Reverse Logistics Network Design under Disruption Risk for Third-Party Logistics Providers

Abstract

Reverse logistics is attracting attention due to the increasing concerns over environmental issues and the important economic impacts. The design of a reverse logistics network is a major strategic problem in the field of reverse logistics. As cost pressures in product returns continue to mount, a growing number of manufacturers have begun to outsource reverse logistics operations to third-party logistics (3PL) providers. On the other hand, considering disruption risks caused by natural or man-made factors in the reverse logistics network design is inevitable. This paper studies third-party reverse logistics network designs under uncertain disruptions. The problem is formulated as a risk-averse two-stage stochastic programming model with a mean risk objective. Two types of risk measures, value at risk (VaR) and conditional value at risk (CVaR), were examined, respectively. Finally, the sensitivity analysis of the model was carried out. The validity of the mean risk criteria is proved by comparison with risk-neutral approach. Moreover, the performance of the proposed model was examined by stochastic measures.