Pay‐as‐you‐throw versus recycling fund system in closed‐loop supply chains with alliance recycling

• DOI: http://doi.org/10.1111/itor.12278
• Author: Zu‐Jun Ma,Ying Dai,Shu Hu,Yu‐Sen Ye
• Published date: 01 November 2018
• Date: 01 November 2018

Intl. Trans. in Op. Res. 25 (2018) 1811–1829

DOI: 10.1111/itor.12278

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Pay-as-you-throw versus recycling fund system in closed-loop

supply chains with alliance recycling

Zu-Jun Maa, Shu Hub, Ying Daiaand Yu-Sen Yeb

aSchool of Economics and Management, Southwest Jiaotong University, Chengdu, China

bSchool of Transportation and Logistics, SouthwestJiaotong University, Chengdu, China

E-mail: zjma@swjtu.edu.cn [Ma]; 315929552@qq.com [Hu]; ydai@swjtu.edu.cn [Dai]; mori.ye121@gmail.com [Ye]

Received 16 December 2014; receivedin revised form 28 January 2016; accepted 10 February 2016

Abstract

This paper develops closed-loop supply chain models with alliance recycling under twofinancing systems for

recycling used products,that is, pay-as-you-throw(PAYT) and recyclingfund (RF). The primary goal behind

analytic formulation is to investigate the differences between the two financing systems and determine which

one performs better, and to examine the impact of target recycling rate and competition between recycling

alliances (RAs) on channel decisions. We find that the PAYT system is always more beneficial to customers

and the retailer, while the RF system increases the social welfare. If there is no competition between RAs,

which system performs better for the RA depends on the baseline of subsidyfee, while which system performs

better for manufacturers depends on their shares. However, if there is competition between RAs, the RF

system is favoredby the disadvantaged RA. Moreover,the restriction on target recycling rate has an effect on

channel decisions.

Keywords:closed-loop supply chain; recyclingalliance; pay-as-you-throw; recyclingfund; target recycling rate; competition

1. Introduction

With numerousenvironmental laws and regulationsbeing enacted, many enterprises’ environmental

awareness has increased in recent years. What is more, the activities associated with collecting used

products from customers and disposing of them or reusing them can also be beneficial for the

enterprises. Therefore, more and more enterprises participate in product recycling in pursuit of both

environmental performance and economic benefits.

In practice, several reverse channel structures have been deployed by manufacturers, such as

collecting used products directly from customers and contracting with the retailer or a third-party

collector for the collection of used products (Savaskan et al., 2004). Indeed, it is necessary for large

enterprises to establish their own collection and recycling systems. For example, most of the large

Chinese enterprises that have a presence in the EU market have already found an EU company

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International Transactionsin Operational Research C

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USA.

1812 Z.-J. Ma et al. / Intl. Trans. in Op. Res.25 (2018) 1811–1829

to take back and recycle their e-waste. However, it is also important for enterprises to establish

a take back and recycling of e-waste program through a union (or a united effort) considering

the cost factors. In early 2002, Sony, HP, Electrolux, and Braun-Gillette cooperated in Europe to

establish a producer responsibility organization (PRO; i.e., European Recycling Platform) engaged

in the purchasing, transporting, and recycling of e-waste. It was reported that the cost of recycling

was reduced by 30% to 40% through this cooperative effort (Jin et al., 2007). In 2005, the China

WEEE Recycling Union (CWRU) was established by the China Household Electrical Appliances

Association (CHEAA) by uniting some key exporters of home electrical appliances in China such

as Haier, Changhong, Hisense, TCL, Chuangwei, Skyworth, and Huawei. The CWRU contracted

with Hellmann Process Management of the Hellmann Group in Germany for e-waste take back,

reuse, and recycling in the EU market (Jin et al., 2007). In Japan, the major original equipment

manufacturers (OEMs) of electrical and electronic equipment split into twoconsortia imaginatively

named Group A (21 manufacturers) and Group B (22 manufacturers). These consortia establish

their recycling plants through joint ventures where ownership of each recycling plant appears to be

dominated by one key shareholder with financial contributions from other members in the group

(Dempsey et al., 2010; DTI, 2005). For example, Tokyo Eco Recycle Co Ltd was established in

1999 with a capital investment of 300 million Yen (£1.5 million) from seven shareholders, that is,

Hitachi 48%, Ariake Kogyo 34%, Hitachi Home & Life 3%, Mitsubishi 3%, Sharp 3%, Sanyo 3%,

Sony 3%, and Fujitsu General 3% (DTI, 2005).

Toguarantee the smooth operation of the recycling systems, there are two basic financing systems

for recycling used products, that is, the pay-as-you-throw (PAYT) system and the recycling fund

(RF) system. The former has been carried out in Japan, Austria, Spain, and many communities in

the USA and Canada, while the latter is prevalentin many other regions of the world, such as China,

Taiwan,South Korea, Germany, Switzerland, Netherlands, and Thailand. Under the PAYT system,

the producers are charged for recycling activities according to the recycling amounts. Under the RF

system, however, the producers are responsible for the new products, and thus, they pay an advanced

recycling fee (ARF) to the RF management board (RFMB), and the ARF is then used to subsidize

the recycling activities.These two systems have much in common with the pay-as-you-go system and

the fully funded system of public pensions (Brunner, 1996; Kaganovich and Zilcha, 2012; Guill´

en

and Mosqueda, 2013). The main difference is that a pension fund covers costs after an active life,

while an RF covers costs of handling used goods. The financial problems are similar, however, in

spite of the differences between goods and human individuals (Lidgren and Skogh, 1996).

Given the alliance recycling format and the two financing systems for recycling, our goal in this

paper is to understand the difference between the PAYT system and the RF system in closed-loop

supply chains with alliance recycling. Specifically, we address the following questions:

(1) Which financing system performs better for supply chain members and for the social welfare?

(2) Does the government regulation on the target recycling rate influence the channel decisions in

closed-loop supply chains with alliance recycling under the two financing systems?

(3) What is the impact of competition between recycling alliances (RAs) on the closed-loop supply

chain decisions under the two financing systems?

Some of the key results of this paper demonstrate that in closed-loop supply chains with alliance

recycling, the PAYT system and RF system each have specific characteristics and applicability. The

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2016 The Authors.

International Transactionsin Operational Research C

2016 International Federation of OperationalResearch Societies