strategic decision-making problems specific to circular businesses need be considered in achieving an optimal supply chain.
4 Key Logistics Strategic Decision-Making Problems
in a Circular Economy
The optimal supply chain network configuration for circular products requires
companies to consider their positioning on the following three strategic decisionmaking problems:
1. Centralized versus decentralized production and logistics
2. Product-oriented versus service-oriented sales
3. Coordinated versus collaborative organization
Each of the three strategic decision-making problems is explained in the following subsections.
4.1 Centralized Versus Decentralized Production
and Logistics
The centralized production or processing of materials, whether that be for forward
logistics (supply new products to customers) or reverse logistics (collecting used
products), is generally more efficient than smaller decentralized facilities.
Depending on the type of processing technology required, a larger facility that
handles more product has lower start-up or fixed costs than multiple facilities
handing the same quantity of product. The efficiency achieved with larger facilities
can be described as economies of scale. Larger facilities with larger throughput allow
for gains in economic efficiency by decreasing average total costs per unit produced
in the long run. The gains in efficiency are due to greater labor and managerial
specialization as well as allowing assets like machinery to be utilized continually, as
opposed to intermittently or lying idle. Large-scale production also allows for bulk
purchasing of inputs, which also reduces average total costs per unit.
The greater efficiency of centralized processing and production, as opposed to
smaller-scale decentralized production, comes at the cost of a more sparsely distributed network and therefore greater transport costs. For example, having multiple
warehouses in a decentralized network, as opposed to a single warehouse in a
centralized network, from which to distribute products to retail outlets in a city,
reduces the transport distances between the warehouses and the retail outlets. The
same principle applies to processing facility for the reserve flow of products. A
single biogas plant, invariably, requires greater transport distance than a more
distributed or decentralized network of smaller digesters. Designing the optimal
8
A. Beames et al.
4 Key Logistics Strategic Decision-Making Problems
in a Circular Economy
The optimal supply chain network configuration for circular products requires
companies to consider their positioning on the following three strategic decisionmaking problems:
1. Centralized versus decentralized production and logistics
2. Product-oriented versus service-oriented sales
3. Coordinated versus collaborative organization
Each of the three strategic decision-making problems is explained in the following subsections.
4.1 Centralized Versus Decentralized Production
and Logistics
The centralized production or processing of materials, whether that be for forward
logistics (supply new products to customers) or reverse logistics (collecting used
products), is generally more efficient than smaller decentralized facilities.
Depending on the type of processing technology required, a larger facility that
handles more product has lower start-up or fixed costs than multiple facilities
handing the same quantity of product. The efficiency achieved with larger facilities
can be described as economies of scale. Larger facilities with larger throughput allow
for gains in economic efficiency by decreasing average total costs per unit produced
in the long run. The gains in efficiency are due to greater labor and managerial
specialization as well as allowing assets like machinery to be utilized continually, as
opposed to intermittently or lying idle. Large-scale production also allows for bulk
purchasing of inputs, which also reduces average total costs per unit.
The greater efficiency of centralized processing and production, as opposed to
smaller-scale decentralized production, comes at the cost of a more sparsely distributed network and therefore greater transport costs. For example, having multiple
warehouses in a decentralized network, as opposed to a single warehouse in a
centralized network, from which to distribute products to retail outlets in a city,
reduces the transport distances between the warehouses and the retail outlets. The
same principle applies to processing facility for the reserve flow of products. A
single biogas plant, invariably, requires greater transport distance than a more
distributed or decentralized network of smaller digesters. Designing the optimal
8
A. Beames et al.