Robust closed-loop supply chain model with return management system for circular economy

Abstract

The significance of the circular economy (CE) is increasingly recognized worldwide due to its substantial global environmental impacts. To address this critical issue from a supply chain management perspective, we propose an optimization model for a closed-loop supply chain that integrates CE operations, including reuse, remanufacturing, and recycling processes. To capture correlations between uncertain end-customer demand and three types of return processes, we adopt a factor-based demand model. Since these types of uncertain correlated parameters make the optimization problem intractable, we utilize a linear decision rule and a distributionally robust bound to retain computational tractability from a deterministic formulation. Consequently, we derive a deterministic second-order cone program, which is solvable using an interior point method within reasonable times for moderate-size data. The computational results show that the proposed model achieves significant cost savings effects, contributing positively to the CE operations.