The more the better? The impact of the number and location of product recovery options on the system dynamics in a closed-loop supply chain

Abstract

The hybrid closed-loop supply chain (CLSC) system, commonly observed in the consumer electronics and automotive industries, may include one or more product recovery options, such as product repair and core remanufacturing. From system dynamics perspective, one important strategic decision is how many recovery options (and in which locations) should be invested to minimise poor dynamic behaivor such as bullwhip effect. This motivates us to investigate the impact of the number and locations of recovery options on the dynamic behaviour. We adopt step and sinusoidal functions as customer demand, representing a sudden sustained shift in demand and seasonally unadjusted demand, respectively. We also consider different return rates for each echelon of the CLSC. Our simulation results indicate that the bullwhip effect and inventory variance can be significantly reduced in all CLSC scenarios in comparison to a traditional open loop supply chain. However, a increased number of product recovery options does not improve the dynamic performance of the CLSC. Moreover, the bullwhip effect and inventory variance may be reduced if product recovery options are located at downstream echelons that are closer to end customers (e.g. retailers) and have high return rates. Further, return rates play a key role in mitigating the bullwhip effect, consistent with the prior literature. Our findings provide strategic insights for managers seeking to improve their CLSCs performance from system dynamics perspective.