A Closed-Loop Capacitated Warehouse Location Model with Risk Pooling

Abstract

The irreversible environmental harm caused by various industrial operations, along with the newly enacted environmental regulations, shifts the focus of governments and corporations in the direction of sustainable supply chains rather than the traditional ones. One of the main ways this can be done is by introducing a reverse supply chain, in addition to the traditional forward supply chain, to create the so-called closed-loop supply chain. We extend a capacitated warehouse location model with risk pooling (CLMRP) by adding a reverse supply chain where recovered products are sorted and collected by collection centers (CCs) and sent to remanufacturing centers (RCs). The products are then either sent back to the forward supply chain or sent to recycling centers or disposal sites. The objective of the closed loop capacitated warehouse location model with risk pooling (CLCLMRP) is to minimize the sum of the fixed facility location, transportation, and inventory carrying costs for both the forward and reverse supply chains. The model will also determine distribution centers (DCs) and remanufacturing centers’ (RCs) locations, shipment sizes and frequency from plant to DCs and RCs, working inventories and safety stock levels at DCs and RCs and assignment of retailers’ demand to the DCs and returns to the RCs. Results showed that an increase in both shipping costs and inventory holding costs result in moving the supply chain towards a decentralized supply chain. An increase in both level of returns from the retailers to the CCs and from the CCs to the RCs leads to an increase in the total cost of the closed-loop supply chain.