Flexible long-term capacity planning in closed-loop supply chains with remanufacturing

We deal with long-term demand-driven capacity planning policies in the reverse channel of closed-loop supply chains (CLSCs) with remanufacturing, under high capacity acquisition cost coupled with uncertainty in actual demand, sales patterns, quality and timing of end-of-use product returns. The objective is to facilitate the decision-making when the management faces the dilemma of implementing either a strategy of early large-scale investments to benefit from economies of scale and capacity readiness, or a flexible strategy of low volume but more frequent capacity expansions. We consider a CLSC with two sequential product-types. We study the system’s response in terms of transient flows, actual/desired capacity level, capacity expansions/contractions and total supply chain profit, employing a simulation-based system dynamics optimization approach. Extensive numerical investigation covers a broad range of real-world remanufacturable products under alternative scenarios in relation to the market preference over product-types. The key findings propose flexible policies as improved alternatives to large-scale capacity expansions/contractions in terms of adaptability to the actual pattern of end-of-use product returns and involved risk in the investments’ turnover. Flexible policies are also proposed as practices to avoid overcapacity phenomena in collection and remanufacturing capacity and as robust policies to product demand. Their implementation is revealed to be even more important for the case of remanufacturing, when a high capacity acquisition unit-cost ratio (remanufacturing/collection) is coupled with strong economies of scale. Finally, results under different information sharing structures show changes in remanufacturing policies, thus justifying the importance of coordination between the decision-maker and the distributor.