Performance analysis of a closed-loop supply chain with incentive-dependent demand and return

Due to environmental impacts and economic benefits, establishment of closed-loop supply chain (CLSC) system has been getting increasing attention both in industry as well as in academia. In order to improve the collection and recovery process, we develop a system dynamics framework for a CLSC under incentive-dependent demand and return. In this paper, first, a relationship between "the amount of incentive offered to a consumer" and "the probability with which the consumer would return the used product to retailer" is established. Then, a recovery framework is developed to model the return function of used products and the demand function for new products. Lastly, the developed framework is integrated with a system dynamics model of a multi-period CLSC, which investigates the system's performance both in terms of profitability and customer satisfaction when an incentive offer is present. The performance analysis of the system dynamics simulation model indicates that the inclusion of incentive offer enhances the demand, collection, and remanufacturing process, which in turn results in more profit and better fill rate for the entire CLSC. The analysis suggests a trade-off between the extra revenue generated through remanufacturing of collected used products and the cost of collection due to the employment of incentive offers. The significance of important parameters, their interactions, and the type of their impact on profit and on fill rate performance are examined through sensitivity and statistical analysis. Additionally, we also compare the performances of the proposed CLSC model in presence as well as in absence of incentive offer.