The value of regulating returns for enhancing the dynamic behaviour of hybrid manufacturing-remanufacturing systems

Abstract

Several studies have determined that product returns positively impact on the dynamics of hybrid manufacturing-remanufacturing systems, provided that they are perfectly correlated with demand. By considering imperfect correlation, we observe that intrinsic variations of returns may dramatically deteriorate the operational performance of these closed-loop supply chains. To cope with such added complexity, we propose a structure for controlling the reverse flow through the recoverable stock. The developed mechanism, in the form of a prefilter, is designed to leverage the known positive consequences of the deterministic component of the returns and to buffer the harmful impact of their stochastic component. We show that this outperforms both the benchmark push system and a baseline solution consisting of regulating all the returns. Consequently, we demonstrate that the operation of the production system is greatly smoothed and inventory is better managed. By developing a new framework for measuring the dynamics of closed-loop supply chains, we show that a significant reduction in the net stock, manufacturing, and remanufacturing variances can be achieved, which undoubtedly has implications both for stock reduction and production stabilization. Thus, the known benefits of circular economy models are strengthened, both economically and environmentally.