A simulation-based optimization approach for network design: The circular economy perspective

Abstract

The Circular Economy (CE) is identified as a solution to address negative impacts due to conventional ‘take-make-consume-dispose’ practices. We posit that a new business model termed Lease & Sell, which integrates the product-service-system (PSS) strategy with product sale for ownership, could enhance opportunities to promote circularity. This paper presents a simulation-based optimization approach for closed-loop network design to make location and allocation decisions when implementing a Lease & Sell strategy. The proposed approach is applied to the case of appliance manufacturer to compare performance when the company only sells product for ownership vs. when a Lease & Sell strategy is applied. Results show that while profitability increases with Lease & Sell when more End of Life (EoL) strategies are introduced (i.e., reuse, remanufacture, and recycling), the selling price for products in secondary markets has a higher impact on overall benefits. Findings also show that trade-offs exist between profitability, lead time, and social objectives.