The Penalty Production Model – An Alternative Working Capital Solution for Reverse Supply Chains

Abstract

The working capital issue increased lately for small and medium-sized companies which strived to behold their position on the competitive market in the long term. A shift in competition from firm versus firm to supply chain versus supply chain increased the role that every member of the supply chain had in its long-run development or failure. This paper presents an alternative working capital production model which collects its working capital needs by using an auto-financing method in the sorting stage of the recycling process for reverse supply chains. The penalty system was designed by the author (as part of the operative drift for one of the largest Norwegian recycling companies) as an aggregation of penalty types and their respective amounts for each category that a load can comprise at the entrance in the manufacturing area. Results generated by the new production system highlighted the fact that working capital could be obtained by autofinancing mechanisms, and that the total income could be higher than the value based on a fixedfee penalty system (the complex model doubled previous income already one year after new system was implemented), achieving in the same time better waste control between original waste declaration and handled waste resulted after the sorting process. Moreover, the sorting facility decreased its own production costs (since extra working capital was generated by applying the auto-financing mechanism), and obtained better control for every fraction processed at the plant (dangerous waste presented in this study) between invoiced volumes and quantities shipped forward in the reverse supply chain.