Accepted Manuscript

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

Roberto Dominguez, Borja Ponte, Salvatore Cannella, Jose M. Framinan

PII: S0360-8352(18)30607-7
DOI: https://doi.org/10.1016/j.cie.2018.12.003
Reference: CAIE 5556

To appear in: Computers & Industrial Engineering

Please cite this article as: Dominguez, R., Ponte, B., Cannella, S., Framinan, J.M., On the dynamics of closed-loop
supply chains with capacity constraints, Computers & Industrial Engineering (2018), doi: https://doi.org/10.1016/
j.cie.2018.12.003

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 On t he dynami cs of cl osed-l oop suppl y chai ns wi t h capaci t y const r ai nt s

Rober t o Dominguez1 , Bor ja Pont e2, Salvat or e Cannella3,1, and Jose M. Fr aminan 1

1
I ndust r ial M anagement and Business Administ r at ion Depar t ment , Univer sit y of Seville, Spain
r dc@us.es; cannella@us.es; fr aminan@us.es

2
Depar t ment for People and Or ganisat ions, The Open Univer sit y, M ilt on K eynes, UK

bor ja.pont e-blanco@open.ac.uk

3
DI CAR, Univer sit y of Cat ania, I t aly
cannella@unict .it

Abstr act
I n t his paper , we invest igat e the dynamic behaviour of a closed-loop supply chain wit h capacit y r est r ict ions
bot h in t he manufact ur ing and r emanufact ur ing lines. We assume it oper at es in a cont ext of a t wofold
uncer t ainty by consider ing st ochast ic demand and r et urn pr ocesses. Fr om a Bullwh ip per spect ive, we
evaluat e how t he four r elevant fact or s (specifically, t he t wo capacit ies and t wo sour ces of uncer t ainty)
int er act and det er mine t he oper at ional perfor mance of t he syst em by measur ing t he var iabilit y of the
manufactur ing and r emanufactur i ng lines and the net st ock. I nt er est ingly, while the manufactur ing
capacit y only impact s on t he forwar d flow of mat er ials, t he r emanufact ur ing capacit y affect s t he dynamics
of t he whole syst em. Fr om a manager ial viewpoint , t his wor k suggest s t hat capacit y const r aint s in both
r emanufact ur ing and manufact ur ing lines can be adopt ed as a fr uit ful bullwhip-dampening met hod, even
if t hey need t o be pr oper ly r egulat ed for avoiding a r educt ion in t he syst em capacit y t o fulfil cust omer
demand in a cost -effect ive manner .

K eywor ds: Bullwhip effect , supply chain dynamics, rever se logist ics, capacit y limit at ions, simulat ion .
 On t he dynami cs of cl osed-l oop suppl y chai ns wi t h capaci t y const r ai nt s

Abst ract
I n t his paper , we invest igat e t he dynamic behaviour of a closed-loop supply chain wit h capacit y r est rictions both in the
manufactur ing and r emanufact ur ing lines. We assume it oper at es in a context of a twofold uncer taint y by consider ing
st ochast ic demand and r et ur n pr ocesses. Fr om a Bullwhip perspect ive, we evaluate how t he four relevant factor s
(specifically, t he two capacit ies and two sour ces of uncer taint y) int eract and determine t he operat ional per formance of
t he system by measur ing t he var iabilit y of t he manufactur ing and r emanufact ur ing lines and t he net stock .
I nt er est ingly, while t he manufact uring capacit y only impacts on t he forward flow of mat er ials, t he r emanufact uring
capacit y affects t he dynamics of t he whole system. Fr om a managerial viewpoint, t his work suggest s t hat capacit y
const r aints in bot h r emanufact ur ing and manufact ur ing lines can be adopted as a fr uitful bullwhip -dampening
met hod, even if t hey need t o be proper ly r egulat ed for avoiding a r educt ion in t he syst em capacit y to fulfil cust omer
demand in a cost -effect ive manner.

K eywor ds: Bullwhip effect, supply chain dynamics, reverse l ogistics, capacit y limit ations, simulat ion.

1. I N TRODU CTI ON

An almost -ubiquit ous pr oblem occurr ing in supply chains (SC) is t he so-called bullwhip effect (BWE) (Lee
et al. 1997), which refer s t o t he phenomenon by which even small var iat ions in cust omer demand may
gener at e high alt er at ions in upst r eam pr oduct ion for supplier s (Huang et al. 2017, L in et al. 2017,
Dominguez et al. 2014). This has impor t ant consequences in r eal-life SCs (see e.g. Zot t er i 2013, I saksson
and Seifer t 2016, Chiang et al. 2016, Tr aper o and Pedr egal 2016, Jin et al. 2017, de Oliveir a Pacheco et al.
2017, L in et al. 2017, Past or e et al. 2017). I ndeed, r ecent empir ical wor ks have shown t hat BWE may
emer ge in t wo-t hir ds of fi r ms fr om USA (Br ay and M endelson 2012) and China (Shan et al. 2014). Besi des,
it s consequences ar e, by nat ure, global and impact bot h developed and developing countr ies, as point ed out
by t he Eur opean Centr al Bank (Alt amont e et al. 2012), t he European Bank for Reconst ruct ion and
Development Wor king (Zavacka et al. 2012) and by t he Wor ld Bank (Ferr ant ino and Taglioni 2014). Some
of t he consequences of BWE ar e excess of invent or y, poor cust omer ser vice and poor pr oduct for ecast s
(Tr apero et al. 2012). I n t he last t wo decades, differ ent effor t s t o explain and r educe t he BWE have
emer ged and cont inue t o gr ow (Wang and Disney 2016). H owever , even if a number of advances have been
made for limit ing BWE, t her e is st ill subst ant ial r oom for impr ovement. M or e specifically, aft er conduct ing
t he most r ecent lit er atur e survey on the BWE, Wang and Disney (2016) ident if y sever al oppor t unit ies for
fut ur e r esearch such as BWE in complex syst ems, wit h pr icing consider at ions, in service chain, wit h
r esear ch compet it ion, et c. Among t hose oppor t unit ies, t wo st and out , i.e.: invest igat ing t he BWE in
capacit y-const r ained envir onment s and explor ing this phenomenon in Closed-L oop SCs (CL SCs).

M anufact ur ing fir ms ar e fundament al in suppor ting most moder n economies (Tr apero et al. 2015).
Consequent ly, st udying t he impact of manufact ur ing capacit y const r aint s in SC dynamics has been an
issue in t he past year s. Capacit y const r aint s usually r efer t o consider ing upper limit s in t he or der sizes
placed t o supplier s, or upper limit s in t he or der s’ accept ance channel. For example, this may be due t o
r est r ict ions in the manufact ur ing resources. I n t his r egar d, lit er at ure has shown that such int er pr et at ion
of capacit y can st abilize t he or der s and gener at e a smoot hing effect on product ion (see e.g., Evans and
Naim 1994, Chen and L ee 2012, Shukla and Naim 2017, Pont e et al. 2017, Fr aminan 2017). H owever ,
t hese r est r ict ions may negat ively impact on invent ory holding cost s and cust omer ser vice level (Cannella et
al. 2008, Nepal et al. 2012, Spiegler and Naim 2014, Hussain et al. 2016). I n gener al, works dealing with
t he implicat ions of capacity limit s on t he dynamics per for mance of the SC ar e r elat ively scar ce (Pont e et al.
2017) and, t o t he best of author s’ knowledge, their subject of st udy is a t r adit ional forwar d SC as opposed
t o a CL SC.

I n a CL SC, recycling and/or r emanufact ur ing act ivit ies – i.e., t aking back pr oduct s fr om cust omer s after
t heir consumpt ion and r et ur ning them t o the SC for t he r ecovery of added-value by r eusing t he whole
pr oduct or par t of it (Genovese et al. 2017) — ar e implement ed (Jer bia et al. 2018). CL SC design is t he
desir ed business model for companies due t o t he pot ent ial value r ecovery, envir onment al sust ainabilit y,
and special impor t ance given by t he cust omer s (Jabbar zadeh et al. 2018). I n t he last decade, some works
have been explor ing t he dynamic char act er ist ics of CL SCs, specifically by focusing on how some key fact or s
of t his st r uctur e (e.g., the per cent age of r eturn yields, t he r emanufact ur ing lead-t ime, and the adopt ion of
differ ent or der policies) may impact on t he per for mance in t er ms of BWE, i nvent ory st abilit y and cust omer
ser vice level. Par t icular ly, most of st udies have shown t hat incr easing t he per cent age of r eturn yields can
r educe the BWE (see e.g., Tang and Naim 2004, Zhou and Disney 2006, H osoda et al. 2015, Cannella et al.
2016, Zhao et al. 2018). H owever , t o t he best of the aut hor s’ knowledge, t hese st udies assume infinit e
pr oduct ion capacity.

I n t he light of t he above-ment ioned r esult s, we argue t hat explor ing t he dynamic behavior of a capacit ated
CL SC by under st anding how a limit at ion in t he capacit y of t he manufact ur ing and r emanufact ur ing lines
impact s on SC per for mance can be r easonabl y consider ed a major challenge for OM communit ies. H ence, in
t his work we aim t o shed light on this t opic and, to fulfil the resear ch object ive, we model a CL SC via
differ ence equat ion modelling (Riddals et al. 2000) char act er ized by a limit at ion in bot h manufact ur ing
and r emanufactur ing oper at ions. Mor eover , given t he need of moder n SCs for surviving and t hr iving in
t ur bulent and volat ile envir onment s (Wikner et al. 2017), we consider st ochast icit y in both t he r et ur n yield
and t he cust omer demand. Thus, we per for m a r igor ous Design of Exper iment (DoE) consider ing four key
fact or s, i.e., (1) the var iabilit y of t he r et ur n yields, (2) t he capacit y fact or of t he manufact ur er , (3) the
capacit y fact or of the r emanufact ur er, and (4) the var iabilit y of t he cust omer demand. The r esult s of t his
works r eveal t hat a low capacit y in t he r emanufactur er may smoot h t he BWE in t he fabr icat ion of bot h
new and r emanufact ur ed pr oduct s while maint aining a good invent ory per for mance. H owever , if capacity
is r educed below cer t ain t hr eshold value, it can also gener at e det r iment al consequences in t er ms of
invent ory holding cost s and cust omer service level. Fr om a manager ial point of view, t his wor k suggest s
t hat imposing capacit y limit s in bot h r emanufact ur ing and manufact ur ing pr ocesses can be adopt ed as a
bullwhip-dampening method. I n or der t o the set suitable capacit y of bot h nodes, manager s should also t ake
int o account degr ee of uncer t ainty of bot h t he mar ket demand and the r et ur n yield.

The rest of t he paper is or ganized as follows. Sect ion 2 pr esent s a lit er at ur e r eview of st udies dealing with
BWE, capacity const r aint s and CL SCs. Sect ion 3 det ails t he model of t he capacit at ed CL SC and t he key
per for mance indicat or s employed. Sect ion 4 descr ibes t he exper iment al design, while Sect ion 5 shows t he
r esult s obt ained fr om t he simulat ions. Sect ion 6 cont ains t he summar y of findings and managerial
implicat ions. Finally, Sect ion 7 pr esent s the main conclusions of t he wor k.

2. L I TERATU RE REVI EW

I n t his sect ion, we fir st pr ovide an over view of t he pr evious wor ks invest igat ing the BWE in capacit ated
SCs. L at er , we summar ize t he r elevant lit er at ur e explor ing t he dynamics of CL SCs. As di scussed in t he
pr evious sect ion, alt hough a number of cont r ibut ions have been pr oduced in t hese ar eas separ at ely, we ar e
not awar e of any wor k joint ly invest igat ing t hese t wo aspect s.

2.1. The i mpact of capaci t y const r ai nt s on suppl y chains

I n BWE lit er at ure, t he pr oblem of capacity const r aint s has been consider ed in r elat ively few st udies. These
ar e usually developed by adopt ing modelling and simulat ion t echniques, given t he mat hemat ical
complexity int roduced by t he capacit y limit in the for m of a nonlinear it y. Among t hese wor k s, t o the best of
t he aut hor s’ knowledge, Evans and Naim (1994) can be consider ed t he fir st one. Via different ial equat ion
modelling, t he aut hor s conclude t hat t he capacit y const r aint s may impr ove the behavior of SC in t er ms of
bullwhip effect and invent ory st abilit y, but at t he expense of r educing t he invent or y service levels.
Essent ially, Evans and Naim (1994), show for t he fir st t ime t hat an unconst r ained SC does not always
pr oduce t he best per for mance. De Souza et al. (2000), using syst em dynamics, conclude t hat SC
per for mance can be ser iously affect ed by capacit y shor t ages. I n t his fashion, they suggest t hat capacit y
planning is cent r al t o t he dynamics of the SC. Analogously, H elo (2000), also via syst em dynamics,
suggest s t hat a limit ed capacit y negat ively impact t he r esponsiveness of t he SC. Vlachos and Tagaras
(2001), t hr ough bot h analyt ical met hods and simulat ion, show t hat imposing capacity limit s r educes t he
syst em’s r esponse, par t icular ly for long pr oduct ion lead t imes. Simil ar ly t o Evans and Naim (1994), Wilson
(2007), t hr ough syst em dynamics model ling, finds out t hat shor t -t er m limit at ions on capacit y may pr oduce
a poor cust omer service level; however, t hey can impr ove t he SC behavior . Analogously, Cannella et al.
(2008), via differ ent ial equat ions modelling, show t hat t he BWE can be r educed if capacit y limit s ar e
imposed, but t hey also can cr eat e a significant st ock -out phenomenon. Bout e et al. (2009), via analyt ical
met hods, demonst r at e that inflexible limit s on capacit y gener at e st ochast ic lead t imes and t hus t hey
amplify t he desir ed invent or y on-hand and, in gener al, t he oper at ional cost s. I nt er est ingly, Juntunen and
Juga (2009), via discr et e-event simulat ion, show t hat t he fill r at e does not necessar ily impr ove by
increasing the capacit y limit at ion in dist r ibut ion . Cont r ar ily, H amdouch (2011), by adopt ing a networ k
equilibr ium method, shows t hat capacit y limit at ions gener at e poor market r esponse and SC behavior .
Nepal et al. (2012), via differ ent ial equat ions modelling, r epor t t hat capacit y r est r ict ions do not have a
significant impact on or der var iabilit y but , in contr ast , it can st rongly affect the st abilit y of the invent ory.
Chen and Lee (2012), via mat hemat ical analysis, in line with t hose st udies showing t he benefit s of capacit y
const r aint s in t er ms of BWE r educt ion, argue t hat consider ing a fixed capacity in SC mit igat es t his
phenomenon. Cont r ar ily, Spiegler and Naim (2014), via syst em dynamics, show t hat capacit y r est r ict ions
have a negat ive effect on bot h invent or y and ser vice cust omer levels, even if it emerges a posit ive impact
on t he ‘backlash’ effect (i.e., BWE on t r anspor t at ion). I n line wit h most of t he pr evious st udies, H ussain et
al. (2016), using different ial equat ions modelling, show t hat rest r ict ions in the or der size due t o capacit y
limit at ion may avoid “phant om” large or der s value, a similar conclusion t o t hat by Shukla and Naim (2017)
via syst em dynamics model ling. Pont e et al. (2017) show t hat t he capacit y limit can be opt imized t o r educe
SC cost s by looking at t he t r ade-off bet ween impr oved or der st abilit y and r educed invent or y per for mance.
Finally, Fr aminan (2017) analyt ically demonst r at es t hat if capacit y r efer s t o the r eject ion of or der s in
excess of a given t hreshold, t hen capacit y dampens t he BWE.

I n summary, t he above-ment ioned st udies have r epor t ed cont r adict ory r esult s r egar ding t he impact of
capacit y const r aint s on the dynamics of SCs. H owever, most of t hem, agree on the posit ive impact of the
capacit y limit at ions on the BWE, since these r est r ictions dampen or der var iabilit y. At t he same t ime, they
obser ve t hat t his impr ovement is gener ally achieved at t he expense of a decr eased tr ade-off bet ween
ser vice level and holing requirement s. H owever, it is int er est ing t o highlight t hat all t he pr evious st udies
have been conduct ed in t he cont ext of t r adit ional, or open -loop, SCs. I n t his sense, none of t he st udies
invest igat es how capacit y limit at ions may impact the dynamics of CL SCs, par t icular ly when t hese affect t o
bot h t he forward and r ever se flow of mat er ials.

2.2. The dynami cs of cl osed-l oop suppl y chai ns

Following fr om the pr evious discussion, t he BWE has lar gely boost ed t he at t r act ion of r esear cher s over t he
last decades in what we may label as t r adit ional, or open -loop, SCs (see e.g. Wang and Disney, 2016).
These cover t he unidir ect ional flow of mat er ials bet ween t he r aw mat er ials ar e ext r act ed, upst r eam, and
t he pr oduct is consumed and ends up in landfill, downst r eam. H owever , this ar chet ype is becoming
obsolet e in many pr act ical set t ings, as SCs ar e evolving t owar ds closed-loop var iant s in a bid t o mit igat e
envir onment al impact s and exploit economic oppor t unit ies der ived from cir cular economy models
(Govindan et al. 2015, Genovese et al. 2017). I n t his sense, t he so-called CL SCs capt ur e a bidir ect ional flow
of mat er ials: on t he one hand, t he t r adit ional downst r eam flow, from supplier s t o cust omer s; on t he ot her
hand, t he r ever se flow, in the opposit e dir ect ion. The r ever se flow cover s t he collect ion of used pr oduct s and
t heir r ecovery up t o oper at ing st andar ds, for examples t hr ough r ecycling and/or r emanufactur ing
pr ocesses. I t should be not ed that t he for war d and r ever se flow ar e subject t o differ ent uncer t aint ies. While
t he dynamics of t he for mer , and t hus t hose of t r adit ional SCs, ar e heavily influenced by t he consumer
demand uncer t ainty; t he dynamics of t he r ever se flow of mat er ials, and t hus t hose of CL SCs, is gr eatly
impact ed by the uncer t ainty on t he volume, t iming, and qualit y of t he ret urned pr oduct s (Ferguson et al.
2009, Souza 2013). Given t hat t he char act er ist ics of t hese emerging SCs significant ly differ fr om t hose of
t r adit ional SCs, r esear ch on new business models t hat efficient ly int egr at e bot h flows of mat er ials becomes
necessary (Guide et al. 2003, Golt sos et al. 2018).

I n t he BWE lit er at ur e, t he CL SC ar chetype has st ill r eceived r elat ively lit t le at t ent ion, as point ed out by
r ecent r eviews of t he lit er atur e (Br az et al. 2018, Golt sos et al., 2018). H ist or ically, the wor k by Tang and
Naim (2004) can be consider ed t he fir st effor t in analyzing the BWE in a CL SC in the for m of a hybr id
manufactur ing/r emanufact ur ing syst em. The authors, via contr ol t heory, st udy thr ee ad-hoc or der policies.
They conclude t hat incr easing r ecollect ed pr oduct s and oper at ing with higher infor mat ion tr anspar ency on
t he pipeline of t he r emanufact ur er st r ongly impr oves t he per for mance of t he CL SC. Also by means of a
contr ol t heor et ic appr oach, Zhou and Disney (2006) analyze the impact of lead t imes and r et ur n r at e on the
invent ory var iance and demand amplificat ion phenomenon. Zanoni et al. (2006) use a discr et e-event
simulat ion model t o car ry out a compar at ive st udy bet ween four differ ent r eplenishment r ules in t er ms of
or der amplificat ion. They show how the BWE of the downst ream (for war d) flow in the SC can be r educed in
t he dual policy, while t he BWE of t he upst r eam flow (r ever se) can be mit igat ed by using t he shift ed pull
policy. Pat i et al. (2010) use a st at ist ical analysis on a six-st age r ever se SC and conclude t hat t he r ever se
flow does not exper ience a demand amplificat ion. By means of agent -based simulat ion, Adenso-Díaz et al.
(2012) analyze t he impact of 12 fact or s in bot h t he for war d and t he r ever se flow of mat er ials and do not
det ect significant differ ences bet ween t he perfor mances of t he t wo consider ed SC st r uct ures in t er ms of
or der r at e amplificat ion. Turr isi et al. (2013), via difference equat ion modelling, pr opose a novel
r eplenishment rule t o coor dinat e t he upst r eam and downst r eam flows in a CL SC and show that a
r educt ion of BWE can be obt ained by increasing t he volume of r eturns. H owever, t hey do not find
significant differ ences in t er ms of invent ory var iance. Analogously, Corum et al. (2014) employ a discr ete-
event simulat ion model t o show t hat a CL SC allows r educing t he BWE phenomenon. H osoda et al. (2015),
via analyt ical met hods, st udy t he impact of the corr elat ion bet ween demand and r et ur ns, and show t hat
increasing t he yield may have a negat ive effect in t er ms of invent ory var iabilit y. Cannella et al. (2016)
employ differ ence equat ion modelling t o show t hat shift ing fr om a for war d SC t o a CL SC always gener ates
benefit s in t er ms of invent ory and or der var iances, bot h in st able and tur bulent mar ket scenar ios. Dev et
al. (2017), via differ ence equat ion modelling, conclude t hat , in a CL SC, cont inuous-r eview policies
out per for m the per iodic-review policies fr om a BWE per spect ive. Zhou et al. (2017) st udy the qualit y of
r ecollect ed pr oduct in differ ent levels of t he SC using cont r ol theor y, and show t hat a higher r et ur n yield
decr eases t he BWE. The magnit ude of t his r educt ion depends on t he combinat ion of cont r ol par amet er s
(i.e, t he degr ee of r eturn yield at each echelon and t he lead t imes in t he CL SC). H osoda and Disney (2017),
via analyt ical met hods, explor e the so-called ‘lead t ime par adox’ in CL SCs, which r efer s t o the scenar ios in
which increasing the r emanufact ur ing lead t ime may decr ease t he SC cost . They show t hat shor t ening the
r emanufact ur ing lead t ime does not contr ibut e t o lower invent ory cost s but could gener at e some ot her
benefit s, such as lower capacit y cost and in-t r ansit invent or y. Sy (2017) employs syst em dynamics t o
analyze a hybr id pr oduct ion-dist r ibut ion syst em and show t hat , under t hr ee scenar ios, the cent r alizat ion of
t he cust omer demand infor mat ion at t enuat es the BWE. Similar ly, Zhao et al. (2018) st udy, via system
dynamics, t he impact of t hree or der ing policies t hat differ on the degr ee of shared infor mat ion in t he
CL SC. I n line with lit er at ure on infor mat ion shar ing, t hey conclude t hat t he use of cent r alized demand
infor mat ion in a vendor managed invent ory syst em reduces bot h or der and invent ory var iabilit y.

I n summary, pr evious st udies show a lack of consensus on t he impact of t he r elevant CL SC par amet er s on
t he BWE and invent ory var iabilit y of such syst ems. While some st udies obser ved t hat t he dynamics of
CL SCs may be impr oved by incr easing the ret urn yield, other st udies concluded t he opposit e impact .
Similar ly, some st udies concluded that r educing r emanufactur ing lead t imes t r anslat es int o an incr eased
per for mance of CL SCs, while ot her s r epor t ed t he pr eviously ment ioned lead t ime par adox. As r emar ked by
Cannella et al. (2016) and Zhao et al. (2018), these conflict ing r esult s may depend on differ ent SC
configur at ions and modelling assumpt ions. There is no doubt , however , about t he key r ole of infor mat ion
t r anspar ency for impr oving t he dynamic behavior of CL SCs. I nt egr at ing t he forwar d and r ever se flow of
mat er ials in a cost -effect ive manner has pr oven to be gr eat ly facilit at ed by t he infor mat ion exchange
bet ween t hem. Finally, it is impor t ant t o emphasize t hat t her e is no evidence on how a CL SC per for ms if
capacit y limit at ions ar e consider ed both in t he for war d and rever se flow of mat er ials.

3. CL OSED-L OOP SU PPL Y CH AI N M ODEL

Figur e 1 pr ovides an overview of t he hybr id manufact ur ing/r emanufact ur ing syst em consider ed in this
r esear ch work, t ogether wit h it s main par amet er s. This CL SC is descr ibed in det ail in t he following
par agr aphs. A summary of t he not at ion employed for descr ibing t he CL SC model is pr ovided in Table 2.
 Figur e 1. St r uct ur e of t he hybr id manufact ur i ng/r emanufact ur i ng syst em.

Table 2. Not at ion of t he CL SC model .

Var iables

Or der quant it y r emanufact ur i ng complet ion r at e

cust omer demand in per iod t r emanufact ur i ng back log

mar k et demand for ecast at t he end of per iod t r andom var i able for demand in t he per iod t

r et ur ns i n t he per iod wor k -in-pr ogr ess

on-hand ser viceable st ock r et ur n yield in per iod t

safet y st ock t ar get wor k -in-pr ogr ess

net st ock r andom var i able for t he r et ur n yiel d

manufact ur ing back log

Par amet er s and St at ist ics

coefficient of var i at ion of demand capacit y const r ai nt of t he manufact ur i ng pr ocess

coefficient of var i at ion of t he r et ur n yiel d capacit y const r ai nt of t he r emanufact ur ing pr ocess

σ st andar d devi at ion of t he demand Est i mat ed pipel ine

μ mean of mar k et demand manufact ur ing lead t i me

α demand for ecast smoot hing fact or r emanufact ur i ng lead t i me

mean of t he r andom var iable for t he r et ur n
β consumpt ion lead t ime
yield
st andar d devi at ion of t he r andom var i able for
t t ime unit
t he r et ur n yield
st andar d devi at ions of t he manufact ur i ng complet ion
ε safet y st ock fact or
r at e
st andar d devi at ions of t he r emanufact ur ing
Coefficient of manufact ur ing capacit y
complet ion r at e
Coefficient of r emanufact ur ing capacit y st andar d devi at ions of t he net st ock
The CL SC modelled int egr at es bot h manufact ur ing and r emanufact ur ing pr ocesses int o t he same SC and
oper at es on a discr et e-t ime basis, being t he t ime unit t . We consider two sources of st ochast icit y, i.e. the
consumer demand ( ) and t he r et ur ns ( ). As usually assumed in t his field, the demand is an independent
and ident ically dist r ibut ed (i.i.d.) r andom var iable ( following a nor mal dist r ibut ion wit h mean μ and
st andar d deviat ion σ, being t he coefficient of var iat ion , which is const r ained t o only posi t ive
values. That is,

(1)

I n or der t o account for the st ochast icit y of the r et ur ns, we model t he r eturn yield ( ), i.e. t he per cent age of
sold pr oduct s t hat come back t o the SC aft er consumpt ion, as a i.i.d. r andom var iable ( ) following a
nor mal dist r ibut ion wit h mean β and st andar d deviat ion ξ , being t he coefficient of var iat ion ,
which has been const r ained t o values bet ween 0 and 1. This appr oach allows us t o model t he r et ur ns as the
pr oduct of t he yield and t he demand befor e a constant consumpt ion lead t ime . Similar ly, t his var iable
has been const r ained t o pr event negat ive values from happening, which would be meaningless in pr act ice.

(2)

Each per iod t , t he oper at ion of t he hybr id manufact ur ing/r emanufact ur ing syst em can be divided int o
t hr ee sequent ial st ages, which ar e det ailed below, including the associat ed mat hemat ical for mulat ion.

3.1. St age I : Recept i on, set t l i ng and feedi ng

At t he beginning of each per iod t , t he serviceable invent ory r eceives the pr oduct from bot h the
manufactur er (new pr oduct s) and r emanufact ur er (assuming as-good-as-new pr oduct s) pr ocesses, once
t hese have been complet ed aft er the r espect ive const ant lead t imes and . I n this sense, t he
ser viceable invent ory is r eady for facing t he consumer demand that will be r eceiv ed dur ing t his per iod.
M oreover , t he r aw mat er ial invent ory pr ovides t he manufactur ing equipment with t he quant it y required
accor ding t o t he or der issued at t he end of the pr evious per iod. Similar ly, t he r et ur ns collect ed dur ing the
pr evious per iod ar e fed int o t he r emanufactur ing process, which hence oper at es accor ding t o a push poli cy
— H osoda and Disney (2017) just ifies t hat t his common assumpt ion fit s well wit h the ethics of
sust ainabilit y.

I n t his r egar d, we not e t hat t he capacit y const r aints of t he manufact ur ing and remanufact ur ing pr ocess,
r espect ively and , play a key role. I f we t ake int o consider at ion t he capacit y requir ed for bot h
pr ocesses under a st abilit y sit uat ion defined by t he mean values (for the demand) and (for the ret urns),
t hat is, for t he manufactur ing process (i.e. the aver age net demand) and for t he
r emanufact ur ing pr ocess (i.e. the aver age r eturns); we define t he coefficient s of capacity as
and . Not e t hat these coefficient s infor m about the excess capacit y available
in relat ive t er ms. We not e t hat t o ensur e t he st abilit y of t he syst em, bot h must be gr eat er t han the unity.

Under these circumst ances, t he manufact ur ing complet ion r at e r esponds t o t he or der placed per iods
ago, as long as t her e is capacity available, by

(3)

As Equat ion (3) illust r at es, it is also necessar y t o consider the manufactur ing backlog ( ) which
measur es t he pending or der s t hat could not be pr ocessed when r equir ed and will be consider ed as soon as
capacit y becomes available. This var iable can be expr essed by

(4)

I t can be easily checked that if , the manufact ur ing syst em has no pending work, i.e.
, while would r esult in pending or der s, i.e. .

The r at ionale employed for modelling t he r emanufact ur ing line is similar if assuming t hat it oper ates
accor ding t o a push policy. For t his r eason, the r emanufactur ing complet ion r at e ( ) corr esponds t o t he
r et ur ns collect ed per iods ago, as long as the r emanufact ur ing capacit y allows it , by

(5)

while the r emanufactur ing backlog ( ) would be expr essed as

(6)

Over all, the on-hand ser viceable st ock, or init ial st ock ( ), which is available for fulfilling t he demand
r eceived dur ing t he per iod can be expr essed as a funct ion of t he net st ock ( ), or excess on-hand invent or y
at t he end of t he previous per iod, or, by

(7)

3.2. St age I I : M anufactur i ng, ser vi ng, and r et ur ns col lect i on

Dur ing per iod t , or der s from consumer s ar e r eceived. These ar e sat isfied as long as on-hand invent ory is
available. I n t his sense, t he final posit ion of t his invent ory can be expr essed as
 (8)

wher e posit ive values of t his var iable r efer t o holding and negat ive values indicat e st ock -out s, which will
be sat isfied as soon as possible (ideally, at the beginning of the next per iod).

I n t his r egar d, t he on-or der invent or y, or wor k -in-progr ess ( ), at the end of the per iod can be obt ained by

(10)

Not e t hat we ar e implicit ly assuming that it t akes one per iod t o account for t he collect ed r eturns and
evaluat e t heir st at e. The wor k -in-progr ess r epresents t he sum of t he pr oduct s t hat have been or der ed but
not yet r eceived in t he serviceable invent ory plus t he r et urns t hat have been collect ed but not yet
complet ely r emanufactur ed. We not e that t his is a r elevant var iable as it pr ovides t he decision maker s
wit h r elevant infor mat ion about t he curr ent st at e of t he syst em.

At t he same t ime, dur ing per iod t , ret urns ar e collect ed and st or ed in t he r ecover able invent ory. Similar ly,
bot h t he manufact ur ing and r emanufactur ing pr ocesses ar e consider ed t o be ongoing.

3.3. St age I I I : U pdat i ng, for ecast i ng, and sour ci ng

At t he end of each per iod, a new or der is issued t o manufactur e new pr oduct s. I n this sense, we ar e
implicit ly assuming t hat t he serviceable invent or y is oper at ed via a discr et e-review policy. To t his end, we
employ an or der -up-t o (OUT) r eplenishment model, which is widely used in r eal -wor ld scenar ios
(Dejonckheere et al., 2003). We not e t hat , as point ed out by Axsät er (2003), t hese per iodic-r eview invent ory
models ar e gener ally easier t o implement and less expensive t o oper at e t han cont inuous-review models,
wher e the invent or y is const ant ly r eviewed.

I t is r elevant t o highlight t hat t he OUT model has been adapt ed t o closed-loop scenar ios by employing t he
same r at ionale t hat t he t ype-3 OUT model developed by Tang and Naim (2004). M or e specifically, an order
is placed t o cover the fr act ion of the demand that cannot be sat isfied t hrough r emanufact ur ed pr oduct s. We
select ed t he type-3 syst em, as it was shown t o make t he best use of the available infor mat ion both fr om the
manufactur ing and r emanufact ur ing pr ocesses. As in Tang and Naim (2004)’s pr oposal, t he or der quant it y
is obt ained as t he sum of t hr ee gaps: (i) t he gap between t he for ecast ed demand ( ) and t he actual number
of r emanufactur ed pr oduct s; (ii) t he gap bet ween the t ar get , or safet y st ock ( ), and t he curr ent level of
t he on-hand invent ory; and (iii) t he gap between t he t arget ( ) and t he cur r ent wor k -in-pr ogress; as per
t he following equat ion,

(11)
Not e t hat we have const r ained t he or der quant it y t o only posit ive values, which means assuming t hat the
ser viceable invent ory is not allowed t o r et ur n t he excess invent ory t o t he r aw mat er ial invent ory (if it wer e
t he case). I n t his sense, we ar e captur ing a common real -wor ld feat ur e of invent ory syst ems.

The previous equat ion r equir es t he calculat ion of the demand for ecast , t he safet y st ock, and t he t ar get
work-in-pr ogr ess. Fir st , we assume that t he demand is est imat ed t hr ough the minimum mean square er ror
(M M SE) for ecast of t he var iable t hat define it s behavior, which is it s condit ional expect at ion (e.g. Disney et
al., 2016). For i.i.d. demand, t hat is:

(12)

Regar ding t he safet y st ock, we adopt a simple but used model (e.g. Cannella et al., 2016) t hat est i mat es it
as t he product of t he safet y st ock fact or ε and t he demand for ecast , by

(13)

Thus, the fact or may be int er pr et ed as t he number of fut ur e per iods against which it aims t o be cover ed.
Finally, t he t arget wor k -in-progr ess is obt ained as t he pr oduct of t he pipeline est imat e and the demand
for ecast , accor ding t o:

(14)

Not e t hat t he pipeline est imat e has been adjust ed accor ding t o t he set t ing pr oposed by Tang and Naim
(2004) as an aver age of t he manufact ur ing and remanufactur ing lead t imes weight ed by t he ret urn yield.
These aut hor s show t hat t his was t he only configur at ion t hat avoids a long-t er m dr ift in t he posit ion of t he
ser viceable invent ory. Given t hat in t heir case t hey assumed a const ant r et ur n yield, we have adapted
t heir proposed equat ion by employi ng t he aver age of t he var iable t hat define t he yield’s behavior , i.e.
.

3.4. K ey per for mance i ndi cat or s

We assess t he behaviour of the CSL C using thr ee main per for mance indicat or s based on the pioneer ing
works of Tang and Naim (2004) (i.e., manufact ur ing complet ion r at e, net st ock) and Zanoni et al (2006)
(i.e., remanufact ur ing complet ion r at e). M or e specifically, we use t he st andar d deviat ions of t hese t hree
var iables over t ime, i.e.manufact ur ing complet ion rat e ( , r emanufact ur ing complet ion r at e ( , and
net st ock ( , as t hey pr ovide mor e concise and compar able insight s on t he BWE of bot h
manufactur ing/r emanufact ur ing pr ocesses and on invent or y holding cost s. Below, we discuss in det ail t he
r at ionale behind t he adopt ion of t hese met r ics.
Disney et al. (2012) explor e sever al cost funct ions that can be employed t o assigned capacit y -r elat ed cost s
t o st ochast ic pr oduct ion r at es. They show t hat in guar ant eed-capacit y models —i .e. where an oppor tunit y
cost is incurr ed if t he pr oduct ion is lower than the guar ant eed capacit y and an over t ime cost is incurred
when t he pr oduct ion r at e is higher than t he guar ant eed capacit y —,t he minimum pr oduct ion cost is
pr opor t ional t o t he st andar d deviat ion of t he manufact ur ing r at e if bot h cost s ar e pr opor t ional t o t he
volume. While it is t r ue t han in ot her cost s models t his per fect r elat ionship may be br oken, it can be
consider ed t hat t he st andar d deviat ion of t he manufact ur ing complet ion r at e pr ovides a good
under st anding on the behavior of t he pr oduct ion cost s in t he SC. The same r at ionale applies for the
st andar d deviat ion of t he remanufact ur ing complet ion r at e.

Similar ly, K ahn (1987) demonst r at e t hat t he minimum invent or y cost is linear ly r elat ed t o the st andar d
deviat ion of t he net st ock, wher e holding (for posit ive net st ocks) and st ock -out (for negat ive net st ocks) ar e
consider ed and t hese ar e pr opor t ional t o t he volume. Again, this pur e relat ionship does not hold for ot her
cost models; but t he var iabilit y of net st ock can st ill be int er pr et ed as a good indicat or of t he invent or y
per for mance of t he SC under a specific configur at ion. I n this sense, Disney and L ambr echt (2008) st at e
t hat t he var iabilit y of t he net st ock det er mines t he echelon’s abilit y t o meet a service level in a cost -
effect ive manner .

4. EXPERI M EN TAL DESI GN

In t his sect ion, t he effect of capacit y const r aint s on t he per for mance of t he hybrid
manufactur ing/r emanufact ur ing syst em is explor ed using an exper iment al design. To do so, we focus on
t he coefficient s of capacity of both the manufact ur er and remanufact ur er pr ocesses, i.e. and . As
highlight ed pr eviously, t hese par amet er s expr ess t he capacit y limit s in r elat ive t er ms. I n or der t o
under st and their effect in a wide r ange of scenar ios, we explor e sever al levels of both fact or s. These levels
ar e chosen accor ding t o the following consider at ions:

 To ensur e t he st abilit y of the syst em, and must be gr eat er t han t he unit y, i.e., t he
manufactur ing syst em is able t o meet the aver age net demand and t he r emanufact ur ing syst em is
able t o pr ocess t he aver age ret urns.
 Pr eliminary simulat ion exper iment s r evealed that the thr ee per for mance met r ics t end t o st abilize
as t he r elevant capacit ies incr ease. M or e specifically, this happens for CoCm >3 and CoCr >3, for
and (t hese values ar e lower for ). Thus we exclude fr om t he analysis t he r egion above t hese
values, since t hey give no fur ther infor mat ion about t he syst em.
Since t hese capacit ies ar e t he effect s of int er est in our st udy, we analyse sever al levels for each capacit y, in
int ervals of 0.5. Specifically, t hey r ange fr om 1.1 (t he syst em oper at es close t o it s capacit y) t o 3.1 (the
syst em has sufficient spar e capacit y), i.e. and .
As it seems r easonable, sever al r esearch st udies (see e.g. Pont e et al., 2017) have shown that t he impact of
capacit y const r aint s on t he dynamics of SCs st rongly depends on t he var iabilit y of the sour ces of
st ochast icit y. For t his r eason, we int r oduce the var iabilit y of t he r andom var iables gener at ing t he demand
and t he r et ur n yield in t he exper iment al design. Again, we do it t hr ough t he relat ive inst ead of t he
absolut e values, i.e., t he coefficient s of var iat ions. I n bot h cases, we employ t hr ee levels. I n t he for mer ,
, as t hey ar e inside t he common int erval of var iabilit y of demands for r et ailer s
accor ding t o Dejonckheer e et al. (2003). I n t he lat t er , , which also cover s a wide
enough int erval t hat allows us t o explor e t he impact of capacit y wher e ther e is a st r ong cor relat ion
bet ween demand and ret urns (yield var iabilit y low) and wher e t his cor r elat ion is small (yield var iabili t y
high). I t is impor t ant t o not e that t hese fact or s can be int er pr et ed as uncont r ollable fact or s, as opposed t o
t he coefficient of capacit ies t hat ar e int er pret ed as cont r ollable fact or s.

The r est of the par amet er s have been defined as fixed. I n t his regar d, the mean demand has been set t o
unit s per per iod, while t he aver age r eturn yield has been set t o . For t he lead t imes, we
explore a scenar io wher e the manufact ur ing and r emanufactur ing lead t imes ar e equal, . The
r eason behind t his decision is t hat it r epr esent s a “tar get scenar io”, accor ding t o t he conclusions by H osoda
and Disney (2017). While it is common t o assume t hat remanufact ur ing lead t imes ar e shor t er than
manufactur ing lead t imes (e.g. Tang and Naim, 2004), H osoda and Disney (2017) show t hat a lead t i me
par adox —accor ding t o which reducing r emanufact ur ing lead t imes has a negat ive impact on SC
per for mance— i s ver y likely t o appear in t hese scenar ios. To avoid t his fr om happening, t he author s
highlight t he benefit s of shor t ening t he manufact ur ing lead t ime unt il bot h lead t imes ar e equal. Not e t hat
ot her aut hor s have also consider ed equal lead t imes, e.g. Teunt er and Vlachos (2003). Fur ther mor e, we
have consider ed a consumpt ion t ime of in or der to illust r at e t hat t his t ends t o be significant ly
higher t han t he r est of lead t imes in t he CL SC (e.g. Tang and Naim, 2004). L ast ly, we employ for the
safet y st ock policy. The same value is used in Cannella et al. (2016).

Fr om t his per spect i ve, we have designed a full fact or ial exper iment , based on explor ing t he 225 scenar ios
r esult ing fr om combining t he differ ent values of the select ed fact or s (5 x 5 x 3 x 3). Each scenar io has been
explored t hr ough 10 differ ent simulat ions of 2,100 per iods, wher e t he fir st 100 per iods ar e not consider ed
for t he r esult s r epor t ed t o avoid t he impact of t he init ial sit uat ion of t he syst em. The number of
r eplicat ions aims t o r educe t he confidence int er vals, and hence incr ease t he soundness of our r esults.
Over all, Table 1 summar izes t he exper iment al design pr ot ocol.

Table 1. Exper iment al design pr ot ocol.

Exper imental factor s Role L evels

Coefficient of manufact ur ing capacit y Cont r ollable 1.1, 1.6, 2.1, 2.6, 3.1
Coefficient of r emanufactur ing capacit y Cont r ollable 1.1, 1.6, 2.1, 2.6, 3.1
Coefficient of var iat ion of t he demand Uncont r ollable 0.15, 0.30, 0.45
Coefficient of var iat ion of t he r eturn yield Uncont r ollable 0.20, 0.40, 0.60
Fixed factor s
, , , , ,
Exper imental appr oach
Type of DoE Full fact or ial
No. of exper iment s 225
No. of r eplicat ions 10
No. of simulat ion r uns 2,250
Simulation par ameter s
Time hor izon 2,100 per iods
War m-up per iod 100 per iods

5. RESU L TS

I n this sect ion, we analyze t he r esult s obt ained fr om t he simulat ions for t he met r ics , , and using
M init ab. Numer ical r esult s from ANOVA are shown in Appendix A. The t hr ee main assumpt ions of the
ANOVA (i.e. the nor malit y, homoscedast icit y and the independence of cases) wer e checked and validated
pr ior t o t he analysis.

We not e fr om t he numer ical r esult s t hat t he t hr ee models ( , , and ) show highly adjust ed R2, t hus
confir ming t heir r eliabilit y, as t he observed per for mance var iat ions ar e well explained by t he var iat ions in
t he exper iment al fact or s. Fur t her mor e all fact ors and t heir two-way int er act ions ar e st at ist ically
significant at a 95% confidence level (p<0.05), with t he except ions of CoCm (and all it s associat ed t wo-way
int er act ions) for , as out lined below. Ther efor e, in all t hese cases (p<0.05) we can r eject t he null
hypothesis t hat t her e is no differ ence in means bet ween groups.

I n t he following we fir st analyze t he main effect s of t he four exper iment al fact or s (i.e., , , , and
), and t hen we cont inue wit h the analysis of the fir st or der int er act ions.

5.1. M ai n Effect s

The main effect s plot s ar e shown in Figur es 2 t o 4. The main effect of is not discussed in det ail, as t he
impact of demand var iabilit y on t he dynamics of SCs is ver y well known in lit er at ur e. M eanwhile, t he
main effect of confir ms pr evious r esult s in CL SCs, such as t hose pr ovided by H osoda et al. (2015). As it
seems for eseeable, it can be seen that t he var iabilit y of indicat or s , and incr eases wit h t he
coefficient of var iat ion of t he r et ur n yield. This illust r at es how ret urns uncer t aint y negat ively impact on
t he dynamic behavior of CL SC.

Our r esult s show t hat t he main effect of is similar t o t hat in pr evious st udies of capacit at ed syst ems
in t r adit ional forwar d SCs. I t can be seen fr om Figur e 2 t hat r educing this fact or r esult s in a lower ,
and t his decr ease is mor e significant as becomes closer t o 1. Contr ar ily, slight ly incr eases by
r educing , and a sudden incr ease is observed when is below 1.6. This finding confir ms pr evious
st udies (Cannella et al. 2008, Spiegler and Naim 2014, H ussain et al. 2016, Pont e et al. 2017, among
ot her s) r epor t ing t hat a r educt ion in the capacit y of the manufactur er act s as a BWE limit er at t he expense
of decr easing t he SC capacit y t o fulfill consumer demand in t ime, while maint aining a low value of t he net
st ock var iabilit y. I nt er est ingly, we do not find evidences of a significant impact of on , which can
be int er pr et ed as consequence of t he push policy employed in the r ecover able invent ory.

The main effect of on is similar t o that of on (bot h cur ves have similar shapes). The
effect of on also has a similar behavior t han that of on , i.e., r educing has almost no
impact on , while a sudden incr ease of is obser ved for values of below 1.6. H owever, t he sudden
increase of is lower for t han for . Finally, we obser ve t hat does have a significant impact
on . I n fact, since t he r ever se flow is consider ed in t he order policy of t he manufact ur er , and the
r emanufact ur er is governed by a push policy, t he effect caused in by incr easing/decr easing has a
dir ect impact on . This r esult implies t hat reducing bet ween 2.6 and 1.6 slight ly r educes ,
while a mor e significant r educt ion is observed for values bet ween 1.6 and 1.1. Clear ly, t he impact of
on is always lower than the impact of .
 Figur e 2. M ai n effect s plot for .

Figur e 3. M ai n effect s plot for .

Figur e 4. M ai n effect plot s for .

5.2. I nt er act i ons

The fir st order int er act ions ar e shown in Figur es 5 t o 7. Fir st ly, looking int o Figure 5, we observe
significant int er act ions bet ween and the ot her thr ee fact or s. These int er act ions ar e par t icular ly
st r ong for t he fact or s and (see also F-Values in Appendix A), i.e., t he r educt ion obt ained for by
r educing is mor e significant for higher values of and . The int er act ion bet ween and
is only observed for very low values of ( =1,1), wher e is less sensit ive t o . shows less
int er act ion with and . This r esult implies t hat reducing fr om 2.1 t o 1.1 pr oduces a higher
r educt ion of for lower /higher values of and , respect ively, being the for mer int er act ion mor e
significant t han t he lat t er (see also F-Values in Appendix A). Finally, ther e is also a significant int er act ion
bet ween and . Thus, we can conclude t hat is more sensit ive t o for lower values of .

I n Figur e 6 the int er act ion plot s for are shown. Assuming t hat has no impact on , t he most
significant int er act ions t ake place between and t he ot her two fact or s, and , being more
significant t he int er act ion wit h the lat t er fact or (see F-Values in Appendix A). Mor e specifically, the
r educt ion of r esult ing from r educing is more significant for higher values of and .

Finally, we analyze t he int er act ion plot s for σ_NSt (see Figur e 7). The most significant int er act ions t ake
place bet ween and , and bet ween and , being t he for mer mor e significant t han t he lat t er
(see F-Values in Appendix A). M or e specifically, it can be obser ved t hat , when is reduced below 2.1,
t he incr ease in is higher for higher values of . Similar ly, when is r educed below 1.6 t he
increase in is higher for higher values of .

Figur e 5. I nt er act ion plot for .

 Figur e 6. I nt er act ion plot for .

Figur e 7. I nt er act ion plot for .

6. SU M M ARY OF FI N DI N GS AN D M AN AGERI AL I M PL I CATI ON S

We now summar ize the main findings and contr ibut ions of our wor k. We present also int erest ing
implicat ions for manager s, suggest ing di ffer ent ways t o impr ove t he dynamic per for mance of a capacit at ed
CL SC.

(1) The capacity r estr iction in the manufactur ing line of a CL SC limits the BWE of the manufactur er (as in
a tr aditional for war d SC). This limitation is mor e significant when the r eturn yield or the customer
demand pr esent higher var iability. H owever, the capacity constr aints of the manufactur ing line has no
significant impact on the BWE of the r emanufactur ing line.

Fir st ly, we r easser t the evidence t hat capacit y constr aint s may impr ove t he dynamic per for mance of a SC
by r educing t he BWE of t he manufact ur er. As a pract ical implicat ion, manager s may consider t o smoot h
t he manufact ur ing pr ocess by limit ing it s maximum capacity, obt aining a higher per for mance
impr ovement as t he capacit y limit is lower . This effect is especially impor t ant when t her e is a t ur bulent
mar ket demand or when the r eturn yield is very uncer t ain. H owever , the limit at ion in t he capacit y of the
manufactur ing line does not affect t he BWE of t he r emanufactur ing line.

(2) The capacity r estr iction of the r emanufactur ing line in a CL SC limits the BWE of the r emanufactur ing
line, especially when the r eturn yield or the customer demand pr esent higher uncer tainty. In addition, the
capacity constr aints of the remanufactur ing line may limit the BWE of the manufactur ing line, especially
for high var iability of the return yield or low var iability of the customer demand.

This novel finding allows t o under st and t he impact of t he capacity const r aint s of t he remanufact ur ing line
on t he dynamic behavior of capacit at ed CL SCs. L imit ing t he capacit y of t he remanufact ur ing line has a
posit ive impact on t he st abili t y of t he r emanufactur ing pr ocess, also obt aining higher impr ovement s as t he
capacit y limit s get s t o lower values. As in t he pr evious case (1), this impact is especially impor t ant when
t he mar ket demand or t he r eturn yield pr esent very var iable condit ions. I n addit ion, t he manufact ur ing
line maybe also be benefit ed fr om t he limit at ion of t he r emanufact ur i ng capacit y, but in a lower
magnit ude. M ore specifically, this benefit could be only appr eciat ed when t he capacity of the
r emanufact ur ing line is below a cer t ain thr eshold value (see Figure 5). Fur t her mor e, t his effect is
exacer bat ed when t her e is a high uncer t ainty of t he r et ur n yield and (cont r ar ily t o t he pr evious case) a
mor e st able mar ket demand. I n summary, in capacitat ed (r eal-life) CL SCs, a fur t her method for impr oving
t he dynamic behavior of bot h manufact ur ing and r emanufact ur ing lines is t o limit the capacit y of t he
r emanufact ur ing line, which is able t o indir ect ly smoot h inst abilit ies in t he manufactur ing line.

(3) Reducing either the capacity of the manufacturing line (par ticular ly in case of a high var iability of
customer demand) or the r emanufactur ing line (par ticular ly in case of a high var iability of the return
yield) below a cer tain thr eshold value has a negative impact on the var iability of the net stock. However ,
this negative impact is mor e sensitive to the capacity of the manufactur ing line than to the capacit y of the
r emanufactur ing line.

This finding goes in count er t endency wit h t he pr evious findings, since it highlight s t he negat ive impact of
capacit y limit at ion of bot h lines on t he var iabilit y of t he net st ock. While r educing capacit y of t he
manufactur ing/r emanufact ur ing lines pr oduce a cont inuous improvement in t er ms BWE, t he var iabilit y of
t he net st ock does not pr esent significant changes unt il a t hr eshold capacity value is r eached. From t hat
point on, t he var iabilit y of t he net st ock suddenly increases as t he capacit y is smaller (see Figure 7).
I nt er est ingly, such thr eshold value seems t o be ver y similar for bot h lines (ar ound 160% of t he mean
cust omer demand).

I n t he light of t he above findings, we would r ecommend manager s of a CL SC t o t ake caut ious decisions on
t he capacit y planning of bot h manufact ur ing and r emanufactur ing pr ocesses. I n fact , while t he capacity of
t he manufact ur ing line has a major effect on the dynamic of t he SC, t he capacit y of t he r emanufactur ing
line may also play an impor t ant r ole. By limit ing bot h capacit ies (i.e., avoiding over -capacit at ed
manufactur ing/r emanufact ur ing pr ocesses), it is possible t o smoot h t he pr oduct ion of both new and
r emanufact ur ed pr oduct s. This decision needs t o be t aken car efully, sin ce r educing capacity limit s over a
capacit y t hr eshold may have a negat ive impact on t he dynamic of t he net st ock , t hus incr easing cost s
r elat ed t o invent or y holding cost s and st ock -out s. I n t his sense, and consider ing t hat bot h lines may shar e
a common capacit y t hr eshold, it would be advisable t o r educe t he capacity of bot h pr ocesses unt il such
t hr eshold, t hus smoot hing bot h processes while maint aining a good per for mance of t he net st ock.
Addit ional capacit y r educt ion over such capacit y thr eshold could be r ecommended only aft er a pr oper
t r ade-off analysis bet ween invent or y holding cost s/ t ar get cust omer service level and product ion and
r emanufact ur ing cost s. Finally, uncer t aint y in market demand and r eturn yield accentuat es t he posit ive
and negat ive effect s discussed above. Thus, if t he SC is char act er ized by uncer t aint y in both mar ket
demand and r eturn yields, manager s would be mor e willing t o r educe capacity of bot h pr ocesses in or der t o
alleviat e t he negat ive consequences of such uncer taint ies, while in t he other hand, mor e consider at ion
should be given t o over st epping the capacit y t hreshold.

7. CON CL U SI ON S

I n t his paper we explor e the dynamic behavior of a capacit at ed CSL C. To do so, we modelled a mono-
echelon SC wit h r ever se flow char act er ized by a capacit y limit at ion in bot h manufactur ing and
r emanufact ur ing processes. We adopt ed difference equat ion modelling approach and a r igorous DoE for
assessing t he impact of four key fact or s, i.e., t he var iabilit y of t he ret urn yields, t he capacit y fact or at
manufactur ing line, the capacit y fact or at t he r emanufactur ing line and the var iabilit y of t he cust omer
demand. The most int er est ing r esult s concer ns t he impact on t he BWE of t he r emanufact ur er capacity,
which may influence the dynamics of t he manufact ur er . M or e specifically, a low capacit y in the
r emanufact ur er line may cr eat e a smoot hing effect in t he fabr icat ion of bot h new and r emanufactur ed
pr oduct s, but it can also gener at e det r iment al consequences in t er ms of invent ory holding cost s and
cust omer service level. Fr om a manager ial viewpoint , t his wor k suggest s t hat capacit y const r aint s in bot h
r emanufact ur ing and manufact ur ing pr ocesses can be adopt ed as a BWE-dampening met hod. H owever, a
pr oper t uning of t hese const r aint s should t ake int o account t he mar ket environment and degr ee of
uncer t ainty of t he r eturn yield.

As t his work is t he fir st at t empt t o explor e t he dynamics of a CL SC wit h capacity const r aint s in both
manufactur ing and r emanufactur ing pr ocesses, it is clear that futur e wor ks is needed t o deepening our
analysis. Fir st ly, mor e complex and r eal -life CL SC st r uctur es need t o be analysed ( e.g., mult i-echelon,
divergent st r uct ur e, Dominguez et al. 2018, Cabr al and Gr ilo 2018). As we do not focus on t he impact of
r emanufact ur ing and manufact ur ing lead t imes, furt her st udies may explore t he effect of t he int er act ion
bet ween t hese var iables, such as t he “lead-t ime par adox” advocat ed by H osoda et al. 2015. Al so, we
assumed an i.i.d. demand, but ot her demand st r uct ur es can be st udied, such as t he aut o-corr elat ed
demand (see e.g. Babai et al. 2016). Fur t her mor e, modelling t he capacit y is st ill an issue, since all t he
complexit ies of a r eal manufact ur ing syst em cannot be capt ur ed by consider ing a limit at ion in or der
quant it y limit at ion t o t he or der s placed t o supplier s or limit at ion t o t he or der s’ accept ance channel . Thus,
fur ther studies modelling load-dependent lead t ime, by adopt ing empir ical fr om scheduling t heory (see e.g.
CT-TP curve, clear ing funct ions, et c. Or cun, 2009, M önch, 2013). Finally, the impact of invent or y
obsolescence (Babai et al. 2018) should also be explored in capacit at ed CL SCs.

ACK N OWL EDGEM EN TS

To be included

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ACK N OWL EDGEM EN TS

We are grateful to the anonymous referees and the editorial team as their suggestions allowed us to
improve earlier versions of this manuscript. This research was supported by the Italian Ministry of
Education, University and Research (Rita Levi Montalcini fellowship programme), by the University
of Seville (V/VI PPIT-US), and by the Spanish Ministry of Science and Innovation, under the project
PROMISE with reference DPI201680750P.
Table A.1 - Analisis of variance for Σmc

Analysis of variance
Source DF Adj SS Adj MS F-value P-value
Model 64 271018 4234.7 5897.49 0.000
Linear 12 255121 21260.0 29608.22 0.000
CV_R 2 11569 5784.4 8055.74 0.000
CV_D 2 32461 16230.7 22604.00 0.000
CoC_R 4 3094 773.6 1077.35 0.000
CoC_M 4 207996 51999.0 72417.44 0.000
2-Way Interactions 52 15898 305.7 425.78 0.000
CV_R*CV_D 4 3910 977.5 1361.27 0.000
CV_R*CoC_R 8 140 17.5 24.36 0.000
CV_R*CoC_M 8 2380 297.5 414.26 0.000
CV_D*CoC_R 8 392 49.0 68.21 0.000
CV_D*CoC_M 8 7928 990.9 1380.06 0.000
CoC_R*CoC_M 16 1149 71.8 100.01 0.000
Error 2185 1569 0.7
Lack-of-Fit 160 1059 6.6 26.31 0.000
Pure Error 2025 510 0.3
Total 2249 272587

Model summary
R-
S R-sq sq(adj) R-sq(pred)
0.847376 99.42% 99.41% 99.39%
Table A.2 - Analisis of variance for Σrc

Source DF Adj SS Adj MS F-value P-value

Model 64 140479 2195.0 8930.68 0.000
Linear 12 127987 10665.6 43394.85 0.000
CV_R 2 40370 20184.8 82125.35 0.000
CV_D 2 15792 7896.1 32126.66 0.000
CoC_R 4 71825 17956.3 73058.44 0.000
CoC_M 4 0 0.0 0.12 0.975
2-Way Interactions 52 12492 240.2 977.41 0.000
CV_R*CV_D 4 1699 424.7 1727.83 0.000
CV_R*CoC_R 8 7819 977.4 3976.79 0.000
CV_R*CoC_M 8 1 0.1 0.33 0.956
CV_D*CoC_R 8 2969 371.2 1510.22 0.000
CV_D*CoC_M 8 1 0.1 0.29 0.970
CoC_R*CoC_M 16 3 0.2 0.80 0.682
Error 2185 537 0.2
Lack-of-Fit 160 159 1.0 5.34 0.000
Pure Error 2025 378 0.2
Total 2249 141016

Model summary
R-
S R-sq sq(adj) R-sq(pred)
0.495762 99.62% 99.61% 99.60%
Table A.3 - Analisis of variance for Σns

Source DF Adj SS Adj MS F-value P-value

Model 64 4800665 75010.0 393.86 0.000
Linear 12 4300608 358384.0 1881.78 0.000
CV_R 2 255206 127603.0 670.01 0.000
CV_D 2 2531326 1265663.0 6645.65 0.000
CoC_R 4 190786 47697.0 250.44 0.000
CoC_M 4 1323291 330823.0 1737.06 0.000
2-Way Interactions 52 500057 9616.0 50.49 0.000
CV_R*CV_D 4 3397 849.0 4.46 0.001
CV_R*CoC_R 8 145543 18193.0 95.53 0.000
CV_R*CoC_M 8 35780 4472.0 23.48 0.000
CV_D*CoC_R 8 6958 870.0 4.57 0.000
CV_D*CoC_M 8 264422 33053.0 173.55 0.000
CoC_R*CoC_M 16 43957 2747.0 14.43 0.000
Error 2185 416133 190.0
Lack-of-Fit 160 51399 321.0 1.78 0.000
Pure Error 2025 364734 180.0
Total 2249 5216798

Model summary
S R-sq R-sq(adj) R-sq(pred)
13.8004 92.02% 91.79% 91.54%
Highl ight s

We invest igat e the dynamic behaviour of a closed-loop supply chain wit h capacit y r est r ict ions

Capacit y const r aint s impr ove t he dynamic per for mance of the closed-loop supply chain

Capacit y const r aint s have t o be pr oper ly r educed t o fulfil cust omer demand in a cost -effect ive manner