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Organic production systems: an emerging operations strategy?

Author: Demeester, Lieven L. ; Qi, Mei ; Van Wassenhove, Luk N.INSEAD Area: Technology and Operations Management Series: Working Paper ; 2007/39/TOM Publisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 40 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We use a modified optimal market area model to show how supply chains are shaped by complementarities between material recycling, low-cost flexible process technologies, and plants taking advantage of local adaptation and customer proximity. Material recycling can generate substantial savings in material and disposal costs, but creates the need for reverse logistics. The latter are less costly when recycling plants serve smaller market areas and are integrated with production plants. Hence, recycling is more beneficial when combined with small-market-area strategies such as low-cost flexible process technologies, and localization. We examine these complementarities in propositions and demonstrate that, in a realistic example for an engineering plastic in Western Europe, an understanding of these complementarities can make the difference between the continuation of a supply chain without recycling and the emergence of a closed-loop supply chain with recycling, localization, and market areas less than one third their original sizes. Our analysis shows that this combination of features, labeled "organic production", qualifies as a supply-chain-level operations strategy, forms a model for emerging closed-loop supply chains, and, can have important implications for product, operations and supply chain strategies.
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We use a modified optimal market area model to show how supply chains are shaped by complementarities between material recycling, low-cost flexible process technologies, and plants taking advantage of local adaptation and customer proximity. Material recycling can generate substantial savings in material and disposal costs, but creates the need for reverse logistics. The latter are less costly when recycling plants serve smaller market areas and are integrated with production plants. Hence, recycling is more beneficial when combined with small-market-area strategies such as low-cost flexible process technologies, and localization. We examine these complementarities in propositions and demonstrate that, in a realistic example for an engineering plastic in Western Europe, an understanding of these complementarities can make the difference between the continuation of a supply chain without recycling and the emergence of a closed-loop supply chain with recycling, localization, and market areas less than one third their original sizes. Our analysis shows that this combination of features, labeled "organic production", qualifies as a supply-chain-level operations strategy, forms a model for emerging closed-loop supply chains, and, can have important implications for product, operations and supply chain strategies.

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