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Recycling is one of the most important sustainable processes to conserve natural resources and convert wastes from landfills and incinerators. During the recycling process, raw materials are retrieved from the end-of-life products and reused in the new ones. In recent years, driven by increasing environmental concerns and regulative mandates, the recycling has been incorporated into a variety of production systems by industrial practitioners. For instance, Xerox utilizes 90% (in weight) of the recycled materials in the production of new toner cartridge (Xeror, 2011). Also, Panasonic has diverted thousands of tons of cathode ray tubes from landfill through recycling programs, and utilizes the recycled glass, metal, and plastics in the new tubes (Ludlum et al., 2011). Furthermore, recycling process has also been considered as a profitable opportunity due to the inherit value of the recycled materials (Geyer et al., 2007; Atasu et al., 2009), and it is estimated that the recycling industry accounts for more than $100 billion in revenue in the United States (US Environmental Protection Agency, 2016a). Hence, there have been increasing interests in improving the recycling process so as to reap the environmental and economic benefits.
One of the most important factors that influences the recycling efficiency is the input of the process, which is the number of end-of-life products available. The acquisition strategies of end-of-life consumer products has been extensively investigated in the context of closed loop supply chains (CLSC) (Savaskan et al. 2004; Atasu et al. 2009), and the key determinant is the investment in collection efforts such as advertisement and educational campaign. However, in the manufacturer-service provider supply chains, since the manufacturer is responsible for the end-of-life management of all the used products, the number of products available is determined by the product life, which is defined as the number of services derived from a unit product by the end of its life. Here a unit service means a quantifiable measurement of the service such as a paper copy in Staples or a load of clothes in a laundry. Given a certain service demand, the longer (shorter) the product life, the fewer (more) end-of-life products available for recycling.
Another important factor that influences the recycling efficiency is the output of the process, which is the fraction of materials that are recycled from a unit end-of-life product (i.e., the recyclability). The recyclability can be improved via technical investments in recycling equipment/facilities. Xerox utilizes the Carbon Dioxide Blasting technology in the recycling processes to enhance the material recovery rate (Xerox, 2005). Toyota setup the copper smelter infrastructure to increase the amount of the shredded residues recycled from end-of-life vehicles (Togawa, 2008).
Given the significance of the recycling process as well as the product life and the recyclability in the process, it is desirable to examine how industrial practitioners' decisions on these two factors are influenced by internal and external conditions such as government subsidies, and what is the corresponding environmental consequence. Furthermore, it is also desirable to investigate how the government policy maker can reduce the environmental impacts via different types of subsidy. Toward these goals, in this paper, for a single product, a series of CLSC models consisting of a manufacturer that produces the products, as well as a service provider that leases these products to serve customers is formulated. Such leasing contracts can be observed in a variety of industries. For instance, Staples leases photocopiers from Xerox and provides coping services to customers; USPS leases mail machines from Pitney Bowes and provides mail services to customers. After the leasing contract expires, the end-of-life products are returned to the manufacturer for recycling process.
Under this modelling framework, critical managerial insights and policy implications can be derived. Specifically, as industrial practitioners, it is optimal to increase both the product life and the recyclability when the disposal cost increases, and to shorten the product life and increase the recyclability when the recycling subsidies increase. Meanwhile, from a government policy maker's perspective, subsidizing the recycling facilities results in less landfill wastes. However, subsidizing the recycled materials may result in more landfill wastes when the subsidy is in a relatively high level, which is against the original intention of reducing the environmental impacts.