A vendor–purchaser economic lot size problem with remanufacturing

Abstract

In this paper, we study a closed-loop supply chain in which a single purchaser orders a particular product from a single vendor and sells it on the market. A certain fraction of used items return from the market back to the purchaser, who is responsible for collecting and returning them to the vendor. In addition to manufacturing new items, the vendor is able to remanufacture the returns into as-good-as-new items which are subsequently used to serve market demand. Our framework features the conventional joint economic lot size (JELS) model extended to include the return flow of the used items. In line with the assumptions of the JELS model, we assume a deterministic constant demand for the product. The fraction of used items returning from the market is assumed to depend on the purchaser's collection effort. To stimulate the returns, the vendor may offer the purchaser a transfer payment per item returned. The questions addressed by this study pertain to the optimal centralised control of this closed-loop supply chain, to the individually optimal policies of its members, and to the coordination within this supply chain under a decentralised control. In particular, we show that the transfer payment alone cannot coordinate the supply chain under consideration and may even fail to do so when combined with a two-part tariff -which is otherwise known to coordinate the corresponding forward supply chain. Our numerical study, though, has revealed that the combined contract is capable of substantially reducing the coordination deficit. We also introduce a novel three-part tariff which is shown to enable supply chain coordination in combination with the transfer payment.

A circular economy perspective on sustainable supply chain management: an updated survey

“…While the above work on closed-loop supply-chain coordination and design typically adopts a marketing channel perspective [Savaskan et al, 2004], a further stream of work has introduced operational considerations into the analysis by explicitly modelling manufacturing and remanufacturing operations and including inventory-related costs in the decision model. The work by Pishchulov with co-authors [Pishchulov et al, 2014] combines in this regard essential elements of the conventional joint economic lot size problem [Banerjee, 1986], the economic order quantity model for a production-inventory system with product recovery and disposal [Richter, 1996], and the closed-loop supply-chain coordination model as per Savaskan with coauthors [Savaskan et al, 2004]. Specifically, Pishchulov with co-authors consider a closedloop supply chain comprising a manufacturer and a retailer (see Figure 6) [Pishchulov et al, 2014].…”

“…The work by Pishchulov with co-authors [Pishchulov et al, 2014] combines in this regard essential elements of the conventional joint economic lot size problem [Banerjee, 1986], the economic order quantity model for a production-inventory system with product recovery and disposal [Richter, 1996], and the closed-loop supply-chain coordination model as per Savaskan with coauthors [Savaskan et al, 2004]. Specifically, Pishchulov with co-authors consider a closedloop supply chain comprising a manufacturer and a retailer (see Figure 6) [Pishchulov et al, 2014]. The manufacturer can produce new products and remanufacture used ones at production rates P M and P R respectively.…”

“…A number of studies have addressed similar settings, for which we provide an overview in Table 2. Dobos with co-authors [Dobos et al, 2013] study a setting closely related to Pishchulov with co-authors [Pishchulov et al, 2014] while assuming cooperative as well as competitive action of supply-chain members. Both these works assume at most one manufacturing and one re-manufacturing batch per production cycle.…”