Why Do Companies Need Operational Flexibility to Reduce Waste at Source?

Yara Kayyali Elalem, Isik Bicer and Ralf W. Seifert
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Yara Kayyali Elalem: College of Management of Technology (CDM), École Polytechnique Fédérale de Lausanne, CH-1015 Lausanne, Switzerland
Isik Bicer: Schulich School of Business, York University, 111 Ian MacDonald Blvd, Toronto, ON M3J 1P3, Canada
Ralf W. Seifert: College of Management of Technology (CDM), École Polytechnique Fédérale de Lausanne, CH-1015 Lausanne, Switzerland

Sustainability, 2021, vol. 14, issue 1, 1-15

Abstract: We analyze the environmental benefits of operational flexibility that emerge in the form of less product waste during the sourcing process by reducing overproduction. We consider three different options for operational flexibility: (1) lead-time reduction, (2) quantity-flexibility contracts, and (3) multiple sourcing. We use a multiplicative demand process to model the evolutionary dynamics of demand uncertainty. We then quantify the impact of key modeling parameters for each operational-flexibility strategy on the waste ratio, which is measured as the ratio of excess inventory when a certain operational-flexibility strategy is employed to the amount when an offshore supplier is utilized without any operational flexibility. We find that the lead-time reduction strategy has the maximum capability to reduce waste in the sourcing process of buyers, followed by the quantity-flexibility and multiple-sourcing strategies, respectively. Thus, our results indicate that operational-flexibility strategies that rely on the localization of production are key to reducing waste and improving environmental sustainability at source.

Keywords: sustainability; sourcing; operational flexibility (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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