Design and planning of a closed-loop supply chain with three way recovery and buy-back offer

Abstract

Due to strict environmental legislations and competitive economics worldwide, closed-loop supply chain (CLSC) management has been receiving increasing attention. In order to improve the return rate of used products, in this paper, a recovery framework is proposed by employing buy-back offer at retailer level. The proposed recovery framework is integrated with an optimization model for a multi-period CLSC under demand and capacity uncertainty to determine optimal buy-back price that needs to be offered to consumers so that the minimum collection limit set by the legislators is fulfilled as well as overall cost of the integrated system is minimized. The developed model addresses the possibility of three way recovery options, namely; product remanufacturing, component remanufacturing, and raw material recovery to determine the optimal manufacturing, remanufacturing and recycling quantity. Sensitivity analysis suggests that there is a trade-off between the extra benefit generated through remanufacturing and the cost of acquisition of used products due to the employment of buy-back offer. A condition for the buy-back offer to be simultaneously advantageous for both manufacturer and retailer under revenue sharing contract is derived. A comparative study is also undertaken to examine the performance of the CLSC when collection is made through buy-back offer vs. third-party collection. The proposed CLSC model is further extended by adding a separate demand for remanufactured products and the performance of the initial model with the extended model is compared.