Turning Waste into By-Product

Deishin Lee ()
Additional contact information
Deishin Lee: Harvard Business School, Harvard University, Boston, Massachusetts 02163

Manufacturing & Service Operations Management, 2012, vol. 14, issue 1, 115-127

Abstract: This paper studies how a firm can create and capture value by converting a waste stream into a useful and saleable by-product (i.e., implementing by-product synergy (BPS)). We show that BPS creates an operational synergy between two products that are jointly produced. In essence, BPS is a process innovation that reduces the marginal cost of the original product and/or the by-product. The firm creates value through this process innovation and can capture this value by capturing newly created market opportunities, taking market share from competitors, or licensing the innovation to its competitors. We determine the optimal operating and licensing strategies for the firm and find market conditions under which the firm would benefit most from implementing BPS. We show that the optimal operating and licensing strategies are driven by the size of the cost reduction enabled by the BPS process innovation. We also show that leveraging the synergies between the original product and by-product can lead to counterintuitive profit-maximizing operating strategies such as increasing the amount of waste generated, and strategically increasing the quantity of original product above the business as usual production volume. We present a framework for assessing the environmental impact of BPS that incorporates the impact of the optimal operating and licensing strategies.

Keywords: operations management; sustainability; environment; by-product synergy (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://dx.doi.org/10.1287/msom.1110.0352 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:14:y:2012:i:1:p:115-127

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().