Design of a product recovery network: Modelling and analysis

Over the last few decades, the importance of reverse logistics is increasing drastically due to government regulations, economic potential associated with the used products and changes in customer preferences towards proper disposal of used products. The purpose of this paper is to develop a mathematical model for the network design of a multi-product, multi-echelon reverse logistics system. Different recovery options such as remanufacturing, repairing and recycling are considered in this study. Based on the residual value of the used product, the returns are graded into two categories – low product residual value (PRV) and high PRV returns. The process of grading, though results in additional grading costs, assists the decision maker in choosing appropriate recovery option. An integer linear programming formulation is used to model the problem. The proposed model determines the optimal number and location of different facilities to be established. By way of explicit consideration of the product structure, the analysis is carried out down to the level of components and materials across the different stages of the supply chain. Further, threshold combinations of values for rates of high PRV returns required for setting up a first-class recovery option (i.e. remanufacturing) is thoroughly analysed. The results provide interesting information about the relevance of quantum of products with high-PRV on the network design decisions. Also, the results underscore the importance of transportation costs on the overall profitability of the reverse supply chain.Reverse logistics, Network design, Product structure; Multi-product; Product residual value, Remanufacturing