of countries oblige the producers to organize the recovery network. Configuration of the recovery network is a complex task due to the big number of relations between reverse supply chain participants. In practice the dynamic changes in recovery network appear very often. The recovery operations follow push logic. The reverse flows are supply driven. Companies have problems to stimulate the time and quantity of re- turns. It is difficult to make planning many weeks in advance because in dynamically changing conditions forecasts quickly become outdated. Authors proposed a model based on graph theory and agent technology that helps to solve this problem by dynamic configuration of reverse supply chains. The simulation results based on proposed model are discussed.

Keywords: recovery network, WEEE, recycling, reverse logistics, software agents

1 Introduction

Electric and electronic equipment’s waste (WEEE) is a big problem in number of well developed countries. The customers exchange computers, printers or servers more and more often. Since 2005, member states of the European Union have begun implementing the WEEE Directive, which requires manufacturers to provide the drop-off points for unwanted electronic devices. The manufacturers might reprocess the WEEE in number of ways. The most typical are: remanufacturing, recycling and redistribution.

The challenge is to reach by reprocessing the “win-win” situation, where both environmental and economic goals are met. The useful life cycle might be prolonged by reselling refurbished equipment, remanufacturing components as spare parts or reclaimed raw materials. The environmental goal is met by efficient reverse flow management. When there is a reduction of the waste amount being disposed. Moreover by computer equipment most of the environmental footprint is cumulated in production phase. Reclaiming of such burns by traditional bulk recycling is impossible [11]. The major of energy is used for production of semiconductors which cannot be reclaimed by recycling. Other recovery options seem to be more appropriate. The other more customized recovery options reprocessing options (e.g.

P. Golinska et al. (eds.), Information Technologies in Environmental Engineering, Environmental Science and Engineering 3, DOI: 10.1007/978-3-642-19536-5_ , © Springer-Verlag Berlin Heidelberg 2011

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refurbishing, remanufacturing, repairs) require better organization of goods collection and their rendering.

Manufacturers meet the need to organize a recovery networks for their products. Recovery networks involve collection of used products from the customers, reprocessing and future redistribution to the market. The customers become re-suppliers. Moreover they drive all the reverse flows of materials. It is difficult to match demand and re-supply in the reverse part of the supply chain.

In this chapter the emphasis is placed on dynamic arrangements within recovery network in order to provide reverse flow of materials that the best match to the demand. The aim is to minimize costs and optimize IT returns’ reprocessing.

The chapter’s structure is as follows, the brief theoretical background is provided in Section 2. Proposed model is presented in Section 3. The simulation experiment and its results are discussed in Section 4. Final conclusions are stated in Section 5.

2 Reverse logistics in computer industry

2.1 Reverse logistics and network configuration

Reverse processes start with all activities rendering used products available and physically moving them to the place of further treatment (collection). The inspection/separation denotes all operations determining whether a given product is in fact re-usable and in which way. It results in splitting the flow of used products according to distinct re-use and disposal options [4]. Reprocessing may take different forms including recycling, repair and remanufacturing. In addition, activities such as cleaning, replacement and re-assembly may be involved. Re-distribution includes all activities needed to direct delivery of re-usable products to a potential market. In this chapter issues related to the redistribution to alternative markets will be ignored. Environmental friendly supply chain management requires a continuous course of actions in order to decrease the environmental impact of products and technology used by a manufacturer and its pre-chain (suppliers) and post-chain (collection, inspection and reprocessing activities).

Reverse processes in supply chain differ from the forward one. It is mainly because reverse materials flow is supply-driven not demand driven. It is difficult to control the timing and amount of returns which are pumped into recovery network by products’ users. Computer companies try to stimulate the reverse material flow by lease programs where return dates are defined. The lease programs are mainly addressed to institutions, individual returns are less coordinated. The return products are refurbished or remanufactured as appropriate, repackaged and resold. Company offers remarketed products for most product types, and follows strict processes to protect user data and to meet environmental requirements.

The following types of return might appear in the recovery network [6]: – end-of-life returns, – commercial returns, – warranty returns, – production scrap and by products,

580 P. Golinska and A. Kawa

– reusable packing material. The flows can differ with quality and, consequently, value, with end-of-life returns and warranty returns being the most valuable. The reasons why companies try to close their supply chain are:

– legislative -strict provisions concerning waste disposal and using non-renewable resources),

– marketing (creating ecological image of a company), – economic (cheaper resources that can be used without influencing quality of a

final product, subventions, preferential tax rates)

Products returned to manufacturer that are not suitable for reuse enter the recycling programs. Consumer recycling services vary by country, depending also on local regulations. Producers make arrangements with commercial customers depending on the equipment involved and the specific circumstances. In order to meet this goal the efficient arrangement of materials flow in recovery network is a must.

2.2Computer Industry Insights

The number of installed PCs worldwide has growth over 1 billion units, according to Gartner, Inc. The analysts estimate the worldwide installed base of PCs is growing just under 12 percent annually. At that pace, it will reach 2 billion units by early 2014.

Computer industry is especially interesting application domain for reverse logistics because of the following characteristics:

– mass production(big materials flow), – short life cycles, – potential for reprocessing.

Many ‘end-of-life’ products are still in good working condition and may therefore find useful application. On the other hand, quick depreciation puts this option under significant time pressure [2].

The environmental friendly practices in computer industry include mainly: – extension of the products useful life when possible through a refurbishing

process, – proper disposal of units that cannot be recovered. – utilization of useful components and materials from recyclable products.

Electronic equipment often contains heavy metals and other hazardous substances, and must be refurbished or recycled properly. E-waste contains harmful elements, including lead, cadmium, mercury, chromium. Governments worldwide are stepping up environmental regulations. On the other side used IT equipment can be a source of valuable resources.

In Europe manufacturers create the European Recycling Platform (ERP) in 2002. Most of the top producers began pursuing environmentally friendly disposal policies long before they were mandated by government regulations. Nowadays the leader in reprocessing practices is HP. The company offers for its customers recycling and reuse programs. HP has aimed to recycle900,000 tones of electronic products and

Recovery Network arrangements – the WEEE case 581

supplies by the end of 2010 (since 1987). In reality 884,000 tones of electronic products and supplies has been recycled. In total, more than 1.07 million tones of electronic products and supplies have been recovered and reused by HP since 1987.A total of 186,000 tones have been reused since 2003.

HP also uses a network of vendors (service providers) to process, resell and recycle return products. The company issues Global Reuse and Recycling Standards which define conditions and requirements for storing, handling and processing returned equipment in ways that prevent from the leak of harmful substances. Nowadays company has in the pool in recovery network about 500 recycling providers’ locations around the world. Institutions providing reuse services for HP products must ensure that those operations occur in on time and secure. The time issue is highlighted by the network configuration. The company tries to limit the storage of goods for recycling ore reuse must not be stored for more than 90 days.

Another example of recovery network configuration is IBM. IBM’s asset recovery assumes priority on reselling equipment as a whole. The products are sold through IBM’s sales network as certified remanufactured equipment. The business partners and brokers are also involved in these operations. For the PC sector, IBM uses a different channel. The products are tested by Global Assets Recovery Services (GARS) and then are auctioned off in large batches to brokers. Overall, IBM is able to resell some 80% of the PCs returned from the business market [8]. The valuable components are delivered as spare parts to IBM’s own service division. In addition, GARS also sells recovered components to external brokers. The remaining equipment is divided into about 50 different material fractions and it sells them to specialized recyclers [8].

A professional asset recovery program provides a good opportunity to find value in older equipment and to enhance the organization’s reputation for environmental friendly institution. Professional recovery companies have specialized skills: logistics (inventory control, transport, storage, etc.), data wiping, equipment refurbishment, resale and environmentally responsible recycling. The example of materials flow (arrows) in holistic (forward and reverse) supply chain is presented in figure 1.

Fig. 1. The recovery network in the computer industry

582 P. Golinska and A. Kawa

The structure of the network presented below (in fig. 2) is typical for the recovery network in the computer industry. The organization of computer production is conducted by Original Equipment Manufacturers (OEM). Flagship Companies (FC) which own such makes as Dell, HP, Apple, Toshiba, Acer control the purchase of key elements for computers for OEM which, in turn, are responsible for buying from third tier suppliers and so on.

Fig. 2. The recovery network in the computer industry

2.3 Previous work

The configuration process is an arrangement of parts or elements that gives the whole its inherent form. The previous work on recovery network configuration has taken in consideration costs of investments or operational costs in order to find the fixed geographical location of new facilities/points for recovery and product collection [e.g. 1, 7]. In the dynamic changing economic environment it is more important to focus on the changes in a system (supply chain) than on its total redesign. On account of a huge number of entities which can take part in a supply chain and the complexity of the relationships between them, the configuration process is multipronged and requires particular attention.

A re-configurable network should be a self-adjusting and resilient system reacting to the changes taking place in its individual parts. In practice, planning product renewal many weeks in advance is hardly effective as in dynamically changing conditions forecasts quickly become outdated. That is why the information about the current network situation must be constantly updated and stored in a place accessible to all the interested parties. Parties involved in the cooperation have their own resources, capabilities, tasks, and objectives so there are difficulties in coordination of the constant flows of information, materials, and funds across multiple functional areas both within and between chain members [9].

Thanks to agent technology and graph theory used in logistics it is possible to depart from fixed supply chains, in which enterprises are dependent on one another, and

Recovery Network arrangements – the WEEE case 583

replace them with dynamic configurable supply chains, including constituents, which offer the best conditions of cooperation at a given moment. The proposed RNA model enables to find the cheapest path with appropriate capacities in the whole recovery network. Therefore, a company being a leader of a recovery network, can satisfy its demand more quickly and propose a competitive price to customers.

3 RNA Model

3.1 Graph Theory in Recovery Network

The RNA (Recovery Network Arrangement) is based on DyConSC model [10] and extended here with the recovery concept. It is mainly aimed at building dynamic and flexible temporary supply chains. Nowadays it is especially important because customer demand, production lines and distribution network frequently change. This model enables each entity of the supply chain to independently adjust their plans in such a way that they become optimal both within one enterprise and the whole supply chain. Such a supply chain may be successfully realized by agent oriented systems.

In the RNA model four tiers of enterprises and one tier (represented by customers) have been distinguished. The first tier is represented by FC followed by OEMs, Vendors and Sub-vendors. For example, OEMs designs and manufactures product for recovery. Vendor provides disposition services of electronic hardware products and materials to or on behalf of FC. It also includes logistics service providers that either provide the processing services directly or through third-party recycling, reuse, or disposal providers. Sub-vendor (any subcontractor or downstream third party) provides disposition services of electronic hardware products and materials to or on behalf of FC’s Vendors. FC provides requirements for recovery. Such an enterprise network comes in the form of a stratified, directed graph consisting of nsources (Sub-vendors) and one sink (FC).

In RNA model goods and information flows take place between consecutive tiers. All goods deliveries are carried out sequentially from the supplier of the last tier to the supplier of the first tier. The information flow is possible thanks to software agents. Autonomous agents representing different enterprises cooperate, co-ordinate and negotiate conditions in order to achieve their common goal.

All supplies are conducted sequentially so no tier can be omitted. As can be seen in the figure 3, a flow (edges) of goods in certain quantities takes place between the entities (nodes) in the recovery network. In such network the cheapest flow with an appropriate capacity is finding [10].

Although it describes the task of linear programming, solving it by general liner programming methods is ineffective due to its network structure. In this case the Busacker-Gowen (BG) algorithm, which is presented in [4] is suitable. This method consists in increasing the flow along consecutive paths augmenting as much as their capacity allows. The order of appointing paths depends on their length which, in this case, is determined by unit costs. If the flow has achieved the defined value, computing finishes. Otherwise, the network is modified and next stages are repeated until the flow of the predefined value is accomplished.

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To find the cheapest chain from the source to the sink the algorithm of finding the shortest paths must be applied. The RNA model has used the BMEP algorithm (see more in [5, 10]).

3.2 RNA Model Assumptions

A given recovery network of enterprises is managed by FC. It controls the whole reprocessing of a product in real time, from the receipt of the returned product through gaining resources necessary for the refurbishment to the delivery of ready (renewed) products to the customer. FC arranges reverse supply chains (materials flow paths) within a given network of cooperation enterprises (potential recovery network). Such chains are created for the needs of a specific transaction evoked by the customer’s demand (e.g. via product return in order to carry out the recovery process). FC is also engaged in the optimization of the already existing “reverse supply chains” and the control of their efficient accomplishment so that the customers’ expectations related to service quality are met and the costs are reduced at the same time. However, the remaining enterprises from the network are directly responsible for the organization and co-ordination of the streams (of goods and information) generated by the suppliers and recipients of the next tier.

The fundamental assumption of the proposed RNA model is form of a stratified, directed graph with individual nodes and edges represented by software agents. A number of additional presumptions essential for correct comprehension and operation of the model have also been distinguished. It is assumed that:

– FC administers a tool which enables to visualize the network composed of all the suppliers and recipients, the relations between them as well as the review of the whole production process.

– All suppliers of the individual tiers have the same or very similar production process.

– FC has access to information about product prices, quality, etc. and supply (production capacity) offered by all members of the enterprise recovery network.

– Customers’ individual return notices are collected and consolidated at specified time intervals (e.g. once a day) and passed on by FC to the right members of the configured supply chain.

– Separate graphs, in which the current connections between enterprises are represented, are built for each collective order.

– A homogeneous Bill of Materials, which provides information necessary to calculate the size of the production and supply order, is used in the whole network. Thanks to that, suppliers of subsequent tiers know what products, semi-products, subsets, individual elements, raw materials and in what quantities to deliver in order to produce a given good[12].

– The realization of the flows between suppliers and recipients may be carried out by the enterprise itself or by an external provider (e.g. a logistics service provider, a courier).

Recovery Network arrangements – the WEEE case 585

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Two other parameters of this network were distinguished: chain-demand and supply-indicator. The first one is a demand of the FC which equals the whole supply chain demand by day. The second one is a factor of the supply changeability of particular entities of the network.

The properties of link agents between constituents were chosen randomly as a pair of cost and capacity. This cost is very widely understood in this paper. It is worth to notice that, generally, sellers give different prices, some of which include other additional costs, but others do not. A lower price is offset by significantly higher acquisition costs such as those of delivery, monitoring, coordination and other administrative tasks[2]. Thus, it is very difficult to compare them with one another. Moreover, the criteria for the choice of the preceding entity may comprise the price, product or service quality, production and delivery time, reliability, customer service, location, etc. In the RNA cost comprised all these components. All of them are quantified and, as a result, can be comparable. We set the cost as a variable between 1.0 and 6.0. In turn, capacity is a variable which depends on the aforementioned supply-indicator.1

Due to the fact that time, or carrying out the recovery on time, to be more precise, is an important parameter, it has been assumed that in a given network there are only such connections between the suppliers of consecutive tiers which can guarantee that the whole operation from the moment of receiving the returned good, through gaining resources, the refurbishment to the product delivery will be completed in 90 days.

In the recovery network we look for such supply chains which meet the requirements and are most effective. In order to find such chains (so the shortest path in the graph), the BG and BMEP algorithms are used. Because the FC demand can be completely or partially satisfied, there can be one or more such chains. Their number depends on the supply and demand changeability.

In order to check the capabilities of recovery supply chain configuration and the effectiveness of the RNA model a lot the simulation experiments were carried out. Their aim was to study how the changes of the node numbers (nodes-num) and supply-indicator influence the average supply chain numbers (sc-num) and the average cost of sending a flow unit along the supply chain (avg-cost) in the recovery network. For multiple runs of the model the BehaviorSpace tool was used which allows collecting data in an external file [10].

For the first group of the simulation experiments it was assumed that supply-indicator = 0.1 and chain-demand = 100002. The number of entities (nodes-num) in a particular tier was changing and consecutively amounted to: 5, 10, 20, 50, 100 and 200 (simultaneously, this number in other tiers was stable and equaled 20). The simulations were run 1000 times for each case. The findings of the experiment show that as nodes-num augments (from 5 to 200), avg-costdecreases by 30% on average, but for OEMs the fall is greatest and reaches 44%(see fig. 3).It can be explained by the following dependency: the more suppliers there are in a given tier, the higher the competitiveness among them is and the lower the prices, the better the conditions of

1It is established according to the following procedure: chain-demand * supply-indicator +

random (chain-demand * supply-indicator). For example, if chain-demand = 10000 and supply-indicator = 0.1, then supply amounts to not less than 1000 and not more than 1999.

2 The total annual reuse of equipment in the HP company amounts to approximately 2,5 million of units per year. We divided this number by 250 working days.

Recovery Network arrangements – the WEEE case 587

cooperation, etc., become for the final customers. The greatest decline of avg-costis observed when nodes-num is increased from 5 to 50 (by 25% on average).Figure 4 also shows that the greater the nodes-num in the vicinity of the FC (so OEMs, Vendors and Sub-vendors successively), the lower the avg-cost.

Fig. 4. Influence of enterprises number change in particular tiers on the average cost of sending a flow unit along a supply chain in the network

Fig. 5. Influence of enterprises number change simultaneous in all tiers on the average cost of sending a unit along a supply chain in the recovery network.

In the next stage, we changed all nodes-nums at the same time and noticed the

greatest decrease of avg-cost when nodes-numrose from 5 to 50 (by 58%), too (see fig. 5). A further modification of this parameter is also beneficial but not to such a large extent. It must be remembered that a big number of suppliers ensures lower product prices for the recipient, guarantees more safety and reduces the risk of production stoppage, but, on the other hand, causes an increase of the servicing costs of such co-operation (maintenance costs of information systems, control, search of supply sources,

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negotiation, establishing the co-operation conditions, audit, etc.). One must not forget about the hidden costs related to a limited number of suppliers, either, such as the cost of lost sales caused by a lack of products or about the fact that liberation from a monopolist supplier is time-consuming. In the case of our recovery network a number of suppliers in individual tiers equal to 50 may be recommended.

In the last part of the simulations, the supply-indicator variable was shifted from 0.1 to 1.0 (consecutively 0.01, 0.05, 0.1, 0.2, 0.5, 1.0), on the assumption that nodes-num is stable and amounts to 20 and chain-demand = 10000.3 The simulations were carried out 1000 times for each case..

Fig 6. Influence of the factor of supply changeability on the supply chains number in the recovery network.

Fig. 7. Influence of the factor of supply changeability on the average cost of sending a flow unit along a supply chain in the recovery network

The results from the experiment show that sc-num falls from 40 to 1 (see fig. 7). It is worth to notice that augmenting supply-indicator ten times (i.e. from 0.01 to 0.1) leads the average supply chain numbers which can satisfy the demand of the FC more quickly

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to plunge from 40 to 13, i.e. by 68%. As a result of the rise of supply-indicator from 0.01 to 1.0, avg-cost comes down from 6.4 to 3.7, i.e. by 42% (see fig. 6). The main conclusion from this part of the simulation experiments is that it is more profitable to cooperate with a trading partner with greater capacities and an ability to offer greater supply. It reduces the number of supply chains

5 Conclusions

Application of the agent technology and graph theory in logistics allows departing from fixed supply chains, in which enterprises are dependent on one another, and replace them with dynamic configurable supply chains, including constituents, which offer the best conditions of cooperation at a given moment. The presented RNA model enables to find the cheapest supply chains with appropriate capacities in the whole enterprise network. Therefore, a company being a supply chain leader can satisfy its demand more quickly and can propose a competitive price to customers.

It is noteworthy that the proposed RNA model offers many benefits for the network of enterprises, its participants and the final customer. Some of the most important ones have been distinguished below: goods flow visualization; fast and easy building of closed-loop supply chains; delivery time, stock and cost minimization. The proposed model allows also: quick identification and elimination of bottlenecks, as well as very quick reception of the returned product, in accordance with the customer’s expectations, at competitive prices. It gives a possibility to build scenarios and carry out simulations independently.

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