European Journal of Operational Research 223 (2012) 585594

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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Invited Review

Research advances in environmentally and socially sustainable operations

Christopher S. Tang a,,1, Sean Zhou b,c
a

UCLA Anderson School, 110 Westwood Plaza, Los Angeles, CA 90095, USA
Department of Decision Sciences and Managerial Economics, CUHK Business School, The Chinese University of Hong Kong, Hong Kong
c
Department of System Engineering and Engineering Management, The Chinese University of Hong Kong, Hong Kong
b

a r t i c l e

i n f o

Article history:
Received 24 October 2011
Accepted 25 July 2012
Available online 5 August 2012
Keywords:
Environmental responsibility
Social responsibility
Sustainability
OR/MS models

a b s t r a c t
Consumers and governments are pressuring rms to strike a balance between protability and sustainability. However, this balance can only be maintained in the long run if the rm can take a holistic
approach to sustain the nancial ow (prot), resource ow (planet) and development ow (people)
for the entire ecosystem comprising poor producers in emerging/developing markets, global supply chain
partners, consumers in developed countries, and the planet. By considering the ows associated with different entities within the ecosystem, we classify and summarize recent Operations Research/Management Science (OR/MS) research developments. Also, we identify several gaps for future research in this
important area.
2012 Elsevier B.V. All rights reserved.

1. Introduction
Since the early 2000s, three major forces are pressuring rms to
pay attention to the triple bottom line: prot, people and planet
(Elkington, 2002). First, with rapid global economic development
in the past century, the demand for natural resources (clean water,
crude oil, woods, metals, etc.) continues to rise (especially in countries such as India and China), whereas the supply of these natural
resources continues to diminish. Meanwhile, the economic activities have generated and will continue generating vast wastes and
pollutants to the environment (electronic wastes, waste water,
greenhouse gas emissions, etc.). Being aware of the seriousness
of this issue, many countries/organizations have enacted and
implemented regulations and legislations to force companies to
become more environmentally responsible. For example, to reduce
electronic wastes, the Europe Union (EU) enacted the waste electrical and electronic equipment (WEEE) directives in 2003 that set
collection, recycling and recovery targets for all types of electrical
goods. The reader is referred to Atasu and Van Wassenhove (2010)
for a comprehensive review on product take-back legislation. On
the other hand, greenhouse gases have been considered as a major
cause of climate change and global warming. To reduce greenhouse
gas emissions, the Kyoto protocol was adopted in 1997 under
which most developed countries agreed to legally binding targets
for their emissions of the six major greenhouse gases. As such,
the EU designed and implemented an emissions trading (or
Corresponding author. Tel.: +1 310 825 4203.
E-mail addresses: zhoux@se.cuhk.edu.hk (C.S. Tang), chris.tang@anderson.ucla.edu (S. Zhou).
1
http://www.anderson.ucla.edu/x980.xml.
0377-2217/$ - see front matter 2012 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.ejor.2012.07.030

cap-and-trade) mechanism to provide incentives for companies

to invest in clean technologies and curb their emissions. A similar
trading program for reducing sulfur dioxide emission has also been
implemented under the acid rain program in the US.2 Due to the
challenges of coordinating the complex trade-offs between
economic, environmental, and societal factors, it is expected that
government regulations and legislations will continue to play a very
important role in pushing sustainable businesses activities.
Second, as western companies outsource or off-shore their
manufacturing operations to developing countries, consumeradvocacy groups have raised concerns about various unethical
practices. This awareness can certainly impact consumers purchasing behavior, which exerts pressure for companies to pay more
attention to social responsibility. Companies such as BP and Nike
have learned the hard way that public image related to environmental and social responsibility issues can directly affect their
protability. Meanwhile, with more consumers willing to pay more
for products they perceive as environmentally friendly, companies
could design and use sustainable attributes of their product to gain
competitive advantage in the markets, in particular, as more attentions are being paid to the programs such as Eco-Label program in
the EU. Moreover, the government is pushing the private sector
companies to help by way of social innovation (e.g., the Big Society initiatives in the UK, and the Ofce of Social Innovation in the
US). The reader is referred to Sodhi and Tang (2011a) for details.
Third, with growth slowing in developed countries, western
companies from the fast-moving consumer goods and other sectors are seeking to expand in emerging economies in Africa, Asia

http://www.epa.gov/capandtrade/.

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C.S. Tang, S. Zhou / European Journal of Operational Research 223 (2012) 585594

Fig. 1. The PPP ecosystem: prot, planet, and people.

and South America with the next billion [consumers] as their rallying cry (Prahalad, 2004). However, these companies face not only
entrenched local competition and local concerns (over environmental and social issues) but also supply-chain constraints that
hamper growth in these countries. In addition, the consumer activists and the media put pressure on these companies to become
more socially and environmentally responsible. According to Paul
Polman, CEO of Unilever, A companys contribution to society is
absolutely critical in todays environment. It is very clear that this
world faces some considerable challenges: poverty, water, global
warming and climate change. Businesses like Unilever have a
responsibility here and thus a major role to play.3 Therefore, in order to sustain future growth in revenue, companies need to develop
the emerging market so that the poor producers can become their
consumers in the future. To do so, companies need to help the poor
to break the poverty cycle.
To achieve the planet and people goals quickly, many rms often use piecemeal solutions that can cause unintended consequences. As articulated in Lee (2010), without thinking about
their suppliers survival, some companies simply ask their suppliers to use eco-friendly materials and to reduce carbon footprint
by moving closer to the end markets. Instead, Lee (2010) presented
a case study of Esquel (a cotton shirt manufacturer based in Hong
Kong) and showed how this company achieved the triple bottom
line by making structural changes to the entire supply chain: from
the development of raw materials (cotton) to the distribution of
products. We will use a PPP eco-system depicted in Fig. 1 to discuss
the elements and ows involved in a companys business activities
related to the triple bottom line.
1.1. The PPP ecosystem (prot, planet, and the people)
To explore different ways for achieving multiple goals, let us
view the society and the planet as an ecosystem comprising producers, supply chains (network of companies), consumers, and planet, which we depict in Fig. 1.4 Note that although not explicitly
included in Fig. 1, government is actually omnipresent in the
ecosystem because it plays a signicant role in developing public
policies and creating incentives for companies and consumers to
3
Social Enterprise. Future Perfect? Critical Eye article, December 2010, downloaded 28th December 2010 from http://www.criticaleye.net/insightsservle.cfm?id=2502.
4
For interpretation of color in Fig. 1, the reader is referred to the web version of
this article.

become more environmentally and socially responsible. For example, the trade/tax policy affects the supply chain ow (blue), the government rebate/refund policy and regulations provide incentives for
recycling, remanufacturing, emissions reduction, etc. (green), and
the government policy can create incentives for companies to set
up operations in rural areas so as to develop the emerging market
creating new jobs, alleviating poverty, and generating new consumers (red).
As shown in Fig. 1, our PPP ecosystem is comprised of ve core
elements and various ows that can be described as follows. First,
the consumers form the market for the products designed, produced, and distributed by producers and different partners of the
supply chain. Essentially, the consumers can play a critical role in
forcing companies to pay attention to the planet and people goals.
Given the demand generated by the consumers, each supply chain
partner uses natural resources (water, energy, woods, metals, land
use, etc.) and employs producers (all workers in the supply chain,
including those poor workers in emerging markets) to produce and
distribute the products to consumers in different geographical regions. In this ow, each supply chain partner takes part in all kinds
of business activities, makes various decisions, from strategic to
operational, and incurs costs and revenues with an aim to maximize their prot. This ow is depicted by the blue arrows in
Fig. 1. However, as the producers, supply chain partners (e.g., factories, logistic providers, and retailers), and consumers consume
natural resources, their activities inevitably generate wastes and
emissions (solid wastes, toxic wastes, air pollution and water pollution) that play havoc to the entire planet (the green arrow). In order to minimize the negative impact on the planet, they need to
take into account the environmental factors (consume less natural
resources, dispose of fewer wastes, generate fewer greenhouse
gases) in their decision-making and daily operations. Finally, while
Prahalad (2004) suggested that large multi-nationals can grow
their businesses by selling to an untapped market of over 2 billion
people at the bottom of the pyramid with per capita income below $2 per day, Karnani (2007) presented counter-arguments
against the selling to the poor idea. Moreover, Karnani proposed
that, in order to generate new revenue growth (economic growth),
companies (governments) need to develop the emerging market by
helping the poor producers break the poverty cycle now so that
they can become consumers later (the red arrow).
After examining the ows among these ve core elements in
the ecosystem depicted in Fig. 1, we can gain a better understanding about the interactions among the triple bottom line measures.

C.S. Tang, S. Zhou / European Journal of Operational Research 223 (2012) 585594

First, as most companies are prot-driven, they can become more

protable if they can develop ways to: (1) reduce cost by improving its supply chain operations and/or (2) demand a higher price,
capture a higher market share, or create a new market for their
products/services by creating new values (i.e., remanufacture/recycle, eco-friendly, ethical, socially responsible, etc.). In fact, companies can improve protability by designing and producing
products in an environmentally and socially responsible manner.
For example, by collecting and remanufacturing used cell phones,
OEMs cannot only reduce wastes but also generate additional profit by selling them in emerging markets. Second, to achieve protable growth, a company should cultivate future consumers in
developing and emerging markets especially when the western
markets are getting saturated. For example, companies such as
Nestl, Proctor and Gamble, Unilever have launched various rural
development initiatives to achieve the people goal by helping
the poor to break the poverty cycle. When the poor as producers
become the poor as consumers, these companies can achieve
their prot goals as well. Therefore, companies can achieve all
three goals simultaneously by stimulating the ows within the
ecosystem as shown in Fig. 1.
1.2. Scope and methodology of review
By examining various issues in the ows associated with different players in the ecosystem, we review the recent OR/MS research
developments in the following way. At an aggregate level, we classify the papers based on whether a strategic level or an operational
level issue/question in a rm/supply chain is investigated. At a
more detailed level, we classify the works according to the specic
issues and research questions they aim to address, for example,
product design. Detailed classication will be presented in Section 2. Recognizing the literature is vast especially in the area of
closed-loop supply chain,5 we shall mainly review the most recent
research that examines environmental sustainability and/or social
responsibility issues. In particular, we focus on papers in OR/MS area
that develop and analyze quantitative models to address such issues.
Therefore, the related empirical research, reviews, and case studies
will not be the focus of this review. And we will also identify and discuss research opportunities in this area.
This paper is organized as follows. In Section 2, we present a
framework that covers and classies the planning issues we will
review, which are based on the ecosystem that illustrates the relationship between the triple bottom line and the ows associated
with different players in the ecosystem. Then based on the
classication, we summarize recent OR/MS research efforts in Section 3. Section 4 concludes this paper with future research
opportunities.
2. Framework and classication of the literature
In this section, we present the categories of arising planning issues and questions in the ows we described in the previous section with regard to environmentally and socially sustainable
supply chains.
We start with product design. Product design largely determines the product-related environmental impacts and so it is
important to design a product that meets the needs of society
and balances economic and environmental interests. While more
companies are developing products with the triple bottom line in
mind, it remains to be a nascent research area in the OR/MS
5
The reader is referred to Dekker et al. (2004), Kleindorfer et al. (2005), Atasu et al.
(2008b), Guide and van Wassenhove (2009), and Ferguson and Souza (2010). for
comprehensive reviews on closed-loop supply chain research.

587

literature (Agrawal and Toktay, 2010). Some plausible reasons

are as follows. First, while there are clearer denitions for environmental sustainability (e.g., ISO 14000), there is no consistent measure for social responsibility despite the newly established
guidelines ISO 26000 (c.f., Bloemhof and Corbett, 2010). Second,
it is challenging to measure a products environmental and societal
aspects and their values to companies. Third, there are conicting
economic, societal, and environmental factors and objectives of
different partners along with supply chains. Skerlos et al. (2005)
provided an excellent discussion on various challenges to sustainable product design from business incentives and inhibitors to sustainable design process and metrics. Two cases are presented to
highlight specic trade-offs that arise in sustainable product design. The studies on sustainable product design will be reviewed
in Section 3.1.
The next issue is on technology selection in production processes. Manufacturers are facing trade-offs of costs and environmental and societal factors when choosing production
technologies. For example, using a dry or wet pyro-process in cement production incurs different costs and emissions (Choate,
2003). And natural gas is more expensive than coal but cleaner
when generating a same amount of energy. Choices of the production technologies also affect the remanufacturability of the returned products that greatly affect not only the efciency and
protability of remanufacturers but also the amount of wastes
generated. We will discuss the related literature in Section 3.2.
Reverse logistics plays an important role in sustainable operations because it can simultaneously create market opportunities
while addressing signicant environmental problems. It includes
various strategic issues such as incentives for collection and recycling, cannibalization issues between new and remanufactured
products, market competition between OEM companies and third
party remanufactures. On the other hand, day-to-day operations
of a reverse logistics system such as production planning and
inventory management could be quite different and more complicated than a traditional forward supply chain and so require new
ideas and insights. In Sections 3.3 and 3.6 we will review the studies on strategic (mostly static models) and operational level
(mostly dynamic models) issues related to reverse supply chain,
respectively.
Another critical strategic decision that could balance a companys protability and its environmental impacts is the structure
of distribution and transportation networks of its supply chain.
Supply chain network provides the infrastructure for the production, storage, and distribution of the companys products and thus
shapes largely the companys overall environmental performance.
Meanwhile, efciency of closed-loop supply chain management relies upon an appropriate logistics structure to support product return and collection operations. An efcient reverse logistics
network could help reduce costs and improve the protability of
remanufacturers and so provides more incentive for them in collecting and remanufacturing more used products. This stream of
research will be reviewed in Section 3.4.
Finally, we will discuss the studies on what and how companies
operational decisions such as manufacturing, inventory control,
logistics and distributions are integrated with environmental and
societal factors. For example, under certain emissions regulation
scheme, how should a manufacturer adjust its original production
planning strategy to comply with the regulation and stay efcient?
We have seen increasing OR/MS research addressing these issues
and we will review them in Section 3.5.
In summary, Section 3 will consist of two main parts, each of
which focuses on the issues that affect the planet and people
goals. The rst part (Sections 3.13.4) deals with various strategic
issues ranging from product design to supply chain design. In the
second part, we rst examine different operational issues ranging

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from manufacturing, inventory control, to logistics and distribution in Section 3.5, and then we discuss the operational issues arising from the reverse supply chains in Section 3.6.

3. OR/MS models of environmentally and socially responsible

operations
3.1. Product design
Product design is an important instrument of sustainable development, whereas the related OR/MS research is rather limited. In
the context of remanufacturing, the optimal product design
would depend on economic and regulatory factors. Subramanian
et al. (2009a) examined the impact of the Extended Producer
Responsibility (EPR) on product design. Specically, they developed a model that incorporates two key product-design related
decisions: (a) performance environmental impact of the product
during use and (b) remanufacturability environmental impact of
the product post-use. By considering two possible customer types,
Subramanian et al. (2009a) determined the optimal product-design
decisions and demonstrated how nancial charges during use and
post-use can be used as levers to entice rms to design eco-friendly
products. In a similar spirit, Plambeck and Wang (2009) examined
the impact of the EPR on new product introduction and design for
remanufacturability. Two different e-waste (electronic waste) regulations: fee upon sale and fee upon disposal are considered.
The former regulation has been implemented in the form of Advanced Recovery Fee in California under which every customer
pays an additional fee when buying an electronic product so that
the state can generate funds for collection and recycling of the used
electronics. The latter regulation has been implemented in Japan
under which each manufacturer is responsible for collecting and
processing its own products at the end of their life. By analyzing
a duopoly model in which each rm chooses the development time
and expenditure of the new product, they showed that, in equilibrium, the fee upon sale regulation discourages manufacturer to
design new products that are remanufacturable. However, while
the fee upon disposal regulation does encourage design for
remanufacturability, it forces manufacturers to introduce new
products too rapidly, which generates more e-waste.
Krikke et al. (2003) presented a model that integrates product
design and closed-loop supply chain design. Three potential designs of a refrigerator and different congurations of a closed-loop
supply chain are considered. With an objective function that combines the cost and environmental impacts (energy and waste),
they formulated the model as a mixed-integer linear program
and illustrated their analysis by considering the product and supply chain design of a refrigerator. In essence, this model is suitable
for evaluating different potential product designs and different
supply chain congurations, but it is not intended for decision
making during the early stage of the product design process.
Subramanian et al. (2009b) examined the impact of a rms
remanufacturing operations on its component commonality decision. They showed that commonality decision depends on the
remanufacturing decision during the product design phase and
the customers perceived quality between the new and remanufactured components.
Very few papers discuss other green product design issues than
those related to product remanufacturability. By viewing the
green feature of a product as one quality attribute, Chen (2001)
developed a quality based model for analyzing the strategic and
policy issues concerning the development of products with conicting traditional and environmental attributes. Customers preference towards green products is modeled and producers
strategic decision regarding the number of products introduced

and their selling prices and quantities are analyzed. Kim and
Chhajed (2002) derived a measure of multi-dimensional customer
preference and offered insights into the optimal product design
when considering multiple quality dimensions. They showed that
single-product offering strategies are never optimal in the setting.
Krishnan and Zhu (2006) considered development intensive products for which the xed costs of development far outweigh the
variable costs and showed that the traditional approach to product-line design developed for variable cost-intensive products
does not carry over. Whitefoot et al. (2011) developed a
consequential life cycle assessment (cLCA) with endogenous market-driven design (MDD). cLCA-MDD captures the environmental
impact of the design responses resulting from industrial and
policy decisions. A case study is used to show that how design responses can be endogenously captured in a cLCA analysis. Whitefoot and Skerlos (2012) studied an oligopolistic-equilibrium
model in which automotive rms can modify vehicle dimensions,
implement fuel-saving technology features, and trade off acceleration performance and fuel economy. They analyzed the impact of
the US Corporate Average Fuel Economy (CAFE) standards and
showed that the foot-print based CAFE standards create an incentive for rms to increase vehicle size except when consumer preference for vehicle size is near its lower bound and preference for
acceleration is near its upper bound.

3.2. Technology selection

With more stringent regulations and consumers awareness on
environmental protection and corporate social responsibility, companies should no longer simply choose the technology/process
with the lowest cost without carefully considering its environmental/societal factors. Stuart et al. (1999) developed a mixed integer
programming model to select product and process alternatives
while considering tradeoffs of costs, yield, reliability, and environmental impacts. Constraints for environmental impacts such as
material and energy consumption, process waste generation were
modeled explicitly. The model and solutions were further applied
to an electronics assembly case. Drake et al. (2010) studied a rms
technology selection and capacity investment decisions under both
emissions cap-and-trade and emission tax regulation. They characterized the solutions and identied the conditions under which the
rm should choose both technologies, and when it should just
choose one. Numerical studies revealed that the expected prots
of the rm are higher and the expected emissions are less under
cap-and-trade, while the expected production is greater under an
emissions tax.
When developing a remanufacturing strategy, there are instances in which a rm can make upfront technology investment
that would increase the likelihood that the returned used product
is remanufacturable. Debo et al. (2005) developed a model to
examine the conditions under which a rm should invest in technology for remanufacturing. By imposing a constraint that the supply of remanufactured product at any point in time is limited by
the past sales of new product, they formulated the problem as an
innite-horizon dynamic program to determine the technology
for remanufacturing and the prices of the new and remanufactured
products. They showed that investing in remanufacturing is more
protable when there are more low-valuation customers. Also,
they examined the impact of the cost structure, consumer preferences, and industry structure on the protability of remanufacturing. For example, consider the case when the rm increases the
selling price of the new product. It was shown that, while the prot
margin for the remanufactured product would increase, the supply
of remanufactured product would decrease because of the decreased sales of the new product.

C.S. Tang, S. Zhou / European Journal of Operational Research 223 (2012) 585594

3.3. Strategic issues in remanufacturing

As companies are paying more attention to the planet and
people goals, many executives worry about protability in a
competitive market. Before launching environmental and social
responsibility initiatives, one needs to examine the following questions: (1) How would customers respond to the companys initiatives? (Will more customers buy the products/services? Will
customers be willing to pay more?) (2) How would competitors respond to the companys initiatives? The OR/MS research community has examined these issues in the context of remanufacturing.
3.3.1. Cannibalization issues arising from remanufacturing
In the context of remanufacturing, rms are fearful about the
sales of the new product would be cannibalized by the sales of
the remanufactured product. Ferguson (2010) reported some anecdotal evidence of product cannibalization. Debo et al. (2006) examined the demand of both new and remanufactured products over
the product life cycle by extending the Bass diffusion model. To
capture the interactions between two products, their extension
incorporates the substitution effect between the new and the
remanufactured products and the supply of remanufactured product at any point in time is dependent on the past sales of new product. They found that remanufacturing is more protable for slowly
diffusing products and for products that customers tend to purchase repeatedly. More recently, Guide and Li (2010) conducted
an experiment by listing two products (a consumer product
power tool; and a commercial product router) on eBay in two
ways: (1) new and (2) remanufactured. They found a clear difference in the willingness to pay between the new and remanufactured products. They also found clear customer segmentation for
the consumer product but not for the commercial product. Therefore, the risk of cannibalization is much lower in the consumer
product category. By analyzing the purchasing data obtained from
eBay, Subramanian and Subramanyam (2009) found two key factors that explain the price differentials between new and remanufactured products: the reputation of the seller of the products; and
the producers of the remanufactured products (OEM versus third
party manufacturers). These key ndings can be useful to a company when deciding whether to remanufacture a product or not.
3.3.2. Competition in remanufacturing
Even when the remanufactured product is only used to serve a
new market segment (i.e., the cannibalization effect is low) and
when the rm can collect the used products and remanufacture

589

them efciently, there are other strategic questions to consider

when deciding whether to remanufacture or not. First, how would
competing rms react when the OEM rm announces that it will
remanufacture its product? (Should they follow suit?) Second,
what should the OEM rm do when some of its used products
can be collected by a third-party remanufacturer who competes
with the OEM in the market of remanufactured product?
The rst question has been examined by Heese et al. (2005)
who presented a single period model that is motivated by remanufacturing strategies selected by different suppliers of hospital
beds. As depicted in Fig. 2, their model deals with an issue arising
in period 1 only. Specically, they examined a situation in which
two competing rms need to decide on their selling prices of the
new product and the discounts they offer to customers for the
remanufactured products. By assuming that customers are not
strategic, they presented a three-stage game as follows. In the rst
stage, rm 1 (the leader) decides on whether to remanufacture the
product. Then a competing rm (the follower) will make its remanufacturing decision in the second stage. Knowing both rms
remanufacturing decisions, each rm determines its selling price
of the new product (and the discounts offered to its customers
for the case when the rm decides to remanufacture its returned
used product). By examining the equilibrium outcomes of this
three-stage game, Heese et al. (2005) showed that, by accepting
the return of used product, the leader can deter its competitor from
following suit especially when the leader has a higher market share
of the new product or when the leader has a lower production cost.
Next, noting that the second question involves the dynamic
decisions made over time, there is a series of research work that focuses on a monopolist (rm 1: the OEM rm) who sells one type of
new product in period 1. However, only a fraction of the items sold
in period 1 is returned, and the returned quantity is split between
the OEM and a third-party remanufacturer. By using the returned
quantity collected by each rm, both rms sell their remanufactured products under price competition in period 2. Also, the
OEM may produce and sell the new product in period 2 (Fig. 2).
By assuming linear demand function in each period, Majumder
and Groenevelt (2001) analyzed a two-period dynamic game and
determined the equilibrium outcomes (selling prices of both new
and remanufactured products as well as production quantity of
the new product) for the game that takes place in period 2. Despite
the technical difculty, they managed to characterize the OEMs
prot in the rst period. In summary, they found that the thirdparty remanufacturer has incentives to reduce the remanufacturing costs for the OEM because it would enable the OEM to produce

Fig. 2. A framework for competition in remanufacturing.

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C.S. Tang, S. Zhou / European Journal of Operational Research 223 (2012) 585594

and sell more at a lower price in period 1, which will increase the
quantity available for the third-party to remanufacture in period 2.
When there is product cannibalization between the new and
the remanufactured product, the OEM rms remanufacturing
decision is more sophisticated. By incorporating the cost of collecting the used product at the end of period 1, Ferguson and Toktay
(2006) extended the work of Majumder and Groenevelt (2001)
by establishing the conditions under which the OEM rm would
remanufacture. In the event when the OEM rm decides not to
remanufacture, their model allows the OEM rm to collect the used
product so as to reduce its available amount to the third-party
remanufacturer that competes with the OEM rms new product
in period 2. In a similar vein, Ferrer and Swaminathan (2006) extended the 2-period model developed by Majumder and Groenevelt in two different ways: (1) the horizon is either nite or
innite and (2) the market consists of one OEM rm or two competing OEM rms. By assuming that the size of the potential market is constant over time, they characterized the equilibrium
outcomes (selling prices of the new and remanufactured products
in each period) for each period. Also, in equilibrium, they showed
that the OEM rm would sell more by lowering its selling price
in the rst-period so as to increase the available return of used
products for remanufacturing in the subsequent periods.
3.3.3. Incentives for collection and recycling
Because remanufacturing requires used products as inputs, the
success of a remanufacturing program largely depends on the efciency in collecting used products. The aforementioned research
does not focus on the collection process of used product, which
can be carried out by the manufacturer, the retailer, or a third party.
Savaskan et al. (2004) presented a model to examine the trade-offs
among these three collection strategies. By considering a 2-level
supply chain and by treating the manufacturer as the Stackelberg
leader, they showed that it is more economical for the retailer to
collect the used product. Walther et al. (2008) developed a coordination mechanism that allows for negotiation of contracts between
a focal company and several companies of a recycling network in
order to fulll the requirements resulting from environmental legislation. They showed that the mechanism can generate the contracts between the focal company and the recycling companies
and contain individual recycling obligations. Numerical results
showed that the performance of the mechanism is near the centralized system when the step sizes are chosen properly.
Government regulations and legislations are key drivers for
businesses to adopt product recycling and remanufacturing. Product and waste take-back is becoming more regulated in many
countries/regions. The EPR is a strategy that provides nancial
incentive for manufacturers to design eco-friendly products by
holding manufacturers liable for the costs of managing their products at end of life. Currently, different countries have different
views about the entity that is responsible for the end of life product. Atasu et al. (2009) discussed the economic and environmental
impacts of the EPR-type of legislation and identied efciency conditions. They showed that the right policy would make producers
responsible for their own waste to avoid fairness concerns and
favor eco-design producers to create stronger environmental benets. Esenduran et al. (2010) modeled the take-back legislation
by setting lower bounds on the percentage of used products that
must be collected and on the percentage of used products that
must be remanufactured. They examined the impact of legislation
on the remanufacturing level of an OEM when it has in-house
remanufacturing capability or is competing with a third party
remanufacturer. Jacobs and Subramanian (forthcoming) examined
the notion of shared responsibility and its impact on the collection/
recycling efforts in a decentralized two-level supply chain.
By using social welfare that includes supply chain prots and

consumer surplus, they showed that the shared responsibility

may or may not improve social welfare. As a follow on study, Atasu
and Subramanian (2011) developed a model to investigate the
implications of individual responsibility and shared responsibility
in the presence of competition.
3.4. Supply chain design/restructuring
Quariguasi et al. (2008) presented a framework for the design
and evaluation of logistics networks in terms of protability and
environmental impacts. They developed an approach that is based
on data envelopment analysis (DEA) to evaluate the efciency of
existing logistics networks in the pulp and paper industry in
Europe. In a similar vein, Chaabane et al. (2011) developed a multi-objective mixed-integer linear programming model with tradeoff between economic factors (logistics cost, procurement cost,
production cost) and environmental factors (carbon emissions) to
determine different supply chain design options (suppliers and
sub-contractor selection, technology acquisition and transportation modes). They applied their model to study a Canadian steel
rm facing a new legislation that caps carbon emissions.
Nagurney and Nagurney (2010) considered a supply chain network problem, involving the determination of network link capacities and product ows on various links for a rm. The rm aims to
minimize total relevant costs as well as emissions generated. A
weighted objective function was constructed, which includes the
weight that the rm places on the minimization of emissions. An
algorithm was proposed to solve the problem and applied to several numerical sustainable supply chain network design problems.
Cachon (2011) examined a downstream supply chain design problem by combining traveling salesmen and k-median problems. The
objective is to minimize the mileage related variable vehicle operating costs, fuel consumption costs and emissions costs. The model
accounts for the distance consumers must travel to a retail store as
well as the distance the retailer must travel to replenish those
stores. The main research questions are how poorly a supply chain
design performs if it is not optimized given the true cost of emissions and under what conditions such emissions penalty is substantial. Cachon (2011) showed that the errors of input costs
from ignoring costs of carbon have an insignicant impact on the
optimal solution. Hence, there is minimal value for measures that
are meant to correct any distortion in decisions regarding the retail
supply chain structure.
Fleischmann et al. (2001) analyzed a facility location model
with product returns. They showed that product recovery could
be efciently integrated into existing logistics structures in many
cases; however, there are instances, where a more comprehensive
approach to redesigning a rms logistics network is needed.
Jayaraman et al. (2003) discussed a reverse distribution problem
involving issues of how many collection sites and refurbishing
facilities to open and how returned products be transported. It
aims to nd an efcient strategy to return the defective products
from a set of origination sites to specic collection sites, which in
turn will be shipped to refurbishing sites for remanufacturing/
proper disposal. A math programming model was constructed
and heuristic solution approaches were developed. Frota Neto
et al. (2009) developed a method for visual representation of the
efcient frontier for the multi-objective linear program with three
objectives: minimizing costs, cumulative energy demand and
waste in a reverse logistics network.
3.5. Supply chain operations (manufacturing, inventory control,
logistics and distribution)
We now review the literature on various supply chain operations with sustainability considerations. One of the central issues

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in current sustainable supply chain operations is emissions and

pollution reduction due to more stringent government regulations
and increasing awareness of environmental protection among consumers and society. Production operations and transportation are
the two major sources of emissions because of fuels and energies
consumption. Thus, the following research questions arise naturally: How would various regulations, e.g., emissions tax, capand-trade, affect a rms operational strategies? How rms choice
of production technologies and/or transportation modes affect
their extant operational policies and performance and how are
the tradeoffs managed? How will consumers surplus and social
welfare be impacted by the companies compliance with the regulations, i.e., will the cost of compliance be passed along to consumers via price increases? The extant studies, many of which are still
on-going, have provided some answers to these questions and we
summarize them in this section.
Pollution control had been an active research area in 1970s of
OR/MS society and the reader is referred to Greenberg (1995) for
a comprehensive review. For this stream of research, mathematical
programming models are often formulated with constraints that
take into account environmental impacts. Recently, Caldentey
and Mondschein (2003) studied pollution control investment and
operational decisions in the copper industry. A nonlinear integer
programming model was developed to optimize smelter capacity
and investments decisions in pollution control plants. And a network ow model was exploited to describe the economic behavior
of the sulfuric acid market. These two models interact through the
input that each receives from the other. Computational experiments showed that the expected prot of the copper industry
can increase signicantly when the sulfuric acid market is incorporated into the model.
To curb emissions, governments have proposed and implemented different types of emissions regulation schemes such as
carbon tax and emissions trading (or cap-and-trade).6 These
schemes provide economic incentives for manufacturers to use clean
energy and/or adopt green technologies in their production processes. To model the interactions of rms under emissions regulation, game theoretic models are often exploited. Subramanian and
Subramanian (2009) developed a three-stage game model in a symmetric oligopoly setting as follows. In the rst stage rms decide on
the abatement level; in the second stage rms bid for emission
allowances; and in the third stage rms determine production quantities. How the number of available permits affects the abatement
decisions is examined. Carmona et al. (2010) developed an oligopoly
model in which each rm uses multiple technologies differing in
emission intensity and cost to produce multiple types of goods to
satisfy inelastic demand over a nite horizon. Each rm holds a
number of emission allowances that can offset their emissions at
compliance time and avoid penalty. They characterized the equilibrium prices of goods as well as the optimal production and trading
strategies of the rms and show that the equilibrium allowance price
is unique. The results also conrm the presence of windfall prots
for the rms and demonstrate the shortcomings of tax and subsidy
alternatives in emissions regulation. Regarding initial allocation of
emissions allowances, the commonly used mechanisms include auction, grandfathering (giving away xed amounts), and allocating
based on present or recent outputs, investment, or other attributes
of companies. Zhao et al. (2010) studied how different initial emission allowance allocation mechanisms can affect investment, operations and product pricing in a market with multiple power plants.

6
A carbon tax is an environmental tax levied on the carbon content of fuels and is
implemented by a few countries, for example, India. Emission trading is more popular
as it is a market-driven mechanism and has been implemented in Europe (European
Union Emission Trading Scheme (EU-ETS)), North America (the Sulfur Dioxide (SO2)
emissions trading scheme) and several other regions.

591

They proposed a nonlinear complementarity model and showed

the existence of equilibrium under mild conditions. Solutions for
simple systems showed that allocating allowances to new capacity
based on fuel use or generator type can yield large distortions in
capacity investment, invert the operating order of power plants,
and inate consumer costs. The distortions can be smaller for tighter
CO2 restrictions and if allowances are allocated based on sales rather
than plant capacity.
Production process generates most emissions in energy intensive industries, like power plants, cement, petro-chemical, metal,
pulp and paper. For example, the cement industry contributes an
approximately 5% to total global carbon dioxide (CO2) emissions.
Several papers have examined the impact of emissions regulations on production planning. Benjaafar et al. (2010) used a series of traditional lot sizing models to illustrate how carbon
emission concerns could be integrated with procurement and
production planning. They showed that operational adjustments
alone can lead in some cases to signicant emissions reductions
without signicant increases in costs. And the full impact of different regulatory policies can only be assessed when accounting
for the operational adjustment rms could make in response to
the regulation. Gong and Zhou (2010) integrated emissions trading into a multi-period production planning problem and formulated the problem as a Markov decision process. Facing with
random demand and emissions allowance prices in each period,
the rm needs to determine emissions trading, technology
choice, and production strategies to minimize its costs. Optimal
policies were characterized and practical data were used in a
numerical study to demonstrate the value of green technology
to the rm.
Transportation is another major source of greenhouse gas emissions that accounts for approximately one-third of US emissions
(Environment Protection Agency, 2011). However, only a limited
number of OR/MS models deal with emissions reduction in transportation. Winebrake et al. (2008) presented an energy and environmental network model to explore the tradeoffs among cost,
energy and emissions for differential freight modes in freight
transport. Yoshida et al. (2009) proposed a system through which
small-lot emission credits can be purchased by consumers to offset
their vehicle CO2 emissions during the purchase or renewal of
automobile insurance. A consumer survey was conducted in Japan
and showed that the average willingness to pay for emissions credits is about 2171 yen per ton-CO2. Yoshida and Matsuhashi (2009)
proposed a method of inputoutput analysis for physical distribution to evaluate potential CO2 emissions reduction. A case study
showed the potential for CO2 reduction by considering a modal
shift from truck transportation to rail and marine transportation.
Hoen et al. (2010) considered two regulation alternatives: emission
cost and emission constraints, and evaluated their effect on the
rms transport mode selection strategies. They estimated carbon
emissions of different modes of transport based on empirical data
and formulated a model to analyze the trade-off between inventory, transport, and emission costs. The main nding is that even
though large emission reductions can be obtained by switching
to a different transportation mode, the actual decision depends
on the regulation and other practical issues. Yan et al. (2010) developed an interval-parameter inter-community trafc model for supporting vehicle emissions management under uncertainty. Electric
vehicles (EVs) have been regarded as a solution to reduce transportation emissions. However, due to current technology limitation of
battery technologies, EVs can only travel for a limited number of
miles on a single battery charge and so it is important to have a
well-designed battery swapping and recharging stations network.
Mak et al. (2011) developed various models that aid the planning
process for deploying battery swapping infrastructure based on a
robust optimization framework. They demonstrated the potential

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impact of battery standardization and various technology advancements on the optimal infrastructure deployment strategy.
3.6. Reverse supply chain operations
Because reverse supply chain management involves many
external entities, it is probably the most studied area in sustainable
operations. Reverse supply chain activities range from product collection and acquisition, remanufacturing, remarketing, to reselling
of remanufactured product. Efcient management of these activities helps companies generate largest benet from their reverse
supply chains. Due to product return ows, new features in
modeling and new techniques in solving the problems are often required. Related research in this eld abounds. Because the strategic
aspects (mostly single-period models) have been discussed in Section 3.1 and because of space limitation, we shall focus more on the
recent developments on dynamic models (mostly in a multi-period
setting).
Remanufacturing is one of the central operations in reverse supply chain operations, which differs from the traditional production
system due to the presence of uncertain quantity and quality of
returned products. With the rising costs of raw materials and energies, remanufacturing has been viewed by many companies as a
strategic activity that can improve protability by reducing production and inventory costs rather than a regulation compliance
activity. Most of the dynamic models focus on remanufacturing/
manufacturing and inventory management. Van der Laan et al.
(1999) analyzed and compared the push and pull inventory policies of a continuous-review remanufacturing system. One nding
is that efcient planning and control in these remanufacturing systems tends to be more complex than in traditional systems without remanufacturing. Motivated by the procurement problem of
Kodaks single-use camera, Toktay et al. (2000) used a closed
queueing network model to investigate the inventory policies that
minimize the procurement, inventory holding and lost sales costs
of a system with product returns. In addition to developing a heuristic to solve the problem, they investigated the effects of various
system characteristics such as informational structure, procurement delay, demand rate, and length of the product life cycle.
Inderfurth (2004) studied a single-period model with both new
and remanufactured products, where the excess demand of remanufactured product can be lled by the surplus of new products. The
optimal policies when remanufacturing and manufacturing lead
times are different are characterized. DeCroix (2006) and DeCroix
and Zipkin (2005) examined the optimal inventory policies for a
serial and an assembly remanufacturing inventory system, respectively. Gong and Chao (2011) characterized the optimal remanufacturing/manufacturing policies when a rm only has nite
capacities in manufacturing, remanufacturing, or in total manufacturing/remanufacturing operations. Using the concept L# convexity
and the lattice analysis, they showed that the rms optimal policies in each period are characterized by a modied remanufacture-down-to policy and a modied total-up-to policy.
The preceding works focus on single-type of product return. The
returned products, however, are often in diversied conditions and
so require different remanufacturing costs/efforts. Zhou et al.
(2011) developed a remanufacturing system with multiple types
of returns and showed that optimal manufacturingremanufacturingdisposal policies are determined by two series of state-independent thresholds. Based on the optimal policies for systems
with identical manufacturing and remanufacturing lead times,
they also developed a heuristic for managing systems with different manufacturing and remanufacturing lead times. Tao et al.
(2010) extended the model further by considering random remanufacturing yields that are often observed in remanufacturing
practice. They derived properties of the optimal policies, provided

non-intuitive observations, and developed several simple heuristics that perform very well numerically.
Besides inventory and remanufacturing control, there are dynamic models that deal with product pricing and returned product
acquisition. Nagurney and Toyasaki (2005) proposed a multi-tiered
e-cycling network model and analyzed the equilibrium material
ows and prices associated with the different tiers of the decision-makers. Geyer et al. (2007) investigated the cost savings of
remanufacturing under basic supply loop constraints such as
accessibility of end-of-use products, technical feasibility of remanufacturing, and market demand for remanufactured products. They
demonstrated the need to coordinate collection rate, product life
cycle, and component durability to maximize cost savings. Zhou
and Yu (2011) incorporated product acquisition effort and selling
prices into a dynamic remanufacturing system by modeling random but price-dependent demand and acquisition-effort-dependent random product returns. They showed that when the price
is exogenous, the optimal manufacturingremanufacturingdisposal policy can be determined by three constant parameters while
the acquisition effort depends on the aggregate serviceable and returned product inventory; when the price is endogenous, the optimal policies are complex and state-dependent.

4. Research gaps and concluding remarks

We have presented an ecosystem to capture the interactions of
ows (or activities) that affect the triple bottom line performance
measures. By doing so, it has enabled us to classify the existing
OR/MS literature that deal with some of these three performance
measures by improving the ows in this ecosystem. Given the
complexity and practical relevance, environmentally and socially
sustainable operations will continue to be an important and rich
research stream. Through this review, we nd that extensive research has been done in closed-loop supply chain while other areas
need more investigation. Specically, we propose four research
directions that deserve further investigation.
First, the studies on emissions and pollution reductions focus
mostly on the impacts of government regulations, whereas largely
ignoring the market forces. The regulations like carbon tax, capand-trade, are certainly one major propellant for companies to
curb emissions. Nevertheless, consumers response and preferences towards greener products as well as the resulting market
competition also put pressure on rms to make their businesses
greener. To understand and analyze these market drivers, it requires careful modeling of consumers purchasing behavior when
they choose among products with different prices and green attributes. A few recent papers have modeled the consumer responses
as well as competitors behavior when rms offer products with
various attributes (e.g., Frischknecht et al., 2010; Morrow and
Skerlos, 2012). With consumers becoming more environmentally
conscious, they will play a more important role in shaping rms
investment and management in sustainability. This will also
stimulate more market-driven OR/MS research on sustainable
operations.
Second, there are very few (almost none) quantitative procurement/sourcing models that deal with environmental/social responsibility issues. In practice, however, many companies have
implemented procurement policies to ensure the suppliers meet
certain environmental and social standards. For example, Starbucks established the Coffee and Farmer Equity (CAFE) Practices
as guidelines for sourcing coffee beans. These guidelines ensure
its coffee suppliers pay the farmers fairly according to the fair
trade criteria, that the suppliers provide safe and humane conditions for their workers, and that the suppliers have established
process to manage waste, reduce consumption of water and

C.S. Tang, S. Zhou / European Journal of Operational Research 223 (2012) 585594

energy. So, to ll the gap between the practice and theoretical research, we need more studies that integrate sustainable issues
with traditional supplier selection criteria, e.g., costs, responsiveness (lead time), quality, which would further provide more tools
and insights for procurement managers.
Third, the extant quantitative research in OR/MS is still mainly
focused on the planet measure (emissions, remanufacturing, waste
reduction, etc.), while models that examine the people measure are
lacking. One challenge could lie in how to measure and model the
impacts on people/society. Sodhi and Tang (2011c) presented stylized models to analyze how companies can prot in emerging markets by engaging micro-entrepreneurs. Specically, they considered
business models that involve the poor through different operational
mechanisms that use aggregation, dis-intermediation, info-mediation
or efcient distribution (e.g., using micro-entrepreneurs in rst mile
pickup or last mile delivery, postponement). Their work has the potential to open up new avenues for future research that include:
exploring other operational mechanisms that use any of the four
categories of value creation (i.e., aggregation, dis-intermediation,
info-mediation, and efcient distribution); developing a mechanism to divide the created value between a large company and individual micro-entrepreneurs; and applying some of the operational
mechanisms to developed countries that face social problems.
Fourth, an individual rms sustainable operational strategies
would generate largest benet only when these strategies are
aligned with those of their upstream suppliers and downstream
customers. Lee (2010) showed how Esquel uses a holistic solution
and works closely with its supply chain partners to manage the
trade-offs among environmental sustainability, social responsibility, and business performance. Nevertheless, the extant research
mostly focuses on single-location models, which are often lack of
interactions, both vertical and horizontal, between different companies in supply chains. By considering multi-location systems,
we will be able to study issues like how environmental regulations
affect the operations and performance of the whole supply chain?
How coordination of sustainable activities can be achieved between different operations within a rm or between supply chain
partners? And how horizontal competitions between rms affect
their sustainable operations? Hence, there is a need to develop
and analyze end-to-end supply chain models that incorporate the
issue of sustainable operations.
Overall, the OR/MS research community has just started to develop models to deal with the people performance measure. This
creates an excellent research opportunity for the OR/MS to make
important contributions in the near future by analyzing ways to
help corporations to achieve the triple bottom line objectives.
Acknowledgments
We thank two anonymous referees for their helpful comments
and suggestions. The second author is partly supported by Hong
Kong GRF Grants CUHK-419010 and CUHK-419411.
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