Three-Stage Forward and Closed Loop Supply Chain Models Under Consignment Stock Partnership

Abstract

Achieving operational excellence is a vital goal ought to be emphasized throughout supply chain (SC) practices nowadays. The integration of raw material procurement decisions at the upstream stages, along with the production and dispatching decisions at the downstream stages, greatly impacts the production schedule and chain-wide total cost. The significance of this research work is that it is the first to address and propose mathematical models for a three-stage forward and closed loop supply chain systems operating under consignment stock (CS) partnership in which the inbound and outbound logistical decisions are simultaneously accounted for, coupled with the production sequencing decisions at the vendor stage. The objective is to optimize the raw material replenishment schedule (i.e., quantity and frequency) as well as the production sequence and the delivery schedule of the finished product to the downstream buyer. Throughout this work, mixed integer non-linear programming (MINLP) models are developed that jointly seek to optimize the procurement decisions of raw material, the length of the production cycle, the sequence to follow in the production of newly and remanufactured batches, number of newly and remanufactured batches produced within one production cycle, as well as the initial inventory levels of recovered and finished products at the vendor's and buyer's premises, respectively, in order to minimize the chain-wide total cost. Extensive numerical experiments are also conducted with the purpose of assessing the impact of key problem parameters on the behavior of the developed models. The three stage forward model generated production schedule with larger batch size when compared to the just-in-time raw material ordering policy for the two-stage forward model. Moreover, the closed loop model economically outperformed the "manufacturing only" policy with cost savings ranging between 7% and 33%. Sensitivity analysis results indicates that the intermittent sequences, in which the setup for either newly manufactured or remanufactured products takes place more than once, are economically preferable in the case of high remanufacturing and low manufacturing setup costs.