Socially Responsible Co-Product Design

As consumers become increasingly concerned about the environmental impact of their consumption, co-production technology that manufactures products of different qualities from a common source of raw material has emerged as a viable option to reduce natural resource consumption. Specifically, co-production technology allows a manufacturer to introduce a new co-product using raw material that would otherwise be discarded because of its inferior quality relative to conventional quality standards. In this chapter, we examine whether and how a manufacturer should leverage co-production technology to design its product offerings. We show that introducing co-products can both enhance a manufacturer’s profitability and curb resource consumption. In particular, when the co-product is introduced, greener demand in general results in lower resource consumption and waste. However, an exception may arise when the raw material is costly, forcing the manufacturer to underproduce and leave some demand unfulfilled. Finally, we also discuss other business strategies to reduce material usage and waste from a product life cycle perspective.