On the dynamics of closed-loop supply chains with capacity constraints

Abstract

In this paper, we investigate the dynamic behavior of a closed-loop supply chain with capacity restrictions both in the manufacturing and remanufacturing lines. We assume it operates in a context of a twofold uncertainty by considering stochastic demand and return processes. From a bullwhip perspective, we evaluate how the four relevant factors (specifically, two capacities and two sources of uncertainty) interact and determine the operational performance of the system by measuring the variability of the manufacturing and remanufacturing lines and the net stock. Interestingly, while the manufacturing capacity only impacts on the forward flow of materials, the remanufacturing capacity affects the dynamics of the whole system. From a managerial viewpoint, this work suggests that capacity constraints in both remanufacturing and manufacturing lines can be adopted as a fruitful bullwhip-dampening method, even if they need to be properly regulated for avoiding a reduction in the system capacity to fulfill customer demand in a cost-effective manner.