The Manufacturer's Optimal Waste-disposal Policy Considering By-product Encroachment
By-product synergy(BPS)is a new and environmentally friendly way to process wastes in practice.A third-party processor with the BPS technology can help a manufacturer reduce the waste-disposal cost.However,the processor can convert wastes into useful commodities,which may have a weak substitution effect on the manufacturer's prime product(i.e.,a low-quality substitutable product).Considering the opposite two effects:the by-product encroachment effect brought by the BPS technology and the manufacturer's waste-disposal cost reduction effect,a manufacturer's optimal decisions(i.e.,the prime product's production quantity and waste-disposal policy)and a downstream processor's optimal by-product production decision are analyzed.Consider a supply chain comprising an upstream manufacturer and a downstream waste processor.The manufacturer generates wastes in the prime production process.The processor with the BPS technology needs to purchase wastes at a unit wholesale price from the manufacturer and convert them into saleable by-products.The by-product has a lower quality than the prime product and can't completely substitute the prime product.The interactive decisions between the manufacturer and the processer in a Stackelberg game are analyzed with the manufacturer serving as the leader.Firstly,the manufacturer determines the production quantity of the prime product and the wholesale price of wastes.Then the processor decides the by-product's production quantity and these products are sold in the market thereafter.A backward induction method is used to solve this problem.The main results are as followings:a)The processor will buy all wastes when the wholesale price is relatively low and withdraw from the market when the wholesale price is relatively high.When the wholesale price is medium,the processor will buy only partial wastes.b)The manufacturer's waste-disposal policy depends on the prime product's production quantity.When the quantity is relatively low,the manufacturer focuses more on the waste-disposal cost reduction.He will choose to sell all wastes to the proces-sor(strategy F).When the quantity is relatively high,the manufacturer is willing to mitigate the competition in the market and don't sell wastes to the processor(strategy N).However,if the quantity is medium,the manufacturer will sell a part of wastes(strategy P),which trades off the waste-disposal cost reduction and the competition effect caused by the by-product encroachment.c)The prime product's production decision depends on the processor's waste processing cost.When the BPS technology is not mature and the cost is high,the manufacturer doesn't sell wastes to the processor because he is worried more about the intensive competition brought the by-product encroachment.With the improvement of BPS technology,the manufacturer begins to accept BPS and is willing to use the technology to reduce the cost.Therefore,the proportion of wastes sold to the processor gradually increases.Our research enriches the theory of BPS operations and the findings can help managers to better understand the interactive decisions of decentralized supply chains with the BPS Technology adoption.
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