International Journal of Production Research

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A joint economic lot-size model for sustainable

industries of recycled content products

Mostafa Parsa , Ali Shahandeh Nookabadi & Zümbül Atan

To cite this article: Mostafa Parsa , Ali Shahandeh Nookabadi & Zümbül Atan (2020): A joint
economic lot-size model for sustainable industries of recycled content products, International
Journal of Production Research, DOI: 10.1080/00207543.2020.1802078

To link to this article: https://doi.org/10.1080/00207543.2020.1802078

Published online: 13 Aug 2020.

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INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH
https://doi.org/10.1080/00207543.2020.1802078

A joint economic lot-size model for sustainable industries of recycled content

products
Mostafa Parsaa,b , Ali Shahandeh Nookabadib and Zümbül Atan a

a Department of Industrial Engineering and Innovation Sciences, Eindhoven University of Technology, Eindhoven, The Netherlands;
b Department of Industrial and Systems Engineering, Isfahan University of Technology (IUT), Isfahan, Iran

ABSTRACT ARTICLE HISTORY

Coupling forward and reverse operations in closed-loop supply chains (CLSCs) can lead to a higher Received 2 July 2019
degree of sustainability. Previous studies on CLSCs have focused on the products that are either Accepted 15 July 2020
purely remanufactured or purely new. The emphasis on recycling necessitates research that consid- KEYWORDS
ers recycled content products, which are made from a mix of virgin and recycled material. We study Sustainability; multi-echelon
a CLSC consisting of a manufacturer, a retailer, a supplier, a material recovery facility (MRF) and a inventory; closed-loop
recycling facility. The supplier and the recycling facility provide the virgin and recycled raw mate- supply chains; recycled
rials, respectively, to the manufacturer who mixes them based on a predefined proportion known content products; joint
as the recycled content level to produce the finished products for the retailer. The recycling facility economic lot-sizing problem
recovers the manufacturer’s production waste as well as the used products collected by the MRF.
We aim at maximising the chain-wide profit by optimising the shipments among the supply chain
parties. We propose a Branch-and-Bound algorithm to obtain the optimal solution, and a heuristic
procedure, which provides the optimal solution in 96% of all tested instances. In addition, we prove
the optimality of a bang-bang policy for the recycled content level in most cases.

1. Introduction dollars in Europe and 4.5 trillion US dollars globally by

Sustainable development is defined as ‘development that
meets the needs of the present without compromising the
ability of future generations to meet their own needs’
(World Commission on Environment and Development
(WCED) 1987). Over the last few years, there has been a
significant increase in the demand for natural resources
due to the population growth (Govindan and Hasanagic
2018). Estimations indicate that by 2050 production sys-
tems will annually devour about 140 billion tons of fossil
fuels, ores, minerals and biomass (Santibanez Gonza-
lez, Koh, and Leung 2019) tripling the current material
consumption (Govindan and Hasanagic 2018). To tackle
the associated challenges, a transition towards Circular
Economy (CE) is considered as a key action for sustain-
able development (Lechner and Reimann 2019) due to its
substantial potential for reducing negative environmen-
tal impact while generating economic benefits (Bai et al.
2019). CE advocates regenerative and restorative produc-
tion systems by closing the loop of the linear product
lifecycle (Batista et al. 2019). The transition to CE has a
high potential to generate a net benefit of 2.0 trillion US
2030 (Li et al. 2020). Just through electronic waste recy-
cling, CE can generate revenues of about 2.15 billion euro
in Europe (Bressanelli, Perona, and Saccani 2019). The
transition can also cut CO2 emissions from heavy indus-
try by 296 million tons per year in the EU and 3.6 billion
tons per year globally (Enkvist and Klevnäs 2018).
In addition to practitioners, the researchers have also
recognised the topic of circular economy as an important
component of production and operations management
research (Choi, Taleizadeh, and Yue 2020; Yang et al.
2019). Figure 1 represents different research areas within
CE (Govindan, Soleimani, and Kannan 2015; Lieder and
Rashid 2016). One particular area that has received a
lot of attention studies the closed-loop supply chains
(CLSCs). The CLSCs simultaneously consider the pro-
duction and material flow from suppliers to manufac-
turers to distributors to retailers and to end-consumer
(forward supply chain) as well as the reverse flows of used
products (reverse supply chain) (Govindan, Soleimani,
and Kannan 2015; Souza 2013). Among the most impor-
tant operational decisions for the players of CLSCs are the

CONTACT Mostafa Parsa mostafa.parsa2008@gmail.com Department of Industrial Engineering and Innovation Sciences, Eindhoven University of
Technology, P.O. Box 513, 5600 MB, Eindhoven, The Netherlands; Department of Industrial and Systems Engineering, Isfahan University of Technology (IUT),
Isfahan 84156-83111, Iran

© 2020 Informa UK Limited, trading as Taylor & Francis Group

2 M. PARSA ET AL.
Figure 1. Different research areas of circular economy.
production and inventory management decisions (Guide
and Van Wassenhove 2009). In this paper, we consider
these decisions.
Selected surveys on cutting edge problems in produc-
tion research (Dolgui 2019) indicate the optimisation of
inventory and product return policies as one of the most
essential aspects of efficient CLSC management strategies
(Kazemi, Modak, and Govindan 2019). Schrady (1967)
is the earliest study on production-inventory problems
with returned materials. This study develops a determin-
istic model with one production/manufacturing batch
succeeding R remanufacturing batches. The policy is
known as the (1,R) policy. Both processes are assumed
to be instantaneous. Nahmias and Rivera (1979) gener-
alise this model by considering a finite remanufacturing
rate. Teunter (2004) studies infinite and finite manufac-
turing and remanufacturing rates with no disposal under
(1,R) and (M,1) policies. The author obtains a square root
relation for the optimal manufacturing and remanufac-
turing lot-sizes and proposes a modification for lot-sizes
to allocate integer values to R and M. Konstantaras and
Papachristos (2006), Konstantaras and Skouri (2010),
and Widyadana and Wee (2010) extend the model of
Teunter (2004).
Choi, Hwang, and Koh (2007) extend the (M,R) policy
by treating the sequence of procuring and remanufactur-
ing batches within a system cycle as decision variables.
For the (M,R) policy, Bazan, Jaber, and El Saadany (2015)
limit the number of times an item can be remanufactured
and consider costs related to greenhouse gas emissions
and used energy level. For the same policy, multiple stud-
ies treat the waste disposal rate as a decision variable
(Richter 1996a, 1996b). Richter (1997) shows that the
pure strategy of either no waste disposal (full remanu-
facturing) or no remanufacturing (full waste disposal)
dominates the mixed approach. Subsequent work con-
firms the dominance of the pure strategy over the mixed
strategies (Dobos and Richter 2000, 2003, 2004; Richter
and Dobos 1999; Teunter 2001).
All of the above-mentioned studies consider an inven-
tory system of single-echelon supply chain with pro-
duction/manufacturing and remanufacturing. There are
multiple studies on inventory management of multi-
echelon CLSCs. Chung, Wee, and Yang (2008) consider a
(1,1) policy and develop an inventory model for a single-
item multi-echelon CLSC consisting of a manufacturer, a
supplier, a collector, and a retailer. In addition to the tra-
ditional forward flow, reverse flow is considered. In the
reverse flow, the collector returns the used products to the
manufacturer who remanufactures them and then ships
them to the retailer for sale. The results show a signifi-
cant increase in the total profit when centralised decision
making is adopted compared to the decentralised one.
Multiple studies extend this work in different directions.
The work of Chung, Wee, and Yang (2008) is gener-
alised by Yuan and Gao (2010) for the (1,R) and (M,1)
policies, by Yang et al. (2010) for the (M,R) policy with
deterioration, and by Giri and Sharma (2015) for the
(M,R) policy with imperfect manufacturing and quality
based return rate. Wee and Chung (2009) model two-
echelon integrated deteriorating production inventory
system with remanufacturing, just in time (JIT) deliver-
ies and green component design. Mitra (2009) develops
stochastic and deterministic models for a single-depot

single-distributor supply chain with customer returns.
Mitra (2012) generalises this model to correlated returns
and demand rates. Teng et al. (2011) study the effect of
increasing stock to induce customers and partial back-
ordering in the model of Mitra (2009). Giri and Glock
(2017) consider a single-manufacturer single-retailer
CLSC with stochastic product returns with learning
and forgetting in production and inspection of returned
products and develop a model to optimise the inven-
tory decisions. Ma, Li, and Wang (2017) study the pricing
decisions for the CLSC members under different col-
lection structures where a central planner, a retailer, a
manufacturer or a third-party collects the returned used
products.
Multiple studies consider different types of collab-
orative efforts in CLSCs. Jaber, Zanoni, and Zavanella
(2014) consider the waste disposal problem under the
(M,R) policy of a manufacturer managing a retailer’s
inventory according to a consignment stock (CS) agree-
ment. Yuan et al. (2015) extend the work of Yuan
and Gao (2010) to a partly centralised decision-making
structure and study its effect on inventory policies and
expected profits of all supply chain members. Hariga,
As’ad, and Khan (2017) consider a single-manufacturer
single-retailer CLSC under a CS agreement where the
system cycle time and the sequence of manufacturing and
remanufacturing batches are jointly optimised. Bazan,
Jaber, and Zanoni (2017) also consider the same sys-
tem and extend the research of Bazan, Jaber, and El
Saadany (2015) to study classical and CS coordination
policies. Hasanov, Jaber, and Tahirov (2019) addresses
coordination of the production and inventory policies in
a four-echelon CLSC including multiple tier-1 and tier-
2 suppliers, a manufacturer, and multiple buyers. They
develop two inventory models with and without consid-
ering environmental costs related to the greenhouse gas
emissions and used energy based on the idea of Bazan,
Jaber, and Zanoni (2017).
In a recent study, Mawandiya, Jha, and Thakkar
(2020) propose a production-inventory model for an
integrated CLSC consisting of a retailer and a manufac-
turer/remanufacturer. This study aims at understanding
the conditions under which the CLSC is more prof-
itable than the forward supply chain. Taleizadeh and
Moshtagh (2019) study the (1,1) policy and consider
two different qualities for manufactured and remanu-
factured items and imperfect remanufacturing. As’ad,
Hariga, and Alkhatib (2019) jointly optimise finished
product shipping and raw material replenishment strate-
gies, as well as lot-sizing decisions and the sequence of
manufacturing and remanufacturing batches for a single-
manufacturer single-retailer CLSC under the CS agree-
ment. For the same system, Ben-Daya, As’ad, and Nabi
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 3
(2019) develop closed-form expressions for the global
solution of the manufacturing-remanufacturing prob-
lem. Godichaud and Amodeo (2019) propose economic
order quantity (EOQ) inventory models for disassem-
bly systems that can be viewed as inventory systems
with returned products. Zhang, Wu, and Wei (2019)
investigate the optimal design of quality recovery and
refurbishment strategies for the manufacturer’s produc-
tion planning. Sun, Xia, and Liu (2020) establish inven-
tory lot-sizing models for a CLSC production system
from a product life-cycle perspective including introduc-
tion, maturity, and decline phases. Reddy and Kumar
(2020) study the effect of capacity usage differences
between manufacturing and remanufacturing operations
on inventory, capacity and production planning where
new and remanufactured items are sold in primary and
secondary markets, respectively. Zouadi, Yalaoui, and
Reghioui (2018) develop a lot-sizing model for manu-
facturing/remanufacturing systems integrating a global
emission constraint. Chu, Zhong, and Li (2018) con-
sider a CLSC where multiple manufacturers share a joint
third-party recycler. They study the impact of the joint
third-party’s scale on the efficiency of reverse channels
and compare joint third-party-managed collection with
retailer-managed (used by Kodak) and manufacturer-
managed (used by HP, Xerox, and Canon) collections.
To better understand the contribution of this study
and to compare it with the state of the art, a classifica-
tion of the relevant literature from several viewpoints is
provided in Table 1. Previous studies consider products
that are either purely remanufactured or purely new. We
contribute to the literature by considering recycled con-
tent products made from a mix of virgin and recycled
materials with specific proportions. This proportion is
called recycled content level and defined in (ISO 14021
2016) as ‘the mass percentage (X%) of recycled mate-
rials in a product’. When recycled material is diverted
from the manufacturing waste or scrap, it is referred to
as pre-consumer or post-industrial material and when it
is diverted from consumers’ EOL products, it is referred
to as post-consumer material.
Our study aims at benefiting industries that have sus-
tainability goals to produce recycled content products. In
current practice, the paper industry is among those that
have almost completely met the society’s expectations
for the environmental compatibility of their processes,
the sustainability of their raw material, and the recycla-
bility of their products (Bajpai 2014). Figure 2 depicts
the lifecycle of recycled content paper (Arjowiggins
Graphic 2014). Fundamentally paper manufacturing has
two major steps; pulp production and paper production.
Pulp production can be of two types; virgin pulp produc-
tion and recycled pulp production (Rahman, Hussain,
 4
M. PARSA ET AL.
Table 1. Classification of the relevant literature.
Product Type
Supply chain new or reman- Recycled Production Reman. Waste Disposal Replenishment
Study configuration ufactured content Sequence Demand Manu. Rate Rate Model policy Shortages deterioration
Schrady (1967) Single-echelon  - (1,R) D1 Infinite Infinite - LFL3 - -
Nahmias and Rivera (1979) Single-echelon  - (1,R) D Infinite Finite - LFL - -
Richter (1996a, 1996b) Single-echelon  - (M,R) D Infinite Infinite  LFL - -
Teunter (2004) Single-echelon  - (M,1) & (1,R) D Finite Finite - LFL - -
Konstantaras and Papachristos (2006) Single-echelon  - (M,1) & (1,R) D Finite Finite - LFL FB11 -
Choi, Hwang, and Koh (2007) Single-echelon  - General D Infinite Finite - LFL - -
Chung, Wee, and Yang (2008) Four-echelon  - (1,1) D Finite Finite - NDES4 - -
Wee and Chung (2009) Two-echelon  - Simultaneous D Finite Finite - NDES - 
Mitra (2009) Two-echelon  - Simultaneous D & S2 Infinite Infinite - DES5 FB -
Widyadana and Wee (2010) Single-echelon  - (M,1) & (1,R) D Finite Finite - LFL - -
Yang et al. (2010) Four-echelon  - (M,R) D Finite Finite - NDES - 
Yuan and Gao (2010) Four-echelon  - (M,1) & (1,R) D Finite Finite - NDES - -
Teng et al. (2011) Two-echelon  - Simultaneous D Infinite Infinite - DES PB12 -
Mitra (2012) Two-echelon  - Simultaneous D&S Infinite Infinite - DES FB -
Jaber, Zanoni, and Zavanella (2014) Two-echelon  - (M,R) D Finite Finite - LFL - -
Yuan et al. (2015) Four-echelon  - (M,1) & (1,R) D Finite Finite - NDES - -
Giri and Sharma (2015) Four-echelon  - (1,1) & (M,R) D Finite Finite - NDES - -
Bazan, Jaber, and El Saadany (2015) Single-echelon  - (M,R) D Finite Finite - LFL - -
Giri and Glock (2017) Two-echelon  - Simultaneous D Finite Finite - NDES - -
Ma, Li, and Wang (2017) Three-echelon  - Simultaneous D N/A N/A - N/A - -
Hariga, As’ad, and Khan (2017) Two-echelon  - General D Finite Finite - LFL - -
Bazan, Jaber, and Zanoni (2017) Two-echelon  - (M,R) D Finite Finite - Classical: NDES CS: LFL - -
Mawandiya, Jha, and Thakkar (2020) Two-echelon  - (1,1) S Finite Finite - NDES FB -
Zouadi, Yalaoui, and Reghioui (2018) Two-echelon  - Simultaneous S N/A N/A - N/A - -
Chu, Zhong, and Li (2018) Three-echelon  - Simultaneous D N/A N/A - N/A - -
Hasanov, Jaber, and Tahirov (2019) Four-echelon  - Simultaneous D Infinite Infinite - LFL - -
Taleizadeh and Moshtagh (2019) Four-echelon  - (1,1) D Finite Finite - NDES LS13 -
As’ad, Hariga, and Alkhatib (2019) Two-echelon  - General D Finite Finite - FP6 : LFL RM7 : OTM8 & MTO9 - -
Ben-Daya, As’ad, and Nabi (2019) Two-echelon  - (M,R) D Finite Finite - LFL - -
Godichaud and Amodeo (2019) Single-echelon  - Simultaneous D Infinite Infinite - LFL LS -
Sun, Xia, and Liu (2020) Single-echelon  - (M,R) D Finite Finite - LFL - -
Reddy and Kumar (2020) Single-echelon  - Simultaneous S N/A N/A - MTS10 LS -
This study Five-echelon -  Simultaneous D Finite Finite - NDES - -
1 Deterministic; 2 Stochastic; 3 Lot-For-Lot; 4 Non-Delayed Equal-Sized; 5 Delayed Equal-Sized; 6 Finished Products; 7 Raw Materials; 8 One-To-Multi is a policy in which one RM shipment covers multiple manufacturing cycles; 9
Multi-To-One is a policy in which multiple RM shipments covers one manufacturing cycle; 10 Make-To-Stock;11 Fully Backordered; 12 Partially Backordered; 13 Lost Sales.

Figure 2. Lifecycle of recycled content paper adapted from Arjowiggins Graphic (2014).
and Basri 2014). In virgin pulp production, wood chips
are chemically and/or mechanically processed (Bajpai
2018). In recycled pulp production used papers are col-
lected, sorted, de-inked and bleached (McKinney 1994).
Both virgin and recycled pulps are then shipped to the
paper manufacturer. The basic manufacturing principle
is to mix the virgin and recycled pulps together accord-
ing to the recycled content level (Evans, Sherin, and Lee
2013).
Sequana SA is a France-based company, producing
cutting-edge sustainable papers. It has two principal
wholly-owned subsidiaries: Arjowiggins manufactures
papers and Antalis distributes them. Arjowiggins has
integrated the production of recycled pulp and recy-
cled content paper at three manufacturing sites, Green-
field, Bessé-sur-Braye, and Le Bourray Mills (Arjowig-
gins Graphic 2019). Arjowiggins produces a wide num-
ber of products such as high quality 60% recycled con-
tent papers from 60% recycled fiber and 40% virgin
fiber in silk and gloss finish such as ‘Cocoon® 60 Gloss’
and ‘Cocoon® 60 Silk’. By producing Cocoon® recy-
cled papers rather than virgin fiber papers, the com-
pany has saved 94,709,228 kg of landfill, 153,880,640 kg
of wood, 13,315,001 kg of CO2 and greenhouse gases,
3,002,508,054 L of water, and 183,010,461 kwh of energy
since 2015 (Cocoon® 2019).
Another industry that operates with sustainability
targets is the construction industry. Armstrong World
Industries Inc. takes back old fiberglass acoustical ceil-
ing tiles and transforms them into new ones containing
greater than 50% total recycled content. This company
has saved over 1 million tons of virgin raw materials so
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 5
far (Armstrong World Industries Inc. 2019). Hence, the
benefits of using recycled material in manufacturing are
evident.
Our research is relevant to all types of recycled content
products. EPA (2007b) has designated 61 recycled con-
tent products in eight groups: non-paper office products,
paper and paper products, vehicular products, trans-
portation products, park and recreation products, land-
scaping products, construction products and miscella-
neous products. Optimal lot-sizing decisions can provide
huge benefits to the CLSCs of these products. However,
these decisions have not been addressed in the scientific
literature yet. To close the research gap, we consider the
supply chain of a recycled content product depicted in
Figure 3. The supply chain consists of a manufacturer, a
retailer, a supplier, a material recovery facility (MRF) and
a recycling facility.
In the forward supply chain, the supplier and the recy-
cling facility supply the virgin and recycled raw materials
to the manufacturer, respectively. The virgin and recycled
raw materials account for (1 − X)% and X% of the total
required raw materials for production, respectively. The
manufacturer receives each lot of raw materials in l and
k equal-sized batches from the supplier and the recycling
facility, respectively. The raw materials are mixed based
on the recycled content level and transformed into fin-
ished products. The finished products are shipped to the
retailer in n equal-sized batches at every retailer cycle,
which lasts for Tr time units. The retailer sells the fin-
ished products to end consumers. In the reverse supply
chain, the MRF buys back some of the used products. A
fraction of the used products returned by consumers are
6 M. PARSA ET AL.
Figure 3. CLSC of the recycled content products.
non-recyclable, i.e. they fail to meet the quality standards
required for recycling as specified by the recycling facil-
ity. The MRF disposes the non-recyclable returned items,
processes the remaining recyclable ones and ships them
to the recycling facility as the post-consumer materials in
m equal-sized batches. In addition, a fraction of the man-
ufacturer’s production is scrap and sold to the recycling
facility as the pre-consumer or post-industrial materials.
Then, both post- and pre-consumer materials are deliv-
ered to the recycling site to be transformed into recycled
raw materials.
Each location delivers inventory to its customer loca-
tion in equal-sized batches. Our objective is to maximise
the total profit of the integrated system TP(Tr , k, l, m, n)
by finding the optimal number of shipments from a lot,
shipment schedule and batch size for all parties. Hence,
we are dealing with a Joint Economic Lot-sizing Problem
(JELP) in the context of integrated CLSCs.
Another objective of this paper is to investigate the
interplay between ecological and economic aspects of
the problem. Understanding and evaluating the effect of
decisions, which are made based on economic concerns,
on the ecological factors and vice versa is vital for the
stakeholders including supply chain players, society and
government to develop sustainable policies (Archibugi
and Nijkamp 1989; Beaton and Maser 2016; Parsa et al.
2019). The amount of recycled content, which is mea-
sured by X in our problem, can be used to evaluate
the ecological (green) aspects of the resulting solutions.
High X values can imply significant contribution to the
development of circular and sustainable supply chains.
On the other side, low X values mean large environmental
cost to society since more natural resources need to be
used. Therefore, the two following problems could be
worth studying:
1) [ECOLOGY → ECONOMY]-Tracing the econ-
omic impact of ecological concerns (Richter 1997;
Richter and Dobos 1999): We can achieve this by solv-
ing our optimisation problem for multiple X values.
Hence, we can show how the optimal profit and opti-
mal decisions react to different levels of ecological
concerns.
2) [ECONOMY → ECOLOGY]-Tracing the ecologi-
cal impact of economic concerns (Richter 1997; Richter
and Dobos 1999): Having a profit maximisation prob-
lem implies a decision maker with economic concerns.
We can explain how these concerns impact X by opti-
mising it. Hence, we can explain how the profit max-
imiser can optimally determine the ecological factor
X with respect to changing inventory-related decisions
(Tr , k, l, m, and n). The optimal policy for X is either the
lowest/highest possible value of X so-called bang-bang
policy X ∗ ∈ {Xmin , Xmax } or a stationary point within the
defined range of possible values X ∗ ∈ (Xmin , Xmax ). Xmax
as the optimal solution is favoured by green groups and
environmentalists because natural resources can be saved
for the future generations and the firms contribute to
the sustainable development purposes at the most level
(Dobos and Richter 2004). Some conflict might occur
between economic and ecological approaches when the

optimal solution is not Xmax . In this case, it is essential to
study the ways to resolve the conflicts.
Accordingly, we address the following research ques-
tions:
1. What is the optimal shipment policy for the inte-
grated CLSCs of recycled content products?
2. How is the profit and shipment policy of each party
affected by the manufacturing scrap (post-industrial
materials)?
3. What level of recycled content is the most cost-
effective for sustainable industries?
4. How can the conflict between economic and eco-
logical approaches on the optimal recycled level be
addressed?
To answer these questions, we formulate the JELP as a
mixed integer non-linear programming (MINIP) model.
We present a B&B algorithm to find the exact solution to
the problem. In addition, we develop a fast and accurate
heuristic procedure. It has given the optimal solution in
96% of all tested instances. Hence, the heuristic can help
managers and policymakers to make quick and reliable
decisions. Our numerical results indicate that a decrease
in manufacturing scrap fraction reduces the number of
shipments to each party. It increases the manufacturer’s,
MRF’s, and the whole supply chain’s profits. On the other
hand, decrease in the scrap fraction results in declines
in the profits of the supplier and the recycling facility.
The scrap fraction has a negligible effect on the retailer’s
profit. We provide important insights for industries striv-
ing for sustainability. We prove, for the recycled content
level, that one of the two extreme (bang-bang) strategies
is the best level, while the stationary point within the
range can be optimal under certain limited conditions.
We use break-even analysis to present practical solutions
to resolve the possible conflict of interest between eco-
nomic and ecological approaches. Finally, we extend our
model to solve the same problem for assembly systems.
The remainder of the paper is organised as follows.
The MINLP model is formulated in Section 2. The B&B
and heuristic algorithms are presented in Sections 3 and
4, respectively. The heuristic procedure is compared with
the B&B algorithm through computational results in
Section 5. In Section 6, we analyze the effects of scrap
fraction and recycled content level on the optimal lot-
sizing decisions. In addition, we provide a decision tree
to support the managers’ decision on the optimal level
of recycled content. In Section 7, we extend the proposed
model to the assembly industry. We summarise our man-
agerial insights in Section 8. The concluding remarks and
directions for future research are provided in Section 9.
We defer the derivations and proofs to the Appendices.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 7
2. Model formulation
In this section, we develop a mathematical formulation
for the JELP in the integrated CLSC of the recycled
content products. An overview of the parameters, deci-
sion variables, and dependent variables is provided in
Appendix A.
We consider the multi-echelon CLSC depicted in
Figure 3. The supply chain consists of a manufacturer, a
retailer, a supplier of virgin materials, a material recov-
ery facility (MRF), and a recycling facility. We make the
following assumptions:
1. The supply chain is integrated vertically in the sense
that it is jointly or partially owned by organisa-
tion(s). Hence, system-wide optimisation is accept-
able to all members and benefit-sharing among them
is not an issue (Ben-Daya and Al-Nassar 2008; Ben-
Daya, As’ad, and Seliaman 2013; Ben-Daya, Dar-
wish, and Ertogral 2008). This
assumption is consistent with practice. For exam-
ple, Sequana SA is a vertically integrated company
that has two principal wholly-owned subsidiaries:
I) Arjowiggins Graphic that manufactures recy-
cled pulps in Greenfield mill and recycled papers
in Bessé-sur-Braye and Le Bourray mills, and II)
Antalis that operates in the distribution business.
Other strong examples of successful vertically inte-
grated supply chains are Zara SA, Alibaba Group
Holding Limited, Luxottica Group SpA, Exxon
Mobil Corporation, and British Petroleum PLC.
2. We consider a non-delayed equal-sized shipment
policy (Lu 1995). This policy allows shipments dur-
ing production phases and there is no need to wait
until the whole lot is produced. Therefore, each lot
in the supply chain is delivered to the adjacent party
in a number of equal-sized batches and deliveries are
allowed to occur during the production of the lot.
3. The time horizon is infinite since joint economic
lot-sizing models are particularly useful when com-
panies have established long-term relationships with
their customers and suppliers (Glock 2012).
4. Shortages are not allowed. Therefore, the demand
rate is less than or equal to the perfect production
rate (D ≤ βP).
Figure 4 illustrates the behaviour of inventory levels
of all parties in the CLSC. Our objective is to deter-
mine the optimal number of shipments, time interval
between shipments and batch sizes for all parties involved
such that the chain-wide total profit per unit time TP
is maximised. The chain-wide total profit per period is
the sum of the profits of individual parties. Therefore,
8 M. PARSA ET AL.
Figure 4. Behaviour of the inventory levels over time in the multi-echelon CLSC.
we formulate each player’s profit per unit time as the
difference between its revenue and cost per unit time.
2.1. Manufacturer’s profit
The recycled content products are made from a mix of
virgin and recycled materials with specific proportions.
This proportion is called the recycled content level (X).
It is calculated as the percentage, by mass, of recycled
material in a product (ISO 14021 2016). Therefore, X
percentage of raw materials required for production is
recycled and the rest is virgin. The recycling facility and
supplier deliver the recycled and virgin materials to the
manufacturer in k and l equal-sized batches at price Pmr
and Pmp per unit material, respectively. A fixed ordering
cost Amr (Amp ) is charged whenever the manufacturer
orders a batch of recycled (virgin) materials. Then, the
manufacturer proportionally mixes both materials based
on the recycled content level and transforms them into
finished products. The manufacturer produces items in
lots at a finite rate P incurring production cost Cp per unit
finished product as well as a fixed setup cost Am per lot
associated with each production setup. The manufacturer
delivers each production lot to the retailer in n equal-
sized batches at every retailer’s cycle time (Tr ) incurring
a fixed transportation cost Om per shipment.
We assume that a fraction β (0 ≤ β ≤ 1) of the man-
ufacturer’s production is perfect and the rest indicated
by (1 − β) is manufacturing scrap, i.e. post-industrial
materials. Therefore, the manufacturer should produce
D
β product units per unit time to avoid shortages where
D perfect finished products meet the retailer demand at
(1−β)D
a price Pr per unit and D β −D= β items per unit
time are sold to the recycling facility at a price PRm per
unit. Therefore, the manufacturer’s sales revenue per unit
time is TRm = Pr D + PRm (1−β)Dβ .
Figure 4 shows the same inventory pattern is repeated
in each system cycle nTr . In the following, we develop
a mathematical formulation for the manufacturer’s total
cost TCm . For that purpose, we need to determine the
expression for production length Tp within the system
cycle. Given that shortages do not occur, the perfect pro-
duction should be enough to satisfy the retailer demand
during the system cycle. Hence, we need the following
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 9

equality to hold: given by TPm = TRm − TCm . Hence, we have:

   2 
βPTp = D(nTr ), (1) (1 − β)D D XnTr
TPm = Pr D + PRm − hmr
β 2β 2 kP
 2 
The left-hand side of Equation 1 calculates the number D (1 − X)nTr
of perfect items manufactured per system cycle and the − hmp
2β 2 lP
right-hand side is the consumption level per system cycle.  
Tr D2 (βP − D)nTr D Tr D
The manufacturer’s holding cost consists of the costs − hm + −
of carrying the finished product, recycled and virgin βP 2βP 2
materials. The unit costs per unit time are hm , hmr , and Om Am kAmr lAmp
− − − −
hmp , respectively. The manufacturer’s total cost per unit Tr nTr nTr nTr
time consists of holding, transportation, setup, ordering,  
Cp D (1 − X)DPmp + XDPmr
production, and purchasing costs can be written as: − − . (2)
β β
Holding cost In Equation (2), the first term represents the manufac-
←−−−−2−−−− −−−−−− −− −−−−−→
+ hmp D (1−X)nT
2
hmr D2βXnT r r turer’s sales revenue, the second term is the holding cost
2 kP 2β 2 lP
TCm =  2  of the recycled materials, the third term is the holding
+hm TβPrD
+ (βP−D)nT
2βP
rD
− Tr D
2 cost of virgin materials, the fourth term is the holding
cost of the finished product, the fifth term is the fixed
Om Am kAmr + lAmp
+ + + transportation cost related to the retailer’s order of any
Tr nTr nTr size, the sixth term is the fixed setup cost, the seventh
←→ ←→ ←−−−−−−−→
Transportation Setup Ordering
term is the ordering cost for recycled materials, the eighth
cost cost cost
  term is the ordering cost for virgin materials, the ninth
Cp D (1 − X)DPmp + XDPmr
+ + . term is the production cost, and the tenth term is the
β β summation of purchasing costs of virgin and recycled
←−→ ←−−−−−−−−−−−−−−−−→
Production
cost
Purchasing cost materials all per unit time.

The detailed calculations for the manufacturer’s holding 2.2. Retailer’s profit
costs are given in Appendix B.1. In the formulation of
other terms, we rely on the fact that frequency and cycle The retailer meets the consumer demand with constant
time are inversely related. The frequency of retailer’s rate D finished products per unit time at retail price Pc per
purchase is T1r per unit time and accordingly, the manu- unit. Hence, the retailer’s sales revenue per unit time is
facturer’s transportation cost for delivering the retailer’s TRr = Pc D. The retailer incurs a fixed cost Ar for order-
order per unit time is OTmr . The production cycle equals ing a batch of finished products from the manufacturer at
the system cycle nTr according to Figure 4. Hence, the every cycle of length Tr . Also, the retailer incurs a hold-
number of production cycles per unit time is nT1 r and the ing cost hr per unit per unit time. The retailer’s total cost
manufacturer’s setup cost per unit time is nTAm
. The num- per unit time, TCr , is the sum of ordering, holding, and
r
ber of orders for recycled and virgin materials that occur purchasing costs. We have:
per unit time can be found by multiplying the number of Ordering cost Holding cost
these orders per production cycle by the frequency of the ←
→ ←−−→ Purchasing cost
Ar DTr ← →
production cycle per unit time. The numbers of orders TCr = + hr + Pr D .
Tr 2
for recycled and virgin materials are k × nT1 r and l × nT1 r ,
respectively. Consequently, the manufacturer’s ordering The number of retailer orders per unit time is 1
kA +lA Tr . Con-
cost is obtained by mrnTr mp . The manufacturer should sequently, the retailer’s ordering cost per unit time is Ar
Tr .
produce D β items per unit time to meet the demand rate The retailer’s average inventory level is DT r
Cp D 2 and the hold-
D. Hence, the manufacturer’s production cost is β . To ing cost per unit time is hr DT r
2 . The retailer buys D items
(1−X)D per unit time from the manufacturer. Hence, the purchas-
produce D β units, the manufacturer needs and XDβ β
units of virgin and recycled unit raw materials, respec- ing cost is Pr D. Finally, the retailer’s profit per unit time
tively. Therefore, the manufacturer’s raw material pur- TPr = TRr − TCr is given by

(1−X)DPmp +XDPmr
chasing cost per unit time becomes β . Ar DTr
TPr = Pc D − − hr − Pr D, (3)
Finally, the manufacturer’s profit per unit time is then Tr 2
10 M. PARSA ET AL.

where the first term is the retailer’s sales revenue, the 2.4. MRF’s profit
second term is the ordering cost, the third term is the
Some consumers return their EOL products to the MRF
holding cost of the finished products, and the fourth term
at a finite rate Ru per unit time (Ru ≤ D). The MRF buys
is the purchasing cost all per unit time.
back the returned products at price PM per unit. Since
some of the returned items fail to meet the quality stan-
2.3. Supplier’s profit dards required for recycling as specified by the recycling
facility, we consider that (1 − α)% of the returned prod-
The supplier meets the demand for (1 − X)% of raw
ucts are non-recyclable. The MRF separates and disposes
materials required for the manufacturer’s production of
D them at a cost Cd per unit. The MRF processes recy-
β per unit time with the virgin materials at price Pmp per clable returned items at a cost of CM per unit. Then, each
unit. Hence, the supplier’s revenue per unit time from the
lot of processed recyclable items is delivered to the recy-
sale is TRs = (1−X)D
β Pmp . The supplier extracts the vir-
cling facility in m equal-sized batches with price PR per
gin raw materials at processing cost Cs per unit material
unit. The MRF sells αRu recyclable used items per unit
and fixed setup cost As per lot. The supplier delivers each
time to the recycling facility. Therefore, its sales revenue
virgin material lot to the manufacturer in l equal-sized
per unit time is TRM = αRu PR . The MRF incurs fixed
batches incurring a fixed transportation cost Os per ship-
transportation cost OM to deliver each batch of recyclable
ment. The supplier also incurs holding cost hs per unit
items for the recycling facility as well as a fixed setup cost
material per unit time. The calculation for the supplier’s
AM per lot of recyclable items associated with each pro-
average inventory level is provided in Appendix B.2. The
cessing setup. There is also a holding cost hu per unit
supplier’s total cost per unit time, TCs , including holding,
recyclable item per unit time. Appendix B.3 provides the
transportation, setup, and extraction costs is as follows:
calculation for the MRF’s average inventory. The MRF’s
Holding cost
total cost per unit time, TCM , consisting of holding,
Transportation cost
←
 −2−−−−−−−−−−−−−→  ←→ transportation, setup, disposing, material processing, and
D (l − 1)(1 − X)nTr lOs
TCs = hs + purchasing costs is given as follows:
2β 2 lP nTr
Holding cost
←→
Setup cost
←−−−−−−→
Extraction cost ←−−−−−−−−−−−−−−−−−−−→
As Cs (1 − X)D hu nαRu [βmR + β(1 − m)αRu
+ + . +(1 − β)(1 − m)D]Tr
nTr β TCM =
2βmR
As explained before, the number of manufacturer’s mOM AM
orders for virgin materials is nTl r per unit time. Hence, + +
nTr nTr
the supplier’s transportation cost per unit time for deliv- ←−→ ←→
lOs Transportation cost Setup cost
ering order of the manufacturer is nT r
. The number of
times that the supplier extracts virgin raw materials per + Ru PM + (1 − α)Ru Cd + αRu CM .
←−→ ←−−−−−−→ ←−−→
unit time is nT1 r . Consequently, the supplier’s setup cost Purchasing cost Disposing cost Material processing
cost
per unit time is nTAs
r
. The manufacturer needs (1−X)D
β
units of virgin raw materials per unit time. Therefore, The number of times that the MRF collects returned
the supplier’s extraction cost is Cs (1−X)D
β . As a result, products per unit time can be calculated by multiplying
the supplier’s profit per unit time TPs = TRs − TCs is the number of these orders per system cycle by the fre-
given by: quency of the system cycle per unit time, i.e. m × nT1 r .
  Consequently, the MRF’s transportation cost is mO M
nTr .
(1 − X)DPmp D2 (l − 1)(1 − X)nTr The MRF’s collection cycle equals the system cycle nTr
TPs = − hs
β 2β 2 lP according to Figure 4. Hence, the number of collection
lOs As Cs (1 − X)D cycles per unit time is nT1 r and the MRF’s setup cost
− − − . (4) AM
per unit time is nT . The amounts of returned products
nTr nTr β r
(Ru ) that are separated by the MRF as non-recyclable
Here, the first term represents the supplier’s sales rev- items and recyclable items per unit time are (1 − α)Ru
enue, the second term is the holding cost of virgin materi- and αRu , respectively. Therefore, the MRF pays per unit
als, the third term is the fixed transportation cost related time the cost of Ru PM for purchasing returned products,
to the manufacturer’s order of any size, the fourth term the cost of (1 − α)Ru Cd for disposing the non-recyclable
is the fixed setup cost, and the fifth term is the extraction items, and the cost of αRu CM for processing the recy-
cost of the virgin raw materials all per unit time. clable items. As a result, the MRF’s profit per unit time
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 11

TPM is given by: sum of these two quantities appear on the right-hand side
of Equation (6). The recycling facility transforms them
hu nαRu [βmR + β(1 − m)αRu
into RTR units of recycled raw materials per system cycle.
+(1 − β)(1 − m)D]Tr
TPM = αRu PR − The recycling facility’s carries inventory of recycled
2βmR materials and recyclable returned products at holding
mOM AM costs rates of hRr and hu per unit per unit time, respec-
− − − Ru PM − (1 − α)Ru Cd
nTr nTr tively. The calculations for the recycling facility’s average
− αRu CM . (5) inventory levels, which require Equation (6), are pro-
vided in Appendix B.4. The recycling facility’s total cost
The first term is the MRF’s sales revenue, the second per unit time, TCR , consisting of holding, order process-
term is the holding cost of the recyclable returned prod- ing, setup, ordering, recycling, and purchasing costs is
ucts, the third term is the fixed transportation cost related given by:
to the recycling facility’s order of any size, the fourth term Holding cost
←−−2−−−−−−−−−−−−−−→
is the fixed setup cost, the fifth term is the purchasing cost hRr D XnTr [−R+kR−(−2+k)PX]
2β 2 kRP
of the used products returned by the consumers, the sixth TCR = hu n(D−Dβ+αβRu )2 Tr
term is the disposal cost of the non-recyclable returned + 2β 2 mR
products, and the seventh term is the processing cost of kOR AR mARu
the recyclable returned products all per unit time. + + +
nTr nTr nTr
←→ ←→ ←−−→
Transportation Setup Ordering
cost cost cost
2.5. Recycling facility’s profit  
XDCR (1 − β)D
The MRF’s recyclable returned products and the manu- + + PRm + αRu PR .
β β
facturing waste are delivered to the recycling facility as ←−−→ ←−−−−−−−−−−−−−−−−→
Recycling Purchasing
post-consumer materials and post-industrial materials, cost cost

respectively. A fixed ordering cost ARu is charged when- The number of manufacturer’s orders for recycled mate-
ever the recycling facility orders a batch. The recycling rials per unit time is nTk r . Consequently, the recy-
facility transforms them into recycled materials at a finite
cling facility’s transportation cost is kO R
nTr . According to
rate of R units per unit time. The recycling cost is CR per
Figure 4, the recycling facility’s cycle length is the same as
unit and the fixed setup cost per lot is AR . The recycling
the system cycle length nTr . Hence, the number of cycle
facility delivers each recycled lot to the manufacturer in k AR
is nT1 r and the setup cost is nT . As motivated before, the
equal-sized batches incurring a fixed transportation cost r
number of orders for recyclable returned products from
OR per shipment. The recycling facility meets the manu- m
the MRF is nT per unit time. Hence, the recycling facil-
facturer’s demand for ( XD β ) units of recycled raw material
r

per unit time at a price of Pmr per unit. Therefore, the ity’s ordering cost per unit time becomes mA Ru
nTr . As pre-
recycling facility’s sales revenue per unit time is given by viously explained, upon manufacturer’s request the recy-
TRR = XDP mr cling facility delivers XD
β unit of recycled raw materials
β . In the following, we obtain a mathemati- XDCR
cal formulation for the recycling facility’s total cost. For per unit time. The corresponding recycling cost is β .
that purpose, we need to determine the expression for the The recycling facility buys (1−β)D
β units of scarp from the
length of the recycling time TR within the system cycle. manufacturer and αRu recyclable returned items from
The recycling facility recycles the manufacturing waste the
 MRF per unit time.  The related purchasing cost is
as well as the recyclable returned products collected by (1−β)D
β PRm + αRu PR . As a result, the recycling facil-
the MRF during the system cycle. Hence, we need the
following equality to hold: ity’s profit per unit time TPR = TRR − TCR can be writ-
ten as:
Using Eq. (1)
RTR = (1 − β)PTp + αRu nTr ⇒ XDPmr hRr D2 XnTr [−R + kR − (−2 + k)PX]
TPR = −
(1 − β)PTp + αRu nTr β 2β 2 kRP
TR =
R hu n(D − Dβ + αβRu )2 Tr
  −
(1 − β)D + αβRu 2β 2 mR
= nTr . (6)
βR kOR AR mARu XDCR
− − − −
In fact, the manufacturer and the MRF deliver (1 − β) nTr nTr nTr β
 
PTp and αRu nTr units of pre-consumer and post- (1 − β)D
− PRm + αRu PR . (7)
consumer materials per system cycle, respectively. The β
12 M. PARSA ET AL.

Here, the first term represents the recycling facility’s

sales revenue, the second term is the holding cost of the
recycled materials, the third term is the holding cost of
the recyclable returned products, the fourth term is the
fixed transportation cost related to the manufacturer’s
order of any size for the recycled materials, the fifth term
is the fixed setup cost, the sixth term is the ordering cost
for the recyclable returned products, the seventh term is
the recycling cost, and the eighth term is the summation
of purchasing costs of the manufacturer’s scrap and the
MRF’s recyclable returned product all per unit time.
Now, all players’ individual profit functions have been
mathematically formulated. Hence, the chain-wide total
profit per unit time, TP, can simply be written as the sum
of the profits per unit time gained by the manufacturer,
the retailer, the supplier, the MRF, and the recycling facil-
ity formulated in Equations (2)-(5) and (7), respectively.
The optimisation problem is formulated as the following
mixed integer non-linear programming (MINLP) model:

MaxTP = TPm + TPr + TPs + TPM + TPR , (8)

S.t. :

k ≤ k0 , l ≤ l0 , m ≤ m0 , and n ≤ n0 , (9)
+
k, l, m, n ∈ Z , (10)
Tr ∈ R+ . (11)

The model contains five decision variables, four of

which are positive integers (k, l, m, and n), while the
last variable is a positive real number (Tr ). According
to Figure 4, time interval between shipments and batch
sizes for all parties are functions of the decision variables
k, l, m, n and Tr . Therefore, the objective is to find the
retailer’s optimal cycle time (Tr∗ ) and the optimal num-
ber of shipments (k∗ , l∗ , m∗ , n∗ ) such that total profit of
the whole supply chain is maximised. The optimal integer
number of shipments cannot be infinite due to existence
of the fixed costs. To broaden the applicability of the pro-
posed model in real-world inventory control systems, we
impose upper bounds to the integer decision variables
k, l, m and n. These bounds are k0 , l0 , m0 , and n0 , respec-
tively. Finally, we have the domain constraints in (10) Figure 5. Flowchart of the B&B algorithm.
and (11).

to nonlinear B&B procedure is Dakin (1965). The pro-

3. Branch-and-Bound (B&B) method
B&B approach dates back to Land and Doig (1960), where
it is used to solve Mixed Integer Linear Programming
(MILP) models. To our knowledge, the first reference
cedure is used to solve convex (Gupta and Ravindran
1985; Kronqvist et al. 2019) and nonconvex (Androulakis
2009; Burer and Letchford 2012). The B&B algorithms
are used in many applications including vehicle routing
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 13

 
(Toth and Vigo 2002), data analysis (Brusco and Stahl D2 (1 − X)nTr#
2006), multi-objective decision making (Ghasemi Sag- − hmp
2β 2 lP
hand, Charkhgard, and Kwon 2019; Stidsen, Andersen,  
Tr# D2 (βP − D)nTr# D Tr# D
and Dammann 2014), lot-sizing (de Oliveira and San- − hm + −
tos 2018; Erenguc and Aksoy 1990; Mirmohammadi, βP 2βP 2
Shadrokh, and Kianfar 2009), water distribution net- Om Am kAmr lAmp
− − #− −
works (Costa et al. 2016; Costa, de Medeiros, and Pes- Tr# nTr nTr# nTr#
soa 2001), process systems engineering (Lee and Gross-  
Cp D (1 − X)DPmp + XDPmr
mann 2001; Smith and Pantelides 1997), and scheduling − − .
(Pinedo 2012). β β
(13)
Specifically, the B&B algorithm is a widely-used
methodology for finding exact solutions to noncon-
vex global optimisation problems (Lawler and Wood Here, Equation (13) formulates the manufacturer’s profit
1966; Moore 1991) and nonlinear small-scale problems per unit time in the sequential structure. TPm (k, l, n)
(Marendet et al. 2020). Our problem has both features; is strictly concave with respect to k and l. We refer to
the definiteness of the Hessian matrix of the objective Appendix C.1 for the proof of this result. As a result, we
function depends on the values of the decision variables obtain:
as well as the parameters. Hence, we cannot tell whether 
the problem is convex or concave MINLP. It is nonlinear ∂TPm DnTr# hmr X
= 0 ⇒ krx = , (14)
and has a few and fixed numbers of decision variables. For ∂k β 2Amr P
this reason, we choose this method to find the exact solu- 
tion to the problem. Figure 5 presents the flowchart of ∂TPm DnTr# hmp (1 − X)
= 0 ⇒ lrx = , (15)
this algorithm. We discuss the main features of the B&B ∂l β 2Amp P
algorithm in the subsequent sections.
where the optimal value of relaxed k and l for TPm ,
denoted by krx and lrx are obtained in Equations (14)
3.1. Initialisation and (15) by solving the equations ∂TP ∂k = 0 for k and
m

∂TPm
We use the solution of sequential optimisation problem, ∂l = 0 for l, respectively. kandl are positive integers
i.e. the decentralised solution, as the first incumbent. The and TPm (k, l, n) is strictly concave in k and l. Therefore,
incumbent is the best available feasible solution at a given Algorithm SE presented in Appendix D.1 can be used
time. In the sequential structure, the solution obtained to obtain the optimal k, l, and n in the sequential struc-
for one location is forced to the next one in the hierar- ture. The optimal values are denoted by k# , l# , and n# ,
chy of decisions. We investigate the case where we first respectively.
solve for the retailer’s cycle length Tr by maximising its By substituting k# , n# , and Tr# in Equation (7), we
own profit. Then, assuming this cycle length is a given, obtain the following expression for the recycling facility’s
we optimise the manufacturer’s decision by optimising its profit function:
own profit. Then, we do the same for the recycling facility.
Next, we explain these steps in more detail. hRr D2 Xn# Tr# [−R + k# R
Since ∂∂TTP2 r = − 2A
2
r
< 0, TPr is strictly concave in Tr . XDPmr −(−2 + k# )PX]
r Tr3 TPR (m) = −
Accordingly, we obtain: β 2β 2 k# RP
 hu n# (D − Dβ + αβRu )2 Tr# kOR
∂TPr Dhr Ar 2Ar − 2
− # #
=− + 2 = 0 ⇒ Tr# = . (12) 2β mR n Tr
∂Tr 2 Tr Dhr AR mARu
− − # #
n# Tr# n Tr
Tr# is the optimal cycle length if we maximise the retailer’s  
profit only. Next, we consider the manufacturer’s profit. XDCR (1 − β)D
− − PRm + αRu PR .
By substituting Tr# in Equation (2), we obtain: β β
  (16)
(1 − β)D
TPm (k, l, n) = Pr D + PRm
β Hence, Equation (16) formulates the recycling facility’s
 2 #  profit per unit time in the sequential structure. Since
D XnTr
− hmr ∂ 2 TPR
=−
hRu n# (D−Dβ+αβRu )2 Tr#
< 0, TPR (m) is strictly
2β 2 kP ∂m2 β 2 m3 R
14 M. PARSA ET AL.
concave in m. Then we get:
 first case, it becomes the new incumbent and the LB is
(D − Dβ + αβRu )n# Tr# hRu
mrx = , (17)
β 2ARu R
where the optimal value of relaxed m in the sequential
structure, denoted by mrx is obtained in Equation (17)
by solving the equation ∂TP∂m = 0. Since m is a posi-
R
tive integer and TPR (m) is strictly concave in m, the
optimal value of m in the sequential structure, denoted
by m# is derived at m1 = max[1, min{mrx , m0 }] and/or
m2 = min{mrx , m0 }. Finally, we have:
TP(k# , l# , m# , n# , Tr# )
= TPr (Tr# ) + TPm (k# , l# , n# ) + TPR (m# )
+ TPs + TPM . (18)
Equation (18) calculates the total profit under decentr-
alised decision making. Now, we set the first incumbent
at k# , l# , m# , n# , and Tr# and the initial lower bound on
the total profit at TP(k# , l# , m# , n# , Tr# ). Then, we use
branching, bounding, pruning, and termination steps per
iteration. These steps are explained next.
3.2. Branching
We select the next variable in the ordering—k, l, m, and
n— as a branching variable. We choose one of the unfath-
omed sub-problems (nodes) to create new sub-problems
by fixing the branching variable to its possible integer
values according to the depth-first search strategy.
3.3. Bounding
The total profit for a given incumbent provides a lower
bound (LB) on the problem. In addition, we have a sub-
problem per node. So, we can calculate an upper bound
(UB) for each node by solving the relaxed sub-problem
in which the Constraints (9) and (10) are removed.
The relaxed sub-problem reads as follows: min TP; s.t. :
k, l, m, n ≥ 1 and Tr ≥ 0. When the variable(s) approach
positive infinity, the limit of TP either is negative infin-
ity or does not exist. Therefore, we need to investi-
gate all possible combinations in which no/some inte-
ger variables are set to 1 and other variables meet the
second-order necessary and sufficient optimality condi-
tions (Bazaraa, Sherali, and Shetty 2013). Thus, we exe-
cute Algorithm UB provided in Appendix D.2 to obtain
the upper bound for each node.
3.4. Pruning
A node is fathomed when the upper bound from
Algorithm UB is 1) a feasible solution or 2) less than
or equal to the current lower bound (UB ≤ LB). In the
updated when it is better than the current incumbent.
3.5. Termination
When the first branching variable in the B&B tree, i.e.k,
becomes greater than k0 , there is no remaining node
and the last incumbent is the global optimal solution.
Otherwise (k ≤ k0 ), we perform the next iteration.
4. Heuristic procedure
The definiteness of Hessian matrix of the objective func-
tion TP depends on the values of the parameters and
decision variables. Therefore, we cannot call whether
our problem is convex/concave MINLP. However, TP is
always strictly concave with respect to Tr for given val-
ues of k, l, m, and n (See Appendix C.2 for the proof).
Consequently, we obtain:

2klmRP
TrH = Aβ , (19)
nD(B + C)
where

Am + AM + AR + As + n(Ar + Om )
A= ,
+m(ARu + OM ) + k(Amr + OR ) + l(Amp + Os )
B = β 2 klmRP[hr + hm (n − 1) + nhu ]
+ βklR[−Dhm m(n − 2) − hu mnPR(1 − X)
− nDPXhu (m − 1)],
C = nD{kmRhmp (1 − X) + kmRhs (−1 + l + X − lX)
+ lX[(hmr + hRr (k − 1))mR − mPXhRr (k − 2)
+ hkP(−1 + m + 2X − mX)]}.
Hence, the optimal Tr for given values of k, l, m, and
n, which is defined as TrH , occurs at the only posi-
tive root of ∂TP
∂Tr = 0 and this value is calculated using
Equation (19). In mixed integer programming (MIP)
formulations, the technique of fixing a subset of inte-
ger variables to create sub-problems which are easier to
solve has proven to result in good heuristics. Some of
these heuristics are the distance induced neighbourhood
search (DINS) (Ghosh 2007), relaxation induced neigh-
bourhood search (RINS) (Danna, Rothberg, and Le Pape
2005), mutation, and crossover (Berthold 2006; Roth-
berg 2007). This technique can be generalised to MINLP
directly (Berthold et al. 2011) and it is the main moti-
vation behind our heuristic. We consider the following
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 15

general MINLP model adopted from our main model

formulated in (8)–(11): k0 = 30 CM = 10$/unit PM = 10$/unit Am = 20000$
l0 = 30 Cp = 95$/unit Pc = 250$/unit As = 450$
m0 = 30 CR = 13$/unit PR = 40$/unit AM = 1000$
Min Z = f (x, Tr ), x = (x1 , x2 , . . . , xq ) n0 = 30 Cs = 45$/unit Pmp = 77$ ARu = 100$
S.t. : α = 0.6 hmp = 0.6$/unit/year Pmr = 66$ OM = 25$
Li ≤ xi ≤ Ui , i = 1, 2, . . . , q (20) X = 0.55 hmr = 0.5$/unit/year Pr = 240$ Os = 300$
β = 0.8 hm = 1.50$/unit/year PRm = 40$ Om = 500$
Tr ∈ R+ , D = 500 units/year hr = 4.5$/unit/year Ar = 750$ OR = 100$
xj ∈ Z+ . P = 1000 units/year hRr = 0.30$/unit/year AR = 10000$
R = 800 units/year hu = 0.20$/unit/year Amr = 240$
Cd = 5$/unit hs = 0.5$/unit/year Amp = 250$
In this formulation, we have f : (x, Tr ) → R, x1 , x2 ,
. . . , xq are integer variables, q is the number of inte-
ger variables, and Tr is the only continuous variable. We solution tabulated in Table 2 in 984.6 and 49 s, respec-
assume without loss of generality that both Li and Ui ∈ tively. In order to evaluate the heuristic’s performance
Z+ . We also require f to be strictly concave with respect in terms of quality and speed, we need to solve more
to Tr and that is always true for our problem. problems that are provided in the next Section 5.2.
The algorithm starts by finding an optimal solution Also, we find that the integrated decision-making pro-
(x̄, T̄r ) to the problem obtained by relaxing the integral- cess results in higher total profit compared to the sequen-
ity constraint from xj ∈ Z+ to xi ∈ R+ . If x̄ is integral tial one as expected but it might result in lower profits of
for all x̄1 , x̄2 , . . . , x̄q , (x̄, T̄r ) is the global optimal solu- some members including the manufacturer, the retailer,
tion to the MINLP. Otherwise, the algorithm continues and the MRF in this example. When the CLSC is inte-
with a systematic search to force some integer variables grated vertically in the sense that it is jointly or partially
to take on integral values. Since optima can occur at the owned by organisation(s), this is not an issue. Other-
boundary of the domain (Li and Ui ), the algorithm gen- wise, lower profits for some members might cause serious
erates all possible sub-MINLPs in which different subsets problems, harming the overall strength and sustainabil-
of integer variables are fixed to their lower (Lj ) and upper ity of the CLSC. Motivated by these concerns, we advise
bounds (Uj ). Then, it finds the optimal solution (x̂, T̂r ) practitioners to coordinate their decentralised CLSC and
to the continuous relaxation of each sub-MINLP. The design mechanisms to fairly divide the resulting (poten-
algorithm continues by exploring all possible combina- tially higher) profit of integrated process among the
tions in which the optimal solution is rounded up/down involved parties.
to nearest integer respectively indicated by x̂i or x̂i . After
fixing all integer variables, we obtain optimal Tr by
using Equation (19). The pseudo-code of the heuristic 5.2. Additional results
algorithm is provided in Appendix D.3. We assess the performance of the heuristic compared to
There is no guarantee that the heuristic finds the opti- the B&B algorithm by solving several instances. Since
mal solution. It aims to find feasible solutions of good the time complexity of the B&B algorithm depends on
quality for our optimisation problem within a reason- k0 , l0 , m0 , and n0 , we create ten groups of instances where
ably short amount of time. We evaluate the performance all these parameters are set to 10, 20, 30, 40 . . . , 100. The
of our heuristic and report the results in the subsequent number of randomly generated instances in each group
sections. is 100. Therefore, in total 1,000 instances are generated,
using the following data set:
5. Computational results
5.1. Numerical example
PR , PRm ∼ Uniform[0.10Pc , 0.20Pc ]
In this section, we consider an example and provide the D ∼ Uniform[10, 10000]
α, β ∼ Uniform[0, 1] hu ∼ Uniform[0.01PR , 0.10PR ]
details of our solution. These details can be useful for X ∼ Uniform[1 − β, αβ + 1 − β] Pmp , Pmr ∼ Uniform[0.20Pc , 0.40Pc ]
  hmp ∼ Uniform[0.01Pmp , 0.10Pmp ]
readers who aim at implementing our exact and heuristic XD 10XD
R ∼ Uniform , hmr , hRr ∼ Uniform[0.01Pmr , 0.10Pmr ]
algorithms. The data is provided below. Both algorithms  β β Ps ∼ Uniform[0.15Pc , 0.30Pc ]
D R 1 hs ∼ Uniform[0.01Ps , 0.10Ps ]
are coded in MATLAB 2018 and run on a laptop com- P ∼ Uniform ,
β X Pr ∼ Uniform[0.70Pc , 0.90Pc ]
puter with Intel® CoreTM i5-8250U CPU@1.60GHz, RAM Ar , AR , Amr , Amp , Am , As , AM , ARu ∼ hr , hm ∼ Uniform[0.01Pr , 0.10Pr ]
Uniform[100, 10000] CM , Cp , CR ∼ Uniform[0.10Pc , 0.20Pc ]
8.00 GB, 64-bit operating system, and Windows 10. OM , Os , Om , OR ∼ Uniform[10, 1000] Cd ∼ Uniform[0.01Pc , 0.05Pc ]
We refer to Appendix E.1 for the calculations. Both Pc ∼ Uniform[1, 10000]
PM ∼ Uniform[0.01Pc , 0.05Pc ]
B&B and heuristic algorithms could obtain the optimal
16 M. PARSA ET AL.

Table 2. Optimal solution of the numerical example.

Structure k l m n Tr TPm TPr TPs TPM TPR TP
Sequential 6 5 5 15 0.8165 16778.594 3162.883 8410.209 1919.826 3378.249 33649.760
Integrated 5 2 5 12 1.0228 16747.045 3116.058 8644.762 1919.644 3383.009 33810.517

Table 3. Performance of the algorithms.

Average run time of the Average run time of the
Group k0 , l0 , m0 , and n0 No. of Non-Opt.% Avg. Dev.% Max. Dev.% heuristic (seconds) B&B (seconds)
1 10 3 3.0 5.1 44.8 281.3
2 20 2 4.9 6.2 32.5 337.0
3 30 3 2.2 4.7 41.0 939.5
4 40 4 4.5 6 49.6 1157.1
5 50 3 3.1 9.3 65.1 1880.2
6 60 5 2.6 4.1 40.9 3017.7
7 70 4 4.7 10.9 57.4 3143.1
8 80 6 6.1 8.5 34.0 3568.8
9 90 5 4.0 7.2 52.4 3811.3
10 100 5 5.2 10.4 40.5 4775.4

We do not set a limit on the run time and conse-
quently, the B&B algorithm obtains the optimal solution
in all instances. We define the following performance
measures:
• Percentage of instances in which the heuristic doesn’t
find the optimal solution, denoted by No. of Non-Opt.
%.
• Average and maximum percentage deviations from
optimal objective function value when the heuristic
doesn’t find the optimal solution. These measures are
denoted by Avg. Dev. % and Max. Dev. %, respectively.
• Average run time for both algorithms.
In Table 3, we present the computational results for
ten groups of instances. Table 3 shows that the average
computational time for the heuristic is between 32.5 and
65.1 s which is significantly shorter than that for the
B&B algorithm. The average computational time for the
B&B algorithm increases from 281.3–4,775.4 s when val-
ues of k0 , l0 , m0 , and n0 increase from 10 to 100 since
this algorithm runs in O(k0 l0 m0 n0 ). The heuristic expe-
riences only small changes in runtime when we con-
sider the ten groups because it has a time complexity of
O(1). The average runtime of the heuristic is 45.8 s. In
4% of the total instances (40 out of 1,000), it does not
obtain the optimal solution with an average and max-
imum percentage deviation from optimality of 4% and
10.9%, respectively.
Our results show that the proposed heuristic algo-
rithm performs quite well since it has obtained the global
optimal solution for 96% instances and near-optimal
solutions for other ones within a reasonably short amount
of time. In fact, the heuristic procedure provides a quick-
and-reliable tool for managers to make instant decisions
concerning many business scenarios in today’s competi-
tive market.
6. Sensitivity analysis
Studying the effect of manufacturing scrap fraction
(1 − β) is among our research questions. In addition,
the recycle content level (X) is a key parameter for mix-
ing virgin and recycled materials in production of recy-
cled content products. There are usually recommended
and/or regulated ranges for the recycled content level
(X). For example, (EPA 2007a) recommends 20%–100%
recycled content for bathroom tissue, 5%–40% for brown
papers, 25%–50% for corrugated containers, 20%–25%
for fiberglass insulation, 25%–100% for polyester car-
pet, and 80%–100% for structural fiberboard. Sustainable
industries need to know what recycled content level (X)
is cost-effective. Therefore, this section aims to study the
effect of the scrap fraction of production (1 − β) and
the recycled content level (X). We consider the detailed
example in Section 5.1 and perform sensitivity analysis
on these two parameters.
6.1. Effect of the scrap fraction
To study the effect of β, we obtain the optimal solu-
tions and the corresponding objective function values for
selected values of β ranging from 50% to 100% with an
increment of 1%. We summarise our findings below.
Figures 6 and 7 show the optimal solutions when β
increases for the integrated and decentralised systems,
respectively. Both figures indicate that β can significantly
affect the optimal decision variables except Tr in the
sequential structure since according to Equation (17), Tr
does not depend on β directly.

Figure 6. Behaviour of the optimal solutions in the integrated
structure with respect to β.
Figure 7. Behaviour of the optimal solutions in the sequential
structure with respect to β.
According to Figures 6 and 7, increasing β decreases
the optimal number of shipments to each party per sys-
tem cycle in both sequential and integrated systems.
When β increases, the perfect production rate (βP)
and the manufacturer’s inventory level increase. In this
case, it is beneficial for the manufacturer to push more
inventory downstream, i.e. to the retailer, to avoid high
holding costs. This implies an increase in the retailer’s
batch size. Since the demand that needs to be met
remains the same, the optimal number of shipments
to the retailer (n∗ and n# ) decreases. In addition, the
manufacturer needs less raw material when β increases.
Hence, the optimal number of shipments to the manu-
facturer from the supplier (l∗ and l# ) and the recycling
facility (k∗ and k# ) and consequently the optimal num-
ber of shipments to the recycling facility from the MRF
(m∗ and m# ) decrease.
Figure 8 shows the behaviour of profits of each party
and the whole supply chain in the integrated system as
a function of β. According to Figure 8, the profits of
the manufacturer, the MRF, and the whole supply chain
increase as β increases. However, the profits of the sup-
plier and the recycling decrease. This is because the
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 17
Figure 8. Behaviour of the profits in the integrated structure with
respect to β.
Figure 9. Comparison of the optimal values of Tr and n in the
integrated and sequential structures.
increase of β (decrease of 1 − β) reduces manufactur-
ing scrap. As a result, the manufacturer consumes less
virgin and recycled raw materials. Therefore, sales and
consequently the profits of the supplier and the recycling
facility decrease. In addition, a very slight fluctuation is
observed in the retailer’s profit because it depends only
on Tr∗ and changes in Tr∗ are not enough to affect it sig-
nificantly. The trends are also valid for the sequential
system.
According to Figure 9, the optimal Tr in the integrated
system (Tr∗ ) is more than that in the sequential sys-
tem (Tr# ). This shows that the retailer places orders with
smaller batch sizes in the sequential system to control its
holding cost. As a result, the optimal number of ship-
ments to the retailer per system cycle in the sequential
system (n# ) is higher than that in the integrated system
(n∗ ).
18 M. PARSA ET AL.
Figure 10. Behaviour of the total profit (TP) with respect to X for
different values of CR .
6.2. Effect of the recycled content level
To study the effect of the recycled content level, we calcu-
late the optimal total profit of the integrated supply chain
for selected values of X ranging from 20% to 60% with an
increment of 10% and multiple unit recycling cost values;
CR ∈ {12, 13, 14, 15, 16, 17, 18}. Let [Xmin , Xmax ] denote
an allowed range for X.
Figure 10 shows that the optimal recycled content
level equals either the upper limit Xmax or lower limit
Xmin . Based on this observation, we develop a hypoth-
esis on the optimality of a so-called bang-bang policy for
the recycled content level. We investigate this hypothesis
and obtain the following theoretical results. We refer to
Appendix C.3 for the proof.
Theorem 6.1: For k ≥ 2&m ≥ 2, the bang-bang policy is
the optimal policy for the recycled content level, i.e. the
optimal recycled content level is either Xmin or Xmax .
This result leads to the following corollaries:
Corollary 6.1: Let (T̂r , X̂) denote the stationary points
at which the gradient of function TP(Tr , X) becomes zero,
∂ 2 TP
and TP(Xmin = 0.25) = 33271.3 > TP(Xmax = 0.95) =
∂ 2 TP
∂Tr2 ∂Tr ∂X
i.e. ∇TP(T̂r , X̂) = 0. H2 = ∂ 2 TP ∂ 2 TP
is the Hes-
∂X∂Tr ∂X 2
sian matrix of TP(Tr , X), and |H2 |
is the determinant of
matrix H2 . Figure 11 shows the resulting decision tree for
the optimal recycled content level.
Corollary 6.2: TP is strictly-convex in X for (k > 2&
m ≥ 2) or (k = 2&m > 2), linear in X for (k = m = 2),
and strictly-concave in X for other values of k and m.
When the optimal recycled content level is Xmax ,
the reverse supply chain (Consumers → MRF → Recy-
cling Facility → Manufacturer) is more profitable than
the forward supply chain (Supplier → Manufacturer →
Retailer → Consumers). In this case, both green groups
and supply chain parties benefit since high recycled con-
tent level implies an environmental solution, which is
also the best solution in terms of chain-wide total profit.
In contrast, the optimality of Xmin might results in a
disagreement and conflicts between green and environ-
mentalist groups and decision-makers with economic
concerns. In this case, the decision maker might try to
resolve the conflict. We explain how to achieve this with
an example.
We consider the previous detailed numerical example.
Figures 12–14 show surfaces of TP with respect to X and
Tr for different values of k, l, m, and n. Figure 12 is for the
case with k = 5, l = 2, m = 5, and n = 12. The surface is
strictly-concave in the Tr -direction and strictly-convex
in the X-direction. In addition, it has a saddle point at
(TR = 1.062, X = −0.470, TP = 32834.438). This figure
indicates that the optimal recycled level is always Xmax
for this example. Figure 13 is for the case with k =
2, l = 2, m = 2 and n = 12. The surface is strictly-
concave in the Tr -direction. TP is always linear with
respect to X. In addition, it has a saddle point at
(Tr = 2.735, X = −7.700, TP = 28708.772). This figure
indicates that the optimal recycled level is always Xmax
since in the red surface of feasible region (i.e. Tr ≥ 0&0 ≤
X ≤ 1), TP always increases when X increases. Hence, for
both cases (Figures 12 and 13), in addition to the supply
chain players, the green and environmentalist groups are
satisfied.
Figure 14 is for the case with k = 1, l = 2, m = 1, and
n = 12. The surface is strictly-concave in both direction
and has a global maximum at (Tr = 0.969, X = 0.224,
TP = 33272.258) where |H2 | = 2.33 × 107 > 0. If Xmin
≤ X̂ = 22.4% ≤ Xmax , the optimal recycled level is
X̂ = 22.4%, otherwise it occurs at either Xmin or
Xmax . For example, when we consider Xmin = 0.25
and Xmax = 0.95, based on Corollary 6.1, the optimal
recycled level is 0.25 since X̂ = 22.4% ≤ Xmin ≤ Xmax
32524.7. In this case, green and environmentalist groups
might oppose this profit-maximising decision.
To deal with this problem, we perform a break-even
analysis on the unit recycling cost CR (Figure 15). It
helps to determine the conditions under which Xmax
is more profitable than Xmin . Figure 15 shows that the
break-even point is CR = 11.30, where the two lines
TP(Xmax = 0.95 and TP(Xmin = 0.25 cross. It also indi-
cates that for CR < 11.30$ we have TP(Xmax = 0.95) >
TP(Xmin = 0.25) and consequently, for any CR below
11.30, the optimal recycled content level would be Xmax .
Therefore, one way of resolving the conflict between
economic and environmental solutions is to reduce CR
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 19

Figure 11. Decision tree for the optimal recycled content level.

Figure 12. Graph of TP with respect to Tr and X for k = 5, l = 2, m = 5, and n = 12.

from 13$ to any value below 11.30$. This reduction can 7. Extension to the assembly systems
be enabled by offering tax cuts, subsidies, no or low-
The model developed in Section 2 is relevant to the pro-
interest loans, green grants, and accelerated investment
cess industries of a single material type like paper, plastic,
incentives to the recycling facility.
rubber, and metal. In this section, the model is extended

Figure 13. Graph of TP with respect to Tr and X for k = 2, l = 2, m = 2 and n = 12.

20 M. PARSA ET AL.

Figure 14. Graph of TP with respect to Tr and X for k = 1, l = 2, m = 1, and n = 12.

Figure 15. Break-even analysis on CR .

to the assembly systems. Hence, a final product is man- that a fraction β (0 ≤ β ≤ 1) of the manufacturer’s pro-
ufactured by the assembly of multiple components. We duction is perfect
v
and the rest (1 − β) is defective. We
consider the case where some of the components are i=1 λi Xi
define X̄ =  v as the average remanufacturing per-
i=1 λi
new and the rest are remanufactured. Examples for such centage. Therefore, the total number of components per
products include electronics, medical devices, and vehi- returned product that are remanufactured can be calcu-
cles. We consider a CLSC consisting of a manufacturer, v v
a retailer, multiple suppliers, an MRF, and a remanufac- lated as λi Xi = X̄ λi . Based on these definitions,
i=1 i=1
turer. Figure 16 depicts the structure of the CLSC. we can rewrite the manufacturer’s profit per unit time
We consider a product, a unit of which is assembled Assembly
(TPm ) as follows:
from ν different components (v ∈ N). λi units of com-
ponent type i (i = 1, 2, 3, 4, . . . , ν; λi ∈ N) are needed for
each unit of product. Each component type is obtained
from a different supplier. (1 − Xi ) percentage of com-  
Assembly (1 − β)D
ponent type i is new and is provided by supplier i. TPm = Pr D + PRm
β
The remanufacturer provides the rest. The MRF col-  
lects and disassembles α percentage of returned products  v
D λi X̄nTr
2
− hmri
and ships them to the remanufacturer. We also consider i=1
2kP
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 21

Figure 16. CLSC of the assembly industry.

ν
   unit time. As a result, the total profit per unit time of all
D2 λi (1 − X̄)nTr
− hmpi suppliers involved in the CLSC is given by:
i=1
2li P
  
v 
v
Tr D2 (P − D)nTr D Tr D Assembly
TPsi = λi (1 − X̄)DPmpi
− hm + −
P 2P 2 i=1 i=1
Om Am kAmr lAmp 
v  
− − − − D2 (li − 1)λi (1 − X̄)nTr
Tr nTr nTr nTr − hsi
v i=1
2li P

− Cp D − λi (1 − X̄)DPmpi 
v
li Os v
A si
i=1
− i
−

i=1
nTr i=1
nTr

v
+ λi X̄DPmri . (21) 
v

i=1
− Csi λi (1 − X̄)D. (23)
i=1
Here, hmri and hmpi are the manufacturer’s unit holding Using the procedure, which resulted in Equation (7), we
costs for remanufactured and new components of type obtain the following expression for the remanufacturer’s
i per unit time, respectively. Pmri and Pmpi represent the profit per unit time:
manufacturer’s unit purchase price for remanufactured
and new components of type i from the remanufacturer Assembly

v

and the supplier i, respectively. Accordingly, the supplier TPR = λi X̄DPmri

i=1
i’s profit per unit time can be written as:
hRr D2 λi X̄nTr
Assembly
TPsi = λi (1 − Xi )DPmpi 
v
[−R + kR − (−2 + k)PX̄]
−
 2  2kRP
D (li − 1)λi (1 − Xi )nTr i=1
− hsi
2li P hu n(αRu )2 Tr kOR AR mARu
− − − −
li Osi As 2mR nTr nTr nTr
− − i − Csi λi (1 − Xi )D. (22)  
nTr nTr XDCR (1 − β)D
− − PRm + αRu PR .
β β
Here, li is the number of shipments from supplier i to (24)
the manufacturer per system cycle (decision variable), Osi
is the fixed transportation, Asi is the fixed setup cost, hsi In Equation (24), the first term represents the reman-
is the unit holding cost for the type i component per unit ufacturer’s sales revenue, the second term is the holding
time, Csi is the supplier i’s procurement cost per unit of cost of the remanufactured components, the third term
type i component, and TPsi is the supplier i’s profit per is the holding cost of the recoverable returned products,
22 M. PARSA ET AL.
the fourth term is the fixed transportation cost related to
the manufacturer’s order of any size for the remanufac-
tured components, the fifth term is the fixed setup cost,
the sixth term is the ordering cost for the recoverable
returned products, the seventh term is the remanufac-
turing cost, and the eighth term is the summation of
purchasing costs of the manufacturer’s defective items
and the MRF’s recoverable returned products all per unit
time.
The expressions for profits per unit time of the retailer
and the MRF are exactly the same as in Equations (3) and
(5), respectively. Hence, the optimisation problem for the
assembly system becomes the following MINLP:
Assembly
According to our derivations, the optimal level of recy-
cled content is often either at its maximum or minimum
allowable level. When the optimal recycled content is at
its minimum allowable level, the reverse supply chain
(Consumers → MRF → Recycling Facility → Manufac-
turer) is less profitable than the forward supply chain
(Supplier → Manufacturer → Retailer → Consumers)
causing conflicts between environmentalist groups and
decision-makers with economic concerns. Hence, we
advise the managers to deal with this challenge by pro-
viding financial supports to the members involved in the
reverse supply chain.
Our findings regarding the optimal recycled con-
tent level could explain why EU members recognise

v
Assembly
MaxTPAssembly = TPm + TPr + TPsi
i=1
Assembly
+ TPM + TPR , (25)
S.t. :
k ≤ k0 , li ≤ l0 , m ≤ m0 , and n ≤ n0 , i = 1, 2, . . . , ν
k, li , m, n ∈ Z+ , i = 1, 2, . . . , ν
Tr ∈ R+ .
The objective is to maximise the chain-wide total
profit per unit time (TPAssembly ), which is the sum of the
profits per unit time of the manufacturer, the retailer, the
suppliers, the MRF, and the remanufacturer formulated
in Equations (21), (3), (23), (5), and (24), respectively.
Next, we define Xi,min and Xi,max as the minimum and
maximum values of Xi , respectively. These parameters
can be selected according to the product properties. With
Theorem 7.1, we extend the previous analytical result in
Theorem 6.1 to the assembly systems. The proof is given
in the Appendix C.4.
Theorem 7.1: For k ≥ 2 & m ≥ 2, the bang-bang policy
is optimal for the recycled content level of each component,
i.e. the optimal value of Xi for component i is either Xi,min
or Xi,max .
8. Discussion and managerial implications
In addition to providing the managers with a decision
tree to support decisions on the optimal level of recy-
cled content, our study provides multiple managerial
insights that can benefit companies and logistic providers
that produce, distribute, and recollect all recycled con-
tent products. Examples include office products, paper,
construction products, packaging materials, etc.
the importance of the extended producer responsibility
(EPR) policy that transfers the financial burden of man-
aging post-consumer waste inventory to the members
of the forward supply chains. For example, French pro-
ducers of graphic papers such as Arjowiggins Graphic
Company are required to compensate costs for the col-
lection and treatment of the post-consumer paper waste
subjected to the French domestic law with article L.541-
10-1 of the Environment Code. Each graphic paper man-
ufacturer should pay an ‘eco-contribution’ fee based on
the amount of distributed paper in the country to Éco-
folio, an organisation that is responsible for managing
reverse supply chains. This policy helps the reverse sup-
ply chain to gain more profit than the forward one.
Therefore, as suggested by our findings, involved play-
ers can choose the maximum allowable level of recycled
content and achieve higher profits and environmental
benefits.
Another example is provided by German’s large-scale
EPR closed-loop chain in the framework of ‘Green Dot
Programme’ established by the Duales System Deutsch-
land AG (DSD) under the low of ‘Ordinance on the
Avoidance and Recovery of Packaging Waste 1991-
amended 1998’ as well as European Directive 94/62/EC
on packaging and packaging waste. The Green Dot’s
imprint on a packaging material signals that its manu-
facturer has paid an annual license fee to DSD for the
collection, sorting, and recycling of used packaging mate-
rial (paper/cardboard, glass, aluminium, tinplate, plastic,
and composites). The EPR closed-loop production sys-
tem increases the profits of parties involved in the reverse
supply chain by reducing post-consumer waste inventory
costs. This leads to a high recycled content level implying
an environmental solution, which is also the best solu-
tion in terms of chain-wide total profit. Therefore, the
Green Dot system has achieved great success as a Euro-
pean model so that most EU countries have adopted this
system for their reverse supply chain of packaging waste
material.

The above-mentioned evidence related to the optimal
recycled content level indicates that government author-
ities with policymakers should set a sensible regulatory
framework of objectives, roles and responsibilities shared
among members, financing mechanisms, performance
targets, approvals, and monitoring for the CLSC accord-
ing to the characteristics of the industry. The formulation
of the regulatory policies should take the procurement,
production, collection, and recycling into account simul-
taneously to obtain global optimisation of policies and
ensure that they are properly implemented.
In addition, we find that the total profit from the
decentralised decision-making process (sequential struc-
ture), as suggested in our model, is less than the total
profit that can be obtained from the integrated decision-
making process. Although the letter results in higher
overall profit, it can reduce the profits of some mem-
bers. When the CLSC is integrated vertically in the sense
that it is jointly or partially owned by the organisation(s),
this might not be an issue. Otherwise, it becomes a big
challenge to sustain long-term cooperation in the CLSC.
The supply chain needs to be coordinated to fairly divide
the resulting profit among the members. Designing con-
tracts to coordinate the whole supply chain can encour-
age the parties with lower profits to accept operating
in the CLSCs with integrated decision-making processes
(Shen, Choi, and Minner 2019).
9. Conclusions
Coupling forward and reverse operations in closed-loop
supply chains (CLSCs) can lead to a higher degree of sus-
tainability. Previous studies on inventory management of
the CLSCs have focused on the products that are either
purely remanufactured or purely new. The emphasis on
recycling necessitates research that considers recycled
content products, which are made from a mix of virgin
and recycled material. We consider a CLSC that consists
of a manufacturer, a retailer, a supplier of virgin raw mate-
rials, an MRF (collector of the used product returned by
consumers), and a recycling facility that makes recycled
raw materials. Each location delivers inventory to its cus-
tomer location in equal-sized batches. Our objective is to
maximise the total profit of the integrated system by find-
ing the retailer’s optimal cycle time and optimal number
of shipments from a lot for all parties. Hence, we study a
Joint Economic Lot-sizing Problem (JELP) in the context
of integrated CLSCs.
We propose a branch-and-bound (B&B) algorithm to
find the exact solution of the problem with an initial
lower bound that is the optimal solution of the sequential
problem, which implies solving for the decision variables
one at a time. We also develop a heuristic procedure.
INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 23
Computational results show that the heuristic performs
remarkably well; it obtains the global optimal solution in
96% of the tested instances and near-optimal solutions
for remaining ones within a reasonably short amount of
time. Hence, our heuristic can be used by companies that
need quick-and-reliable solutions to explore the feasibil-
ity of available business options in today’s competitive
market.
We also perform sensitivity analysis on the scrap frac-
tion and indicate that a decrease in manufacturing scrap
fraction results in a smaller number of shipments to each
party per system cycle. It increases the profits of the man-
ufacturer, the MRF, and the whole supply chain, and
decreases the profits of the supplier and the recycling
facility. It has a negligible effect on the retailer’s profit.
Our results can benefit companies in multiple different
ways. The managers can use the decision tree presented in
this paper for selecting the optimal level of recycled con-
tent. Under most conditions, we prove the optimality of
bang-bang policy for the recycled content level. We dis-
cuss that a conflict between profit-maximising decision-
makers and environmentalists might occur if the optimal
recycled content is at the minimum allowable level, which
means that the forward supply chain attains higher profit
than the reverse one accompanied by natural resources
depletion at the fastest rate. To cope with this problem,
the parties involved in the reverse supply chain should
be financially supported with some economic and/or
administrative instruments under the EPR or non-EPR
umbrellas such as virgin materials taxes, advance recy-
cling fees, recycled content standards, recycling subsi-
dies, tax rebates, deposit-refund, take-back systems, and
environmental improvement funds. The results of this
paper encourage policy-makers to pay closer attention to
the effects of governmental regulations on collected and
processed inventory flows in the reverse supply chain.
They should work together on introducing legislation
for developing suitable mechanisms and instruments to
support the reverse supply chain according to the char-
acteristics of the industry. We also suggest that the profit-
sharing contract is a viable option for the managers to
coordinate the decentralised CLSCs.
In many realistic settings, the return rate depends on
the buyback price and acceptable quality level. Incorpo-
rating this dependence into our model is a possible future
research direction. It provides a useful inspection tool
for the MRF or third-party reverse logistics providers to
accept/reject each returned product by setting a mini-
mum percentage of useful parts for a recyclable item.
Extending our model to the case where all or some par-
ties are allowed to backorder is a possible future research
direction. In our study, we consider a system with a sin-
gle retailer, while real-world supply chains usually consist
24 M. PARSA ET AL.
of multiple retailers. Extending our analysis to these sys-
tems is another interesting research direction, especially
when the retailers compete and have price-dependent
demands. In this paper, we study a deterministic model.
It would be interesting, yet very challenging, to study
the same supply chain with stochastic demand on the
retailer’s side. Then, optimising the inventory decisions
of all parties and analyzing the effect that the recycled
content level might have on the optima decisions can pro-
vide new and useful insights. In addition to considering
stochastic demand, extensions that consider uncertain-
ties on the supply side are other future research directions
(Atan and Rousseau 2016; Atan and Snyder 2012; Atan
and Snyder 2014).
Note
1. Since shortages are not allowed, we have: βP ≥ D & R ≥
XP ⇒ R ≥ XD D
β & β ≤ P ≤ X.
R
Acknowledgments
The authors would like to sincerely thank anonymous refer-
ees, the guest editor and the editor-in-chief for their valuable
suggestions and comments.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes on contributors
Mostafa Parsa received his BSc and MSc
in Industrial Engineering from the Depart-
ment of Industrial and Systems Engineer-
ing at Isfahan University of Technology in
2009 and 2012, respectively. Now, Mostafa
is a PhD student in this department. As a
visiting researcher, he has worked closely
with the OPAC group (Operations, Plan-
ning, Accounting, and Control) of the Department of Industrial
Engineering and Innovation Sciences at Eindhoven University
of Technology (TU/e) since 2018. His research interests include
sustainability, supply chain management, inventory manage-
ment, and transportation. In industry, he is the founder of Nakh
Jarahan Pars (Pars Sutures) Co. in the field of medical device
manufacturing in Isfahan Science and Technology Town.
Ali Shahandeh Nookabadi is a professor
in the Department of Industrial and Sys-
tems Engineering at Isfahan University of
Technology where he has been a faculty
member since 1997. He served as the head
of this department for 8 years. His research
interests include location theory, facilities
planning, and quality assurance. His cur-
rent research focuses on facilities location, facilities planning,
and performance management of supply chain. He currently
serves as the Head of Transportation Engineering Department
at Isfahan University of Technology.
Zümbül Atan is an associate professor of
supply chain management in the OPAC
group (Operations, Planning, Accounting,
and Control) of the Department of Indus-
trial Engineering and Innovation Sciences
at Eindhoven University of Technology
(TU/e). She is the Research Director of the
European Supply Chain Forum’s FMCG
Community. Zümbül’s research is broadly focused on multi-
echelon inventory theory, retail operations and revenue man-
agement. Zümbül has conducted a large number of projects
with industry mainly through Master students. Her research
is published in leading journals (including Manufacturing &
Service Operations Management, Production and Operations
Management, IISE Transactions, Naval Research Logistics,
European Journal of Operational Research). Zümbül chairs the
Dutch Operational Management and Logistics Conference and
she has been in the scientific committees of multiple inter-
national conferences. She has earned multiple university- and
departmental-level teaching awards.
ORCID
Zümbül Atan http://orcid.org/0000-0003-1328-1756
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Appendices
Appendix A: notations
We use the following notation to develop the model separately
for each party.
Manufacturer:
Retailer:
Supplier:
MRF:
Recycling facility:
Appendix B: derivations of the holding costs
B.1. Manufacturer’s holding costs
Figure 17 including top and down graphs represents common
inventory patterns of the manufacturer’s finished products in
two forms. In the down graph, the hatched area is the total
inventory of finished products supplied for the retailer, while
the sum of the rectangle BCEF and the triangle ABF is the total
accumulated inventory of finished products at the manufac-
turer’s end. Therefore, the non-hatched area in the down graph
28 M. PARSA ET AL.

k number of shipments to the manufacturer per system cycle

n number of shipments to the retailer per system cycle (a (decision variable)
decision variable) TR recycling time within the system cycle (depended variable)
Tp production time within the system cycle (depended variable) R recycling rate
1−β scrap fraction of production OR fixed transportation cost to deliver the manufacturer’s order
P production rate AR recycling facility’s fixed setup cost
X recycled content level, expressed as a percentage ARu fixed ordering cost from the MRF for recyclable returned
Om fixed transportation cost to deliver the retailer’s order products
Am manufacturer’s fixed setup cost hRr holding cost per unit recycled material per unit time
Amr fixed ordering cost from the recycling facility for recycled hu holding cost per unit recyclable returned product per unit time
materials CR recycling cost per unit
Amp fixed ordering cost from the supplier for virgin materials PR purchase price per unit recyclable returned product from the
hm holding cost per unit finished product per unit time MRF
hmr holding cost per unit recycled material per unit time PRm purchase price per unit production scrap from the
hmp holding cost per unit virgin material per unit time manufacturer
Cp production cost per unit finished product IRr (t) recycling facility’s inventory level of recycled materials w.r.t
Pmr purchase price per unit recycled material from the recycling time
facility IRu (t) recycling facility’s inventory level of recyclable returned
Pmp purchase price per unit virgin material from the supplier products w.r.t time
Im (t) manufacturer’s inventory level of finished products w.r.t time TRR recycling facility’s total revenue per unit time
Imr (t) manufacturer’s inventory level of recycled materials w.r.t TCR recycling facility’s total cost per unit time
time TPR recycling facility’s total profit per unit time
Imp (t) manufacturer’s inventory level of virgin materials w.r.t time
TRm manufacturer’s total revenue per unit time
n(n − 1)DTr2 (n − 1)βPTp Tr
TCm manufacturer’s total cost per unit time = = ,
TPm manufacturer’s total profit per unit time 2 2
   
Tp Tp
BC = nTr − Tp − Tr − = (n − 1) Tr − ,
Tr cycle time for the retailer (decision variable) n n
D demand rate  
Tp
Ar fixed ordering cost from the manufacturer AreaBCEF = BF × BC = βPTp × (n − 1) Tr − ,
hr holding cost per unit finished product per unit time n
Pc retail price per unit finished product to the consumer
Pr purchase price per unit finished products from the manufacturer 1 1 1
Ir (t) retailer’s inventory level of finished products w.r.t time
AreaABF = × BF × AB = × (βPTp ) × Tp = βPTp2 ,
2 2 2
TRr retailer’s total revenue per unit time
TCr retailer’s total cost per unit time Im = AreaBCEF + AreaABF − AreaHatched
TPr retailer’s total profit per unit time  
Tp 1 (n − 1)βPTp Tr
= βPTp (n − 1) Tr − + βPTp2 −
n 2 2
l number of shipments to the manufacturer per system cycle (decision  
variable) 1 (n − 1) (n − 1)
Os fixed transportation cost to deliver the manufacturer’s order = βPTp Tp + (n − 1)Tr − Tp − Tr
As Supplier’s fixed setup cost
2 n 2
 
hs holding cost per unit virgin material per unit time (n − 2) (n − 1)
Cs extraction cost per unit virgin material = βPTp − Tp + Tr . (B.1)
Is (t) supplier’s inventory level of virgin materials w.r.t time 2n 2
TRs supplier’s total revenue per unit time
TCs supplier’s total cost per unit time
Using Equation (B.1), The average inventory of the manu-
TPs supplier’s total profit per unit time facturer’s finished products (Īm ) is given by:
 
m number of shipments to the recycling facility per system cycle Im βPTp (n − 2) (n − 1)
Īm = = − Tp + Tr . (B.2)
(decision variable) nTr nTr 2n 2
Ru return rate of used products (Ru < D)
1−α disposal percentage of returned product Equation (B.2) can be rewritten by Tp = nDTr
from
α recyclable percentage of returned product βP
OM fixed transportation cost to deliver the recycling facility’s order Equation (1) as follows:
AM MRF’s fixed setup cost
Tr D2 (βP − D)nTr D Tr D
hu holding cost per unit recyclable returned product per unit time Īm = + − . (B.3)
CM processing cost per unit recyclable returned product βP 2βP 2
Cd disposal cost per unit non-recyclable returned product
PM unit purchase price per EOL product from the consumer So, the manufacturer’s holding cost per unit time for the
IM (t) MRF’s inventory level of recyclable returned products w.r.t time finished products would be:
TRM MRF’s total revenue per unit time  
TCM MRF’s total cost per unit time Tr D2 (βP − D)nTr D Tr D
TPM MRF’s total profit per unit time hm Īm = hm + − . (B.4)
βP 2βP 2

is equal to the area under the top graph representing the manu- We obtain the manufacturer’s average inventory of the vir-
facturer’s total inventory of finished products in a system cycle gin materials per unit time using Tp = nDT r
βP from Equation (1)
(Im ): as follows:
 
T T
AreaHatched = (DTr )Tr + (2DTr )Tr l lp (1 − X)P lp D2 (1 − X)nTr
= . (B.5)
+ . . . + ((n − 1)DTr )Tr 2nTr 2β 2 lP
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 29

B.3. MRF’s holding cost

Figure 18 shows the MRF’s inventory level over time. The total
inventory of the MRF per system cycle (IM ) is the sum areas of
the rectangle ACEG and the triangle ABC minus the hatched
triangle areas.
 
1 αRu nTr TR αRu nTr TR
AreaHatched = m × × × = ,
2 m m 2m

BF × AC αRu (nTr − TR )nTr

AreaABC = = ,
2 2
αRu TR
AreaACEG = CE × AC = × nTr ,
m
IM = AreaABC + AreaACEG − AreaHatched
αRu (nTr − TR )nTr αRu nTr TR
= + . (B.11)
2 2m
Using Equation (B.11), The average inventory of the MRF is:
IM αRu (nTr − TR ) αRu TR
ĪM = = + . (B.12)
nTr 2 2m

Equation (B.12) can be rewritten by TR = (1−β)D+αβR
βR
u

nTr from Equation (6) as follows:

nαRu [βmR + β(1 − m)αRu + (1 − β)(1 − m)D]Tr
Figure 17. Manufacturer’s inventory level (top), accumulation ĪM = .
2βmR
and supply of manufacturer’s inventory (down) over time for the
(B.13)
finished products.
Therefore, the MRF’s holding cost per unit time would be
as follows using Equation (B.13):
Using Equation (B.5), the manufacturer’s holding cost per hu nαRu [βmR
unit time for the virgin materials is obtained by: +β(1 − m)αRu + (1 − β)(1 − m)D]Tr
 2  hu ĪM = . (B.14)
D (1 − X)nTr 2βmR
hmp . (B.6)
2β 2 lP
B.4. Recycling facility’s holding costs
Similarly, the manufacturer’s average inventory of the recy- Using Equation (6), the recycling facility’s average inventory of
cled materials per unit time is: the recyclable returned products per unit time is formulated by:
   
T
k kp XP kp
T m RT R TR
n(D − Dβ + αβRu )2 Tr
D2 XnTr m m
=
= . (B.7) . (B.15)
2nTr 2β 2 kP 2nTr 2β 2 mR
Using Equation (B.7), the manufacturer’s holding cost per So, the recycling facility’s holding cost per unit time for the
unit time for the recycled materials would be: recyclable returned items is obtained as follows using Equation
(B.15):
 2 
D XnTr hu n(D − Dβ + αβRu )2 Tr
hmr . (B.8) . (B.16)
2β 2 kP 2β 2 mR
B.2. Supplier’s holding cost Using Equation (1) and the same calculation procedure
We can obtain the supplier’s average inventory of the vir- employed in Appendix B.1, the recycling facility’s average
inventory of the recycled materials per unit time is obtained
gin materials per unit time as follows using Tp = nDT r
βP from as follows:
Equation (1): Tp Tp

 
2 2
k X P (R − XP)XPTp k XP Tp
T
(1 − X)PTp2 − l lp (1 − X)P lp
T + −
D2 (l − 1)(1 − X)nTr R 2R 2 nTr
= .
2nTr 2β 2 lP D2 XnTr [−R + kR − (−2 + k)PX]
(B.9) = . (B.17)
2β 2 kRP
Using Equation (B.9), the supplier’s holding cost per unit Consequently, the recycling facility’s holding cost per unit
time is: time for the recycled materials is given by:
 2 
D (l − 1)(1 − X)nTr hRr D2 XnTr [−R + kR − (−2 + k)PX]
hs . (B.10) . (B.18)
2β 2 lP 2β 2 kRP
30 M. PARSA ET AL.

Figure 18. Inventory level of the recyclable returned products over time for MRF (top) and recycling facility (down).

According to Equation (C.7), ∂∂TTP

2
Appendix C: proofs 2 is always negative and TP
r
C.1. TPm is strictly concave with respect to k and l. is strictly concave with respect to Tr . 
The first order partial derivatives of TPm for given values of n
and Tr is as follows: C.3. Proof of Theorem 6.1
The second order partial derivative of TP with respect to X is
∂TPm −2Amp β 2 l2 P+ D2 hmp n2 Tr2 (1 − X)
= , (C.1) calculated by:
∂l 2β 2 l2 nPTr  
∂ 2 TP D2 nTr hRr (k − 2) hu (m − 2)
∂TPm Amr D2 hmr nTr X = + . (C.8)
=− + , (C.2) ∂X 2 β 2R k m
∂k nTr 2β 2 k2 P
∂ 2 TP ∂ 2 TP

Using Equations (C.1) and (C.2), the second order partial ∂Tr2 ∂Tr ∂X
derivatives of TPm for given values of n and Tr is: Let H2 = ∂ 2 TP ∂ 2 TP
denote the Hessian matrix of
∂X∂Tr ∂X 2
∂ 2 TPm ∂ 2 TPm TP(Tr , X). The determinant of matrix H2 , denoted by |H2 | is
= = 0, (C.3) derived as follows:
∂k∂l ∂l∂k
 2   2 
∂ 2 TPm D2 hmp nTr (1 − X) ∂ TP ∂ 2 TP ∂ TP ∂ 2 TP
= − < 0, (C.4) |H2 | = . − .
∂l2 β 2 l3 P ∂Tr2 ∂X 2 ∂Tr ∂X ∂X∂Tr
 2   2
∂ 2 TPm D2 hmr nTr X ∂ TP ∂ 2 TP ∂ 2 TP
=− < 0. (C.5) = . − . (C.9)
∂k 2 β 2 k3 P ∂Tr2 ∂X 2 ∂Tr ∂X
2

∂ TPm ∂ TPm
2
For given values of k, l, m, and n, the maximum of TP(Tr , X)
H1 = ∂l2 ∂l∂k is the Hessian matrix of TPm . The
∂ 2 TPm ∂ 2 TPm can occur at critical points or the boundary of the domain.
∂k∂l ∂k2 The matrix H2 is always indefinite for k ≥ 2&m ≥ 2 because
determinant of denoted by |H1 | is given as follows
matrix H1 , ∂ 2 TP
< 0 and ∂∂XTP
2
using Equations (C.3)-(C.5): ∂Tr2 2 ≥ 0 according to Equations (C.7) and (C.8)

respectively and then |H2 | < 0 according to Equation (C.9). In

D4 hmp hmr n2 Tr2 (1 − X)X this case, each stationary point of TP(Tr , X) is a saddle point
|H1 | = > 0. (C.6)
β 4 k3 l3 P2 and TP(Tr , X) has no local extremum. Therefore, the maxi-
mum of TP(Tr , X) occurs at its boundary of the domain Xmin
The Hessian matrix of TPm is negative definite because the
or Xmax . This completes the proof of Theorem 6.1. 
first and second order leading principal minors of matrix H1 are
always negative and positive respectively ( ∂ ∂lTP2 m 0&|H1 | 0)
2

according to Equations (C.4) and (C.6). Therefore, TPm is

C.4. Proof of Theorem 7.1
The second order partial derivatives of TPAssembly (Tr , X̄) with
strictly concave in l and k. 
respect to Tr and X̄ are as follows:

C.2. TP is strictly concave with respect to T r . ∂ 2 TPAssembly −2
The second order partial derivative of TP with respect to Tr is = nAr + Am + AM + AR + As + kAmr
∂Tr2 nTr3
calculated by:
+ lAmp + mARu + nOm + mOM + kOR
∂ 2 TP −2 
= (nAr + Am + AM + AR + As + kAmr + lAmp
∂Tr 2 nTr3  v
+ li Osi < 0, (C.10)
+mARu + nOm + mOM + kOR + lOs ) < 0. (C.7) i=1
 INTERNATIONAL JOURNAL OF PRODUCTION RESEARCH 31

⎡ 
v ⎤
D.2. Algorithm UB
hRr (k − 2) λi
∂ 2 TPAssembly D2 nTr ⎢ hu (m − 2) ⎥
= ⎢ i=1
+ ⎥.
∂ X̄ 2 R ⎣ k m ⎦

1) Set Y on the number of remaining integer variables that haven’t

(C.11) been allocated to the branching variables yet.
⎡ ⎤ 2) Do steps
 (2-1) and (2-2) for j from 0 to Y:
∂ 2 TPAssembly ∂ 2 TPAssembly Y
∂T
= ⎣ ∂ 2 TPAssembly ∂Tr ∂ X̄ ⎦
Assembly 2 2-1) relaxed problem(s) is/are created after relaxing Con-
Let H2 r
∂ 2 TPAssembly
denote the Hes- j
∂ X̄∂Tr ∂ X̄ 2 straints (9) and (10) and setting j remaining integer variable(s)
on 1.
sian matrix of TPAssembly (Tr , X̄). The determinant of matrix 2-1) Find local maximum(s) by checking the second-order neces-
Assembly Assembly
H2 , denoted by |H2 | is derived as follows: sary and sufficient optimality conditions for each problem of
  the step (2-1).
Assembly ∂ 2 TPAssembly ∂ 2 TPAssembly 2) Find the most TP among the local maximums recorded in the step
|H2 | = . (2-2) as the upper bound (UB) for the node.
∂Tr2 ∂ X̄ 2
 
∂ 2 TPAssembly ∂ 2 TPAssembly
− .
∂Tr ∂ X̄ ∂ X̄∂Tr D.3. Heuristic algorithm
 
∂ 2 TPAssembly ∂ 2 TPAssembly
= .
∂Tr2 ∂ X̄ 2
 2 Input: MINLP as in (20)
∂ 2 TPAssembly Start
− . (C.12) /* solve continuous relaxation of (20) */
∂Tr ∂ X̄ (x̄, T̄r ) ← ArgMax{f (x, Tr ) : Li ≤ xi ≤ Ui , xi ∈ R+ i = 1, . . . , q; Tr ∈ R+ }
v v If x̄ ∈ Z+ then
λX λX (x̄, T̄r ) is the optimal solution
Let X̄max = v i i,max
i=1
and X̄min = v i i,min
i=1
so that
i=1 λi i=1 λi Else
Assembly {
X̄min ≤ X̄ ≤ X̄max . The Matrix H2 is always indefinite
∂ 2 TPAssembly
{
< 0 and ∂ TP∂ X̄2
2 Assembly
for k ≥ 2&m ≥ 2 because ∂Tr2
≥0 For all possible combinations do
according to Equations (C.10) and (C.11) respectively and Fix remaining integer variables to x̄i or x̄i
Assembly Compute TrH by Equation (19) and then TP by Equation (8)
then |H2 | < 0 according to Equation (C.12). In this case, }
each stationary point of TPAssembly (Tr , X̄) is a saddle point /* solve the sub-MINLPs */
and TPAssembly (Tr , X̄) has no local extremum. Therefore, the For j from 1 to q − 1
For r from 1 to j
maximum of TPAssembly (Tr , X̄) occurs at its boundary of the For s from 1 to q − j
domain X̄min or X̄max that means {Xi,min |∀i ∈ {1, 2, . . . , v}} For t from 1 to s
or {Xi,max |∀i ∈ {1, 2, . . . , v}}. This completes the proof of {
Theorem 7.1.  Set xr , . . . , xj to their lower bounds (upper bounds)
Set xj+t , . . . , xj+s to their upper bounds (lower bounds)
Find the optimal solution (x̂, T̂r ) for continuous relaxation of the
Appendix D: algorithms sub-MINLP
{
D.1. Algorithm SE For all possible combinations do
Fix remaining integer variables on x̂i or x̂i
Compute TrH by Equation (19) and then TP by Equation (8)
}
}
1) For n from 1 to n0 do steps (1-1) and (1-2): Find the most TP and its corresponded decision variables as the best
1-1) Calculate krx and lrx from Equations (14) and (15). possible solution obtained by the heuristic
1-2) For given value of n, calculate TPm (k, l, n) via Eq. (13) }
in (k = k1 , l = l1 ), (k = k1 , l = l2 ), (k = k2 , l = l1 ), and End.
(k = k2 , l = l2 ) where
k1 = max[1, min{krx , k0 }], k2 = min{krx , k0 },
l1 = max[1, min{lrx , l0 }], l2 = min{lrx , l0 }.
2) Find the most TPm resulted from step 1 and its corresponded
combination of k# , l# , and n# as the optimal solution of the
sequential structure.
32 M. PARSA ET AL.
Appendix E: calculations
E.1. Calculations for the numerical example
B&B algorithm:
First, we perform the initialisation step of the developed
B&B algorithm. We obtain Tr# = 0.8165 by Equation (12).
Then, using Algorithm SE, we obtain n# = 15, k# = 6, and l# =
5. mrx = 4.707 is obtained from Equation (17). Since TPR
(m = 5) = 3378.249 is greater than TPR (m = 4) = 3377.372,
m# is set to 5. The maximum total profit from the decentralised
/sequential decision making, obtained using Equation (18),
is TP(k# , l# , m# , n# , Tr# ) = 33649.760. The corresponding prof-
its for the manufacturer, the retailer, the supplier, the MRF,
and the recycling facility in the sequential structure are
TPm = 16778.594, TPr = 3162.883, TPs = 8410.209, TPM =
1919.826, and TPR = 3378.249, respectively.
We use k# = 6, l# = 5, m# = 5, n# = 15, and Tr# = 0.8165
as the first incumbent and TP(k# , l# , m# , n# , Tr# ) = 33649.760
as the initial lower bound (LB). Finally, the developed B&B
algorithm obtains the optimal decision variables for the inte-
grated system as k∗ = 5, l∗ = 2, m∗ = 5, n∗ = 12, and Tr∗ =
1.0228. The corresponding total profit is TP(k∗ , l∗ , m∗ , n∗ , Tr∗ )
= 33810.517. The profits for the manufacturer, the retailer,
the supplier, the MRF, and the recycling facility in the inte-
grated decision-making process are TPm = 16747.045, TPr =
3116.058, TPs = 8644.762, TPM = 1919.644, and TPR =
3383.009, respectively.
Heuristic algorithm:
According to the heuristic algorithm, as the first step,
we find the optimal solution of the continuous relaxation.
We obtain the following solution: k = 5.421, l = 1.558, m =
5.419, n = 12.168, and Tr = 1.013. Since this solution is not
integral, we continue the algorithm. If we set k = 5.421 =
5, l = 1.558 = 2, m = 5.419 = 5, and n = 12.168 = 12, we can
compute TrH = 1.0228 via Equation (19). At the end of the
algorithm, the solution k = 5, l = 2, m = 5, n = 12, and TrH =
1.0228 represents the best possible solution obtained by the
heuristic. Note that this is also the global optimal solution.