Cost benefits from standardization of the packaging glass bottles Young Dae Ko, Injoon Noh, Hark Hwang ⇑ Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology, Daejeon 305-701, Republic of Korea article info Article history: Available online 3 December 2011 Keywords: Glass bottle Inventory pooling Reverse logistics Standardization abstract This study deals with a recycling system with two competing brewers. It is assumed that they coordinate their manufacturing operations through standardization of their glass bottles for easy implementation of extended producer responsibility (EPR). Immediate benefits from the standardization are three folds. Firstly, the sorting and exchange processes of the bottles collected for reuse by each brewer become no longer necessary. Secondly, cost reduction is achieved through streamlining of collection and reuse processes. Finally, under the stochastic demand of glass bottles their inventory holding costs and lost sales cost are reduced via inventory pooling. Through the development of the mathematical models we determine an optimal operation policy of the two brewers that maximizes the sum of benefits obtained from standardization. Numerical examples are solved to show the validity of the model. Sensitivity tests are also performed to examine the effects of system parameters on the objective function value and decision variables. Ó 2011 Elsevier Ltd. All rights reserved. 1. Introduction 1.1. Background In classical logistics systems the material and related informa- tion flow are managed in forward direction, i.e., from raw materials to the final products delivered to the customers. In reverse logis- tics, backward flow is managed, i.e., the used and reusable parts and products return from the customers to the producers. In this way natural resources can be saved for future generations and firms can contribute to the sustainable development efforts (Dobos & Richter, 2004). There are several reasons why heightened atten- tion has been paid to reverse logistics in the past decades: Firstly, producers and consumers became more environmentally conscious, and started to realize that it is time to abandon the ‘throw – away age’. Secondly, tighter legislation in some countries forced producers to take back products after use and either recover them or dispose of them properly. Thirdly, some producers realized that recovery operations can lead to additional profits (Teunter & Vlachos, 2002). Extended producer responsibility (EPR) is a strategy designed to promote the integration of environmental costs associated with products throughout their life cycles into the market price of the products. Under EPR, firms are obligated to meet a given take back quota for the end of used products, and certain amount of penalty will be charged if it is breached (OECD, 1999). Fifteen countries in Europe, including Germany, the United Kingdom, France and Hungary, four countries in Asia including Korea, Japan, Taiwan and Australia, and countries in Latin America including Mexico and Brazil, have introduced the EPR system. The number of items that are controlled by extended producer responsibility is increas- ing as the industries become more complex and the laws and regulations on environmental issues are tightened (Ko & Hwang, 2009). Glass bottle, as a representative of packaging materials, is one of the most important items that need to be controlled by EPR legislation. And also, in terms of carbon dioxide (CO 2 ) emission reduction, higher reuse rate of used bottles and more cost-effective inventory policy becomes significant (Hekkert, Joosten, & Worrell, 1998). Recently, seven major brewing companies in Korea standard- ized the shapes and colors of their bottles to avoid the costly sorting and exchange procedures in retrieving empty bottles. They reported that in 2007 alone, about 24 billion glass bottles were standardized, which resulted in an annual cost saving of approxi- mately US 40 million dollars. The standardization also enabled the brewers to enjoy the benefit of inventory pooling, the practice of using a common pool of stock for satisfying two or more sources of random demands. To be more specific, it refers to an arrange- ment in which different companies or stocking points share their inventories and has been proven to be an effective strategy in improving companies’ logistical performances while reducing the total system cost at same time. In this arrangement, lateral trans- shipments are used to satisfy the demand of a company that is out of stock from other company with surplus on-hand inventory. This study is motivated by the experience of the Korean brewing 0360-8352/$ - see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.cie.2011.11.026 ⇑ Corresponding author. Tel.: +82 42 350 3113; fax: +82 42 350 3110. E-mail address: harkhwang@kaist.ac.kr (H. Hwang). Computers & Industrial Engineering 62 (2012) 693–702 Contents lists available at SciVerse ScienceDirect Computers & Industrial Engineering journal homepage: www.elsevier.com/locate/caie