Closed-loop supply chain network design and modelling under risks and demand uncertainty: an integrated robust optimization approach

Abstract

Closed loop supply chain network design (CL-SCND) is a critical economic and environmental activity. The closing of the loop to handle return, uncertainty in business environment, various supply chain risks, impact network design processes and performance of the firm in the long term. Thus, it is important to design robust and reliable supply chain structures and obtain network configurations which can always outperform the other configurations under the worst cases of risks and uncertainty. A generic closed-loop supply chain network based on mixed integer programming formulation is proposed with direct shipping to the customer from manufacturing plants as well as shipping through distribution centers under supply risks, transportation risk and uncertain demand using a robust optimization (RO) approach. A large number of numerical tests are carried out to test the performance of the model by considering a total of four levels of uncertainty for four different network structures types. The results of the tests confirm that the risk and uncertainty based integrated supply chain network models are more efficient (cost effective) than the other set of network configurations which treats the supply chain risks and uncertainty post-ante. To demonstrate the applicability of the proposed model, the case of an Indian e-commerce firm which wants to redesign its supply chain structure is presented. The results of case study show that the topology obtained from integrated treatment of risk and uncertainty called as RORU model, outperform other supply chain networks on various network performance indicators such as supply chain costs, the number of facilities open or close and the amount of products flowing through supply chain echelon. Thus, RO based mathematical modeling to address risks and its applicability for SCND for close loop supply chain is proposed, demonstrated and applied in practical cases.