Negotiation-based coordination in product recovery networks

In this paper we consider a legislation-driven recycling network treating discarded products. The goal of the paper is to develop a decentralised hierarchical negotiation mechanism that allows the recycling network to comply with requirements caused by environmental legislation. We develop a coordination mechanism that enables the network to decentrally assign recycling tasks that result from environmental legislation to the network companies. The negotiation approach is implemented via Lagrangian relaxation and subgradient optimisation which only requires a minimum data exchange. We demonstrate its applicability and examine the performance of the developed coordination mechanism through a numerical study that is based on real-world data. We show that the mechanism can generate very encouraging solutions under specific conditions. Interesting managerial insights are presented.