Modeling and Analysis of a Closed-Loop Supply Chain in Consideration of Extra Demand

Abstract

In recent years, activities undertaken to reduce environmental impacts – such as recycling and reusing – have been increasing in popularity. For manufacturing companies, designing and using a closed-loop supply chain can help meet social responsibility objectives and enhance competitiveness. A closed-loop supply chain requires the accurate prediction of not only demand but also returned products; however, in the literature, the quantity of returned products is assumed to be dependent on demand. Importantly, the quantity of returned products is influenced by past demand and use periods. Further, some returned products may be treated as end-of-life products, because of quality deterioration. The purpose of this study is to design a closed-loop supply chain model in the context of returned product quantities as affected by past demand, use period, and extra demand, in order to analyze system performance. Herein, the quantity of demand influences the quantity of returned products, and hence the quantity of reusable products. Moreover, the dynamics of returned products, demand, and reusable products will also significantly influence production planning. In this study, fluctuations in the quantity of returned products influence not only production planning but also future demand fluctuations. The results of numerical examples derived from using the model proposed in this study clarify that the quantities of reusable products and manufactured products will fluctuate depending on the return rate, given policies that prioritize the sale of reusable products. This finding suggests that manufacturers need to consider reducing their environmental impact as well as establishing production planning and inventory control policies that contain fluctuations in the quantities of reusable and manufactured products.