Generating servicizing strategies for sustainable supply chains

Abstract

As a result of technological developments, life-cycles of products have significantly decreased in industrialized countries resulting in a vast increase in waste and a decrease in natural resources. Consequently, various initiatives are taken by governing bodies to encourage supply systems to adopt environmentally sustainable practices. Many companies have reformed their business strategies to include product recovery activities in order to achieve sustainable development. Yet product recovery is not adequate to form a closed loop supply chain that minimizes the environmental impact in the long run. Hence supply systems have to incorporate servicizing based on providing functionality of products rather than product ownerships to achieve a truly closed-loop supply chain. Product recovery processes such as reuse with small repair, refurbishing and remanufacturing are very promising strategies in a sustainable world, due to their profitability and green properties. Yet in these systems uncertain timing, condition and quantity of returns complicate balancing returns with demands. In servicizing systems, uncertainties are eliminated by leasing products since manufacturers monitor and maintain the leased products and take back their products at the end of the leasing period. Servicizing systems have different structures for different industrial sectors. This fact affects all decisions in a servicizing strategy. Two most important decisions are the durability of the products and the decision of when to give up leasing and sell the product as a remanufactured good. In our study, we are trying to determine optimal durability and optimal number of times a product is leased with respect to total profit. To this end, we formulate a maximization function that characterizes the relation between design factors and leasing parameters.