Two stage closed loop supply chain models under consignment stock agreement and different procurement strategies

Abstract This paper seeks to jointly optimize the raw material (RM) procurement and shipping decisions as well as those pertaining to the lot sizing and the production sequencing of manufactured and remanufactured products for a centralized two stage closed loop supply chain, wherein the vendor and the buyer operate under consignment stock partnership. Most of the existing closed loop models have overlooked the tradeoffs involved in optimizing RM replenishment strategy in conjunction with the production sequence, and assumed the predetermined sequence of (R, P) where R remanufactured batches are produced first followed by P manufactured batches as this sequence prioritizes the clearance of the accumulated inventory of returned items. As such, we jointly optimize the aforementioned interrelated decisions, alongside others as well, under two RM replenishment strategies; multi-to-one (MTO) and one-to-multi (OTM) where a mathematical model is developed for each strategy. In essence, this work seeks to assess what impact would the incorporation of RM procurement decisions have on the shipping and production policy downstream. Extensive computational experiments, carried out under different settings of the problem parameters, indicate that accounting for RM procurement strategy greatly impacts not only the production sequence, but extends to include the lot sizing and shipping decisions as well. Furthermore, the computational study suggests that it is economically advantageous to synchronize RM orders such that they take place right at the time needed for the production of newly manufactured products.