GRA Position: Financial and Evironmental Performance of Product Leasing

Project Title: Decision Support for Improved Financial and Evironmental Performance of Product Leasing

Mech Eng Advisor: Bert Bras
Research Group: ECDM

Funding Source: NSF

Students needed: 1

Project Description:
US businesses spent $668 billion on acquiring productive assets in 2003. Of this sum,  $208 billion, or 31 percent, represents assets acquired through leasing. These numbers reflect a new awareness of companies that their primary business is selling product services, not the products themselves. In addition to the servicing and financial advantages of leasing, there have been recent claims that leasing is beneficial for the environment. The practice of leasing products, rather than selling them, is viewed by many as a strategy for increasing resource productivity, particularly by preventing waste generation and moving to a pattern of closed-loop materials use. This school of thought argues that by maintaining ownership of the product, the manufacturer can successfully put in place a product recovery strategy consisting of reuse, remanufacturing, and recycling.  However, preliminary investigation shows that the environmental benefits of leasing are not clear cut. Furthermore, not all companies that lease their products engage in the same level of take-back and recovery activities. While a few companies are very sophisticated in this respect, others do not capitalize on the opportunity provided by end-of-lease ownership, even for comparable products. Clearly, a deeper, system-wide, life-cycle understanding of leasing is needed to achieve its full economic and environmental benefits.To this end, the research questions we will address include:

• What are the environmental issues, risk and opportunity areas of leasing for various end-of-life scenarios and product characteristics?

• What are the most appropriate integrated leasing and recovery options for various product and market characteristics?

In this task, the goal is to develop environmental performance models that can be connected to financial game theoretic and optimization models as modules to gain insight into the environmental performance of leased products for the given scenarios (sale, disposal, material recycling, remanufacture), product characteristics, and durability/life-spans. This project is in collaboration with Profs. Ferguson and Toktay in the College of Management.