Optimal production-inventory policy for closed-loop supply chain with remanufacturing under random demand and return

Abstract

This paper presents a centralized production-inventory model for an infinite planning horizon of a two-echelon closed-loop supply chain (CLSC) consisting a retailer, manufacturer, and remanufacturer. The demand at the retailer is satisfied through the new and remanufactured products received from the manufacturer and remanufacturer, respectively. The proposed model considers demand at the retailer and return at the remanufacturer as random. The manufacturer and remanufacturer produce the products at a finite rate, and they deliver to the retailer alternatively in multiple batches. An algorithm is developed to find the optimal-lot sizing and shipment policies of each entity of the CLSC by minimizing the expected joint total cost of the system. The results show that the CLSC is more profitable than the forward supply chain when the remanufacturing cost of the returned product is significantly low compared to the manufacturing cost of the new product, the demand variation at the retailer is low, and the fraction of demand returned is close to 1.