Date of Degree
Dissertation - Open Access
Doctor of Philosophy
James Worth Bagley College of Engineering
Department of Industrial and Systems Engineering
Companies are no longer judged on financial performance alone, but rather on their “Triple-Bottom Line”, which accounts for social and environmental measures as well. This leads companies to investigate the sustainability of their operations and their products. Between the increasing cost of virgin raw materials and customers demanding post-consumer product content, manufacturers have begun looking at recycled material options. This paper addresses a procurement issue facing a polystyrene packaging manufacturer considering its optimal purchasing strategies between two suppliers – one providing virgin material, the other offering recycled material. A single-period scenario is modeled where each supplier sells product with a known yield distribution at market pricing. The manufacturer must choose whether to sole-source or dual-source, as well as determine how much material to purchase from each supplier to meet deterministic demand. Our results indicate that there is a range of prices from the recycled material supplier where dual-sourcing will lead to higher manufacturer profits compared to sole-sourcing. We show, based on the procurement strategy, the optimal quantities to purchase to maximize manufacturer’s expected profit. We then investigate the area of supplier development and how the manufacturer can improve their expected profit by investing in their supplier’s quality improvement effort. The questions addressed are how much the manufacturer would be willing to invest and how they ensure the proper return on their investment. This paper determines the expected increase in profit for the manufacturer from yield improvement projects at a supplier, which therefore becomes the upper threshold for investment. We also find that a company can err in their project acceptance criteria if they have an approval process that views project acceptance myopically rather than holistically. Lastly, we develop a systematic and comprehensive approach to the supplier selection process. We utilize the fundamental concepts behind W. Edwards Deming’s Plan-Do-Study-Act improvement cycle and apply them to the supplier selection process. We also present analytic and numerical study results that can be used in conjunction with contractual mechanisms to not only overcome issues such as free riding, but to also incentivize suppliers to engage in supplier development projects they may not have otherwise undertaken.
Rowe, Paul David, "Recycling Procurement Strategies with Variable Yield Suppliers" (2014). Theses and Dissertations MSU. 3743.