Economic analysis of paper recycling vis-à-vis wood as raw material

Concerns for the environment have forced many firms to define policies that protect the environment within which they operate. This paper presents a linear optimization model for paper industry to compare total system cost of wood as a raw material with recycling of waste paper. Objective of the proposed model is to minimize the cost of paper in the supply chain. Costs included in the objective functions are: costs for collection of raw material, transportation, inventory, manufacturing, segregation and disposal (during recycling). The model also includes the economic implications of using these alternative material sources on environment as well as quality of final product. To gain further insights into system behavior, sensitivity analysis, shortage analysis and indifference curve analysis have been performed. The analysis clearly reveals that the paper recycling is an economical option compared to wood as a raw material. The paper analysis highlights various strategies that could be followed under different market conditions.