A novel closed-loop supply chain based on the quality of returned products

Abstract Closing an existing real-world supply chain and modelling the resultant network are challenging practices. This paper investigates the possibility of closing the chain in a textile company and the effects of such a decision on the profits of the chain. The paper addresses one of the common problems in modelling the return rates of backward chain. Since inaccuracy in estimation of such rates leads to incorrect results, the present model forgoes the need for commonly used predetermined rates by proposing a conditional quality-based segmentation policy. Addition of a secondary chain as a recovery option, quality-dependent incentive rates and flexibility of the model in defining quality, are also among novel points of this paper. First, a bi-objective model is proposed to formulate the chain which includes the manufacturers, distributors and customers in the forward chain and remanufacturing, repairing and recycling centers in the backward chain. This model is applicable to industries with zero-waste strategy and similar recovery facilities. Second, an extensive sensitivity analysis is carried out on a case-study from textile industry. The results reveal that increase in rate of returns with low/medium qualities leads to higher profits since they create more suitable environmental/economical business opportunities. Moreover, closing the supply chain of the company increases the impact of distributors/collectors’ performance on the final profits. Hence, managers of the company need to adopt a pricing policy in favor of the distributors/collectors, which equals to lower repairing, remanufacturing and purchase costs from manufacturers, and higher sales prices to customers, manufacturers and recycling center.