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856. A capacity reservation contract for WEEE reverse supply chains

Invited abstract in session MB-23: Managing product returns, stream Circular Economy, Remanufacturing and Recycling .

Monday, 10:30-12:00
Room: 82 (building: 116)

Authors (first author is the speaker)

1. Jenny Andris
Institute of Management and Economics, Clausthal University of Technology
2. Christoph Schwindt
Institute of Management and Economics, Clausthal University of Technology

Abstract

We consider a reverse supply chain for waste from electrical and electronic equipment (WEEE). In Europe, the manufacturers of EEE products are in charge of collecting WEEE and feeding it back into the production cycle. Manufacturers generally appoint collection companies to assume these duties. According to German legal regulations, the clearinghouse Stiftung Elektroaltgeräteregister EAR continuously allocates returned WEEE to the manufacturers based on their registered sales tonnage. In this talk, we focus on long-term contracting between a collector and a manufacturer. We propose a capacity reservation contract, which protects the collector's investment in capacity extension from the risk incurred by uncertain future order volumes. The contract parameters of the collector, who is in the position of a Stackelberg leader, include the capacity allocated to the manufacturer, the option price, the exercise price upon activation of the option, and the per-unit fee for extra short-term orders placed within the agreed capacity. The manufacturer optimizes the number of options bought subject to an upper bound on the value at risk and accepts the proposal if it provides the reservation utility from competing offers. We show that the contract is guaranteed to coordinate the dyadic supply chain under plausible assumptions. Numerical examples illustrate that the optimal exercise price can be negative, which due to EAR's role as an intermediary, does not impair incentive compatibility.

Keywords

Status: accepted

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