Design for the Environment: Life‐Cycle Approach Using a Newsvendor Model

TLDR

Introducing environmental innovations in product and process design can alter cost, demand, and lifecycle environmental impacts across manufacturing and use stages. The study seeks to identify which design changes yield the greatest economic benefit to firms while assessing their environmental consequences. A profit‑maximizing newsvendor framework is used to jointly determine production quantity and environmentally focused design efforts, examining demand characteristics, lifecycle impact levels, and overproduction effects. Eco‑efficient or demand‑enhancing innovations reduce per‑unit impact, yet total impact may rise or fall with increased output; the model pinpoints conditions for these outcomes and highlights the role of overproduction, with results applied to various product categories.

Abstract

Introducing environmental innovations in product and process design can affect the product's cost and demand, as well as the environmental impact in different stages of its life cycle (such as manufacturing and use stages). In this article, we advance understanding on where such design changes can be most effective economically to the firm and examine their corresponding environmental consequences. We consider a profit maximizing firm (newsvendor) deciding on the production quantity as well as its environmentally focused design efforts. We focus our results along the two dimensions of demand characteristics and life‐cycle environmental impact levels, specifically functional vs. innovative products, and higher manufacturing stage environmental impact vs. higher use stage environmental impact. We also discuss the environmental impact of overproduction and how it relates to the different types of products and their salvage options. We find that although the environmental impact per unit always improves when firms use eco‐efficient or demand‐enhancing innovations, the total environmental impact can either increase or decrease due to increased production quantities. We identify the conditions for such cases by looking at the environmentally focused design efforts needed to compensate for the increase in production. We also show that the environmental impact of overproduction plays an important role in the overall environmental impact of the firm. We conclude by applying our model to different product categories.