Waste converting through by-product synergy: an insight from three-echelon supply chain

By-product synergy (BPS) is an innovative method to convert waste into valuable by-products effectively. Based on a three-echelon supply chain composed of an upstream manufacturer, a processing plant with limited processing capacity, and a downstream manufacturer, this study derives the production quantity and waste disposal decisions of the upstream and downstream manufacturers as well as the optimal transfer price decision of the processing plant. Moreover, we assess the environmental performance of BPS. Analytical results suggest that the upstream manufacturer’s production quantity and waste disposal decisions and the processing plant’s transfer price decision are threshold dependent on the processing plant’s capacity, whereas the downstream manufacturer’s production quantity decision is threshold dependent on the processing plant’s capacity and price of raw materials. BPS is beneficial for all members of the supply chain to increase profit. The production promotion and cost-saving effects ensure that the supply chain members maximize their profit. However, BPS does not always have a positive effect on the environment; when the processing plant’s capacity and price of raw materials are below the threshold, implementing BPS results in a win-win situation of economic and environmental benefits.