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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.17 No.3 pp.17-34
DOI : https://doi.org/10.7232/iems.2018.17.3.350

Optimal Operation with Flexible Ordering Policy for Closed-Loop Supply Chain Considering the Uncertainties in Product Demand and Collection Quantity of Used Products

Shin Yamaguchi, Etsuko Kusukawa*
Department of Electrical and Electronic Systems, Osaka Prefecture University, Osaka, Japan
* Corresponding Author, E-mail: kusukawa@eis.osakafu-u.ac.jp

Abstract

This paper discusses a closed-loop supply chain (CLSC), which consists of a buyer, a manufacturer, and a recycler, with an operational flow from collection of used products through remanufacturing of them to sales of products produced of the remanufactured parts. In general, CLSCs face (i) the uncertainty in product demand, (ii) the uncertainty in collection quantity of used products, and (iii) a variety of quality of the parts extracted from used products. To deal with the uncertainties (i) and (ii), this paper discusses incorporation of a flexible ordering policy (FOP) that the buyer’s order quantity is between the minimum order quantity and the maximum order quantity with the manufacturer. The optimal decisions for the minimum order quantity, the maximum order quantity, recycling incentive, and lower limit of quality level, are made in each of the decentralized CLSC (DCLSC) and the integrated CLSC (ICLSC). DCLSC optimizes the expected profit of each member, while ICLSC optimizes that of the whole system. Numerical analysis clarifies the effect of FOP by comparing FOP with a traditional ordering policy (TOP). The benefit of supply chain coordination adopting each of Nash bargaining solution and return on investments for shifting from DCLSC to ICLSC is shown.

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