Measurement 143 (2019) 93–102

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Measurement
journal homepage: www.elsevier.com/locate/measurement

Returnable containers management in a single-vendor multi-buyer

supply chain with investment in reducing the loss fraction
Xiangxiang Fan a, Xianhao Xu a,⇑, Bipan Zou b, Qingguo Bai c
a
School of Management, Huazhong University of Science and Technology, Wuhan 430074, China
b
School of Business Administration, Zhongnan University of Economics and Law, Wuhan 430074, China
c
Institute of Operations Research, School of Management, Qufu Normal University, Rizhao 276826, China

a r t i c l e i n f o a b s t r a c t

Article history: With the advantages of reducing CO2 emissions and improving the sustainability of supply chain, return-
Received 12 October 2018 able containers have been widely used in logistics processes. This paper considers a returnable containers
Received in revised form 15 November 2018 supply chain that consists of a single vendor and multiple buyers. To minimize the total cost of the sys-
Accepted 1 December 2018
tem and balance the containers flow, we assume that the buyers can invest in employee training to
Available online 24 December 2018
reduce the loss fraction of returnable containers. We build an inventory model for the system, design
an iterative procedure using Mathematica to minimize the total cost and compare with the case that
Keywords:
the buyers do not invest. The results show that the optimal cost of the case where the buyers invest is
Closed-loop supply chain
Returnable containers
much lower than that of the case where the buyers do not invest. Moreover, the quantity of returnable
Multiple buyers containers the buyers receive and the replenishment frequency are both lower than the case that the buy-
Investment function ers do not invest.
Reducing the loss fraction Ó 2018 Elsevier Ltd. All rights reserved.

1. Introduction
Returnable containers is a type of secondary packaging material
that can be used multiple times as the same form, such as bins, pal-
lets, boxes or crates [18]. Returnable containers have the advan-
tage of reducing CO2 emissions and improving the sustainability
of supply chain [11,24,2]. However, the loss of returnable contain-
ers poses severe problem to the operations of returnable contain-
ers. Lost containers need to be replenished in time, otherwise,
production and logistics activities will go wrong. Based on this con-
sideration, this paper tries to study the effect of reducing loss frac-
tion of returnable containers on the performance of the system.
We study a returnable containers supply chain that consists of a
single vendor and multiple buyers. In such a system, the vendor
distributes products to multiple buyers using returnable contain-
ers. The buyers receive containers filled with products. When con-
tainers are emptied, the buyers collect containers and return them
to the vendor after a cycle time. We assume the cycle time of all the
buyers is the same [12,15]. For some unavoidable issues, such as
misplacement, the buyers return fewer containers to the vendor
than the buyers receive. We assume that the buyers can invest in
employee training to reduce the misplacement of returnable con-
⇑ Corresponding author.
E-mail address: xxhao@hust.edu.cn (X. Xu).
tainers, which will cause the reduction of the loss fraction of
returnable containers. We model the investment cost of the buyers
as logarithmic functions [6,19].
We try to answer two research questions in this study.
1. How does the investment of the buyers in reducing the loss
fraction of returnable containers affect the single-vendor
multi-buyer supply chain?
2. What is the effect of the buyers’ investment on the optimal
decision variables of the supply chain of returnable containers?
To answer above research questions, we consider two cases. In
Case 1, we assume the buyers can invest to reduce the loss fraction
of returnable containers. In Case 2, the buyers do not invest. We
propose a procedure to minimize the total cost of the single-
vendor multi-buyer supply chain for Case 1. We prove that the
total cost function of Case 2 is convex and derive the optimal solu-
tion for Case 2. We compare Case 1 with Case 2 in the numerical
experiments, and the results indicate that the optimal total cost
of Case 1 is much lower than that of Case 2. The quantity of return-
able containers all the buyers receive each cycle in Case 1 is fewer
than that in Case 2. Replenishment frequency of new returnable
containers is lower than that in Case 2. When the demand of the
buyer is relatively low, the buyer will not invest to reduce the loss
fraction of returnable containers.
This paper makes the following contributions.

https://doi.org/10.1016/j.measurement.2018.12.003
0263-2241/Ó 2018 Elsevier Ltd. All rights reserved.
94 X. Fan et al. / Measurement 143 (2019) 93–102
1. We develop inventory models in two cases for the supply chain
of returnable containers consisting of single vendor and multi-
ple buyers, and minimize the total cost for both cases. The
results show that the total cost of the supply chain in Case 1
is much lower than that of Case 2.
2. We present an iterative procedure to minimize the total cost for
Case 1, and compare the optimal solution of both cases. The
results show that the quantity of returnable containers all the
buyers receive each cycle and replenishment frequency of
new returnable containers in Case 1 are both lower than that
in Case 2.
The rest of the paper is structured as follows. Section 2 presents
literature review. In Section 3, we develop inventory models for
two cases. Section 4 gives numerical experiments. Section 5 gives
conclusions and further study.
2. Literature review
We review literature on the following aspects: Returnable con-
tainers management, Investment in improving quality and inven-
tory inaccuracy, and Single-vendor multi-buyer models. For a
more comprehensive review on the research of returnable contain-
ers, we refer to Glock [9].
2.1. Returnable containers management
Optimal inventory control policy is proposed for a periodic
review inventory system using dynamic programming [1]. The
effect of renting of containers on the performance of the system
is studied using a mixed-integer non-linear programme [10]. The
results show that the decision of renting containers is affected by
the risk of late returns and the holding cost of finished product
of the vendor. Four safety measures for returnable containers are
analyzed assuming stochastic return times [8]. The results give
support on the adaptability of different safety measures. Soysal
[22] proposes a mixed-integer linear programming model to study
closed-loop inventory-routing problem for returnable containers. A
inventory-routing problem of returnable containers within time
windows is studied considering simultaneous pickup and delivery
[14]. A mixed-integer non-linear programming problem model is
proposed to investigate environmental impacts of production and
transportation [20]. They propose best returnable containers man-
agement policies. The impact of returnable container return times
is analyzed considering early shipment and late shipment, and the
results show that return lot size increases as the mean return time
become longer [16]. An inventory model is developed to analyze
the effect of radio frequency identification (RFID) on returnable
container management [23]. They model the main benefit of con-
tainer tracking systems based on RFID as an increase of return rate
of returnable containers. The major advantage of RFID-tagged con-
tainers is perceived as an increased mean return fraction and a
decreased variance of the return fraction [17]. An inventory control
model is developed to decide optimal cycle time of inspection and
purchasing new container [3]. While the effect of investment in
reducing the loss fraction of returnable containers in a single-
vendor multi-buyer supply chain has not been considered in above
studies.
2.2. Investment in improving quality and inventory inaccuracy
Three options are introduced as investment in quality improve-
ment, and reducing setup cost is one of them. They show that opti-
mal investment strategy can be derived explicitly using
logarithmic form investment cost function.[19]. The optimal
investment levels is derived for the centralized system and the
decentralized system in two scenarios. They assume investment
in RFID can decrease inventory inaccuracy [25]. Analytical models
are developed to analyze the effectiveness of RFID in decreasing
the inaccurate inventory [4]. A integrated production-inventory
system is investigated to analyze the optimal investment of the
vendor to reduce the defect fraction of the production process
using logarithmic investment function. They propose an iterative
procedure to derive the optimal decisions [6]. Datta [5] studies
an inventory system with defective products and considers invest-
ment opportunity for reducing defective proportion. It is assumed
the investment for quality improvement impacts defective
fraction.
2.3. Single-vendor multi-buyer models
An integrated production-inventory model is developed consid-
ering lead time reduction for a supply chain consisting of single
vendor and multiple buyers [15]. Three models are developed con-
sidering with equal-sized batches transfer and unequal-sized
batches transfer. Common ordering cycle time of the buyer is
assumed in the second model [12]. A generalized inventory model
is developed with a better synchronization for a single-vendor
multi-buyer supply chain [13]. Inventory models are developed
for reusable containers and finished goods in a single-vendor
multi-buyer supply chain. They assume common replenishment
cycle is implemented for all retailers [7]. An integrated inventory
model is proposed considering ordering cost reduction for a supply
chain consisting of single vendor and multiple buyers [26].
3. Inventory models of Case 1 and Case 2
This paper considers a returnable containers supply chain that
consists of a single vendor and multiple buyers. We consider two
cases. In Case 1, we assume the buyers can invest to reduce the loss
fraction of returnable containers. In Case 2, the buyers do not
invest. Flow of returnable containers in the system is illustrated
in Fig. 1(a) and (b) shows the inventory variation of empty return-
able containers.
In such a system, the vendor use returnable containers to dis-
tribute finished products. Containers are delivered to buyers at
the rate of d per unit of time. Each cycle Q j containers filled with
products are received by the buyer j. Buyers collect empty contain-
ers and return them to the vendor in the inventory of serviceable
Qj
containers (ISC). We assume dj
¼ Qd [12,15], i.e., the cycle time of
the buyers is the same. ð1  yj ÞQ j containers are collected in the
inventory of used containers (IUC) and yj Q j containers are lost
because of management oversight of the buyers. Returned contain-
ers are inspected by the vendor, yj Q j containers are identified as
missing. Lost containers will be replenished by new containers
with replenishment frequency of np . Lead time of newly purchased
containers is assumed to be zero.
3.1. Notations
The following notations are used to establish the proposed
model as shown in Table 1.
3.2. Inventory model of Case 1
In Case 1, we assume the buyers can invest to reduce the loss
fraction of returnable containers. An inventory model is developed
to determine the optimal quantity of returnable containers the
buyer receives each cycle, replenishment frequency of new return-
 X. Fan et al. / Measurement 143 (2019) 93–102 95

Fig. 1. The single-vendor multi-buyer supply chain of returnable containers.

PN
 PN

 C P np þ C I ci j¼1 Q j 1  yj cp j¼1 Q j yj
Table 1 TC IV Q j ; np; yj ¼ PN þ PN þ PN
Qj Qj Qj
j¼1 j¼1 j¼1
Notations.
d d d
Parameters
P
2 P 2
N N
dj demand rate of returnable containers for the retailer j hs j¼1 Q j 1  yj hs j¼1 Q j yj
P þ PN þ PN ð3Þ
d demand rate of returnable containers for the vendor, where d ¼ Nj¼1 dj 2 j¼1 Q j 2np j¼1 Q j
y0 j initial loss fraction of returnable containers for the retailer j
CI fixed inspection cost P Qd
Substituting Nj¼1 Q j ¼ Q and Q j ¼ d j into Eq. (3), we derive the fol-
CP fixed order cost
ci variable inspection cost lowing equation.
cp purchase cost of a new returnable container
hu j holding cost of a used returnable containers for the retailer j
 C P np þ C I X
N

 X
N

hs holding cost of a serviceable returnable containers

TC IV Q j ; np; yj ¼ Q
þ ci dj 1  yj þ cp dj yj
d j¼1 j¼1
g fractional opportunity cost
dj percentage decrease in the loss fraction of returnable containers per P
2 P 2
N N
dollar increase in investment of the buyer j hs Q j¼1 dj 1  yj hs Q j¼1 dj yj
þ 2
þ 2
ð4Þ
Decision variables 2d 2d np
np replenishment frequency of new returnable containers
yj fraction of lost returnable containers for the retailer j Consequently, the total cost of the system is given by the fol-
Q The sum of the quantity of returnable containers all the buyers receive lowing equation.
each cycle

 C P np þ C I X
N

 X
N
TC IS Q ; np ; yj ¼ Q
þ ci dj 1  yj þ cp dj yj
d j¼1 j¼1
P
2 P 2
N N
able containers and fraction of lost returnable containers by mini- hs Q j¼1 dj 1  yj hs Q j¼1 dj yj
mizing the joint total cost of the single-vendor multi-buyer system. þ 2
þ 2
2d 2d np
The joint total cost of the system is composed of fixed cost, variable  
costs, holding costs and investment cost. P
 y0 j
Q Nj¼1 dj 1  yj huj X N g log
yj
The total cost of the buyer j is composed of holding costs and þ þ ð5Þ
2d d i
investment cost. The total cost of all the buyer is given as follows. j¼1
 
y0 j Thus, the problem is to find the optimal value of Q ; np and yj

 X
N
1
 X N g log
yj
TC IB Q j ; yj ¼ huj Q j 1  yj þ ð1Þ that minimizes the total cost of the system.
j¼1
2 j¼1
dj

 C n þC
X
N

 X
N

where the investment cost of the buyer j is assumed to be a loga- Min TC IS Q ; np ; yj ¼ P Qp I þ ci dj 1  yj þ cp dj yj

d
j¼1 j¼1
rithmic function [6,19].
 2 P 2
Qdj N
Substituting Q j ¼ d
into Eq. (1), we derive the following hs Q j¼1 j ð
umN d 1yj Þ hs Q dy
j¼1 j j
equation. þ 2d2
þ 2d2 np ð6Þ
   
P
 y0 j PN X
N g log
y0 j

I
 Q Nj¼1 dj 1  yj huj X N g log

yj
þ
Q d
j¼1 j
ð1yj Þhu j
þ
yj
;
TC B Q j ; yj ¼ þ ð2Þ 2d di
2d j¼1
dj j¼1

subject to Q > 0; np 2 N ; 0 < yj < y0j :

The total expected cost of the vendor is composed of fixed and
variable costs of inspecting used containers and purchasing new The above inventory model is a constraint non-linear program-
containers, holding costs of serviceable containers and new ming problem. The sum of the quantity of returnable containers all
containers. the buyers receive each cycle Q is one of the decision variables, the
96 X. Fan et al. / Measurement 143 (2019) 93–102

Fig. 2. Variation of TC with respect to Q.

Table 2
The value of parameters.

Vendor Buyer
d 3000 1 2 3
CI 200 dj 800 1000 1200
CP 10 hu j 3 4 5
ci 2 y0 j 0.6 0.5 0.4
cp 10 dj 2  104 2  104 2  104
hs 3 g 0.2 0.2 0.2

Table 3
Illustration of the proposed algorithm.

k=0 k=1 k=2

np =1

yj
ðkÞ (0.6, 0.5, 0.4) (0.163, 0.132, 0.111) (0.1683, 0.1360, 0.1145)

Q ðkÞ 584.528 461.367 462.783

ðkþ1Þ
yj (0.163, 0.132, 0.111) (0.1683, 0.1360, 0.1145) (0.1682, 0.1360, 0.1145)
Dyj a (0.437, 0.368, 0.289) ð5:25; 4:01; 3:54Þ  103 ð5; 4; 3Þ  105
TC 15811.000
np ¼ 2
yj
ðkÞ (0.6, 0.5, 0.4) (0.166, 0.135, 0.114) (0.1693, 0.1369, 0.1154)

Q ðkÞ 629.367 474.433 475.121

ðkþ1Þ
yj (0.166, 0.135, 0.114) (0.1693, 0.1369, 0.1154) (0.1693, 0.1369, 0.1153)
Dyj a (0.434, 0.365, 0.286) ð3:28; 1:93; 1:36Þ  103 ð2; 4; 3Þ  105
TC 15868.400
 
 ðkþ1Þ ðkÞ 
a
Dyj ¼ yj  yj 

optimal quantity of returnable containers the buyer j receives each
Qdj
cycle Q j can be derived by substituting Q into Q j ¼ It is assumed
d
that the buyers can make investments to reduce the loss fraction of
returnable containers, which is a function of yj , then the loss
fraction of returnable containers yj ð0 < yj < y0j Þ is another
. decision variable. Next, a solution procedure is proposed to mini-
mize the total cost of the system taking Q ; np and yj as decision
variables.
 X. Fan et al. / Measurement 143 (2019) 93–102 97

Table 4
The comparison of Case 1 and Case 2.

Q y1 y2 y3 np TC

Case 1 462.783 0.168 0.136 0.115 1 15811.000

Case 2 634.876 – – – 2 19777.400

Table 5
The effect of dj on the system.

j dj TC y1 y2 y3 Q np

1 100 12251.6 0.600 0.137 0.116 397.594 1

200 12945.2 0.600 0.137 0.115 412.464 1
300 13593.6 0.450 0.137 0.115 422.551 1
800 15811 0.168 0.136 0.115 462.771 1
1000 16523.6 0.134 0.136 0.114 477.839 1
2 100 11559.3 0.170 0.500 0.117 390.622 1
200 12185.4 0.170 0.500 0.116 404.424 1
300 12807.5 0.169 0.457 0.116 416.260 1
1000 15811 0.168 0.136 0.115 462.771 1
1200 16497.7 0.168 0.113 0.114 475.302 1
3 100 10896.1 0.172 0.139 0.400 392.412 1
200 11459.5 0.171 0.139 0.400 404.263 1
300 12022.3 0.170 0.138 0.400 415.765 1
400 12574.8 0.170 0.138 0.349 423.634 1
1200 15811.0 0.168 0.136 0.115 462.771 1
1400 16484.3 0.168 0.136 0.097 472.806 1

Table 6
Illustration of the solution procedure when d1 ¼ 100.
Theorem 1. For fixed np , the optimal solution ðQ  ; yj Þ that minimizes
 
k=0 k=1 k=2
TC IS Q ; np ; yj exists and is unique. The optimal solution can be
np ¼ 1
derived using an iterative procedure.
ðkÞ
yj (0.6, 0.5, 0.4) (0.6, 0.133, 0.113) (0.6, 0.13726, 0.11575)

Q ðkÞ 491.385 396.618 397.602

ðkþ1Þ 1.313 1.35655 1.35617
See proof in Appendix C.
y1
ðkþ1Þ
y2 0.133 0.13726 0.13723 We suggest the following procedure using Mathematica to
ðkþ1Þ
y3 0.113 0.11575 0.11572 obtain a solution [6,21,27].
ðkþ1Þ
yj (0.6, 0.133, 0.113) (0.6, 0.13726, 0.11575) (0.6, 0.13723,
0.11572)
Algorithm
Dyj a
(0, 0.367, 0.287) ð0; 4:26; 2:75Þ  103 ð0; 3; 3Þ  105
TC 17182.000 Step 1: Set np ¼ 1.
np ¼ 2 Step 2: Set k ¼ 0 and initialize the value of yj
ðkÞ
¼ y0j , where
ðkÞ
yj (0.6, 0.5, 0.4) (0.6, 0.137, 0.116) (0.6, 0.13828, 0.11667)
y0j is the original loss fraction of returnable
Q ðkÞ 523.411 411.483 408.316
containers for the buyer j.
y1
ðkþ1Þ 1.344 1.36592 1.36638
Step 3: Compute Q ðkÞ from Eq. (A.2) by substituting yj
ðkÞ
for
y2
ðkþ1Þ 0.137 0.13828 0.13832
ðkþ1Þ 0.116 0.11667 0.1167
yj .
y3
ðkþ1Þ (0.6, 0.137, 0.116) (0.6, 0.13828, 0.11667) (0.6, 0.13832, 0.11670) Step 4: Compute yj
ðkþ1Þ
from Eq. (B.3) using yj
ðkÞ
and Q ðkÞ . If
yj
Dyj a (0, 0.363, 0.284) ð0; 0:7; 6Þ  10 4
ð0; 4; 3Þ  10 5 ðkþ1Þ
yj P
ðkÞ
yj ,
set i ¼ j and ¼
ðkþ1Þ
yi If
ðkÞ
yi .
TC 17222.200  
 ðkþ1Þ ðkÞ  4  ðkþ1Þ

 ðkþ1Þ

ðkÞ 
yj  yj  6 10 ; j – i, set ðyj ; Q Þ ¼ ðyj ; Q ðkÞ Þ
a
Dyj ¼ yj  yj 
and go to next step. Else set k ¼ k þ 1 and go back to
Step 3.
 
Step 5: Compute TC IS Q  ; np ; yj .
Lemma 1. For fixed np and given yj , the total cost function
  Step 6: Set n0p ¼ np þ 1, repeat step 2 to step 5 to derive
TC IS Q ; np ; yj is convex and reaches the global minimum value at  
TC IS Q  ; n0p ; yj . Then go to step 7.
Q ¼ Q .    
Step 7: If TC IS Q  ; n0p ; yj 6 TC IS Q  ; np ; yj then set np ¼ n0p
See proof in Appendix A. and go back to step 6, otherwise go to next step.
Step 8: Set ðQ  ; np ; yj Þ ¼ ðQ  ; np ; yj Þ then ðnp ; yj ; Q  Þ is the
Lemma 2. A unique yj can be derived using an iterative procedure
  optimal solution.
which minimizes the total cost function TC IS Q ; np ; yj for fixed np and
given Q.

See proof in Appendix B. The flow chart of the solution procedure is given in Appendix D.
98 X. Fan et al. / Measurement 143 (2019) 93–102

Fig. 3. The effect of C I .

3.3. Inventory model of Case 2 We temporarily relax the integer restriction on np .

In Case 2, the buyers do not invest to reduce the loss rate of Theorem 2. In above optimization problem, the objective function


returnable containers. When the fraction of lost returnable con- TC NI
S Q ; np is jointly convex with respect of Q and np .
tainers for the buyer j is equal to y0j , i.e., the buyer j does not invest
to reduce the loss fraction of returnable containers, the above See proof in Appendix E.
model is reduced to the following one. When the buyers do not invest in reducing the loss fraction of

 X
N   X
N returnable containers, the optimal quantity of returnable contain-
C n þC
TC NI
S Q ; np ¼ P Qp I þ ci dj 1  y0j þ cp dj y0j ers the vendor sends each cycle is Q  ¼
d
j¼1 j¼1 pffiffiffiffiffiffiffiffi3ffi
P 2 P 2 rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
P
2C I d
2 P ffi, and the replenishment frequency
hs Q
N
d ð1y0 j Þ hs Q
N
dy ð7Þ N
dj ð1y0 j Þ þd
N
dj hu j ð1y0 j Þ
j¼1 j j¼1 j 0 j hs
þ þ j¼1 j¼1
2d 2
2d np 2
pffiffiffiffiffiffiffiPN
PN C I hs dy

Q d
j¼1 j
ð1y0 j Þhu j is np ¼
rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
P 2
j¼1 j 0 j
. As TC NI
S Q ; np is non-
þ 2d N P N
C P hs d ð1y0 j Þ þdC P d hu j ð1y0 j Þ
j¼1 j j¼1 j

The problem is to solve the optimization problem as follows: linear and convex, the optimization problem is a nonlinear convex

 X
N   X
N programming. Therefore, its local optimal solution is the global
NI C n þC
Min TC S Q; np ¼ P Qp I þ ci dj 1  y0j þ cp dj y0j optimal solution.
d
j¼1 j¼1
   
P 2 P 2 Since np 2 N , we compare TC NI
S Q  ; bn NI
p c and TC S Q  ; dn
p e ,
N N
hs Q d ð1y0 j Þ hs Q dy where bn 
j¼1 j j¼1 j 0 j ð8Þ p c represents rounding down on np and dnp e represents
þ 2 þ 2
2d 2d np rounding up on np .
PN    
Q d ð1y0 j Þhu j If TC NI Q  ; bn NI
Q  ; dn
p c P TC S p e , then the optimal solution
j¼1 j
þ 2d
; S

subject to Q > 0; np 2 N : is ðQ  ; dn 

p eÞ; else the optimal solution is ðQ ; bnp cÞ.

 X. Fan et al. / Measurement 143 (2019) 93–102
Fig. 4. The effect of hs .
4. Numerical examples
For numerical studies, we study a closed-loop supply chain
composed of single vendor and three buyers using the following
set of parameters [6,7,17]:
As is shown in Fig.2, for fixed np and yj , the total cost function
TC IS ðQ ; np ; yj Þ is convex in Q. An illustration is given for
ðy1 ; y2 ; y3 Þ ¼ ð0:162; 0:131; 0:111Þ.
For parameters given in Table 2, we derive the solution of the
optimization problem in Case 1 using the proposed algorithm
and summarize the results in Table 3. Bold values represent the
optimal solutions and the optimal total cost.
The comparison of the optimal decision variables and the total
cost for Case 1 and Case 2 is shown in Table 4.
Table 4 shows that the total cost in Case 1 is reduced by 3966.4
than that in Case 2, which is 20% of the total cost. Q (the sum of the
quantity of returnable containers all the buyers receive each cycle)
in Case 1 is fewer than that in Case 2. Replenishment frequency of
new returnable containers np is lower than that in Case 2. It implies
the total cost of the system can be reduced by investing in reducing
the loss rate of RTI. Managers can invest in employee training to
reduce the misplacement of returnable containers which lead to
total cost reduction of the system.
99
Table 5 illustrates when the demand of the buyer 1 (d1 ) increases
from 100 to 1000, the total cost of the system (TC) is increasing, the
sum of the quantity of returnable containers all the buyers receive
each cycle (Q) is also increasing. Fraction of lost returnable contain-
ers for the buyer 2 and 3 (y2 and y2 ) are decreasing, and when the
demand of the buyer 1 is relatively low, fraction of lost returnable
containers for the buyer 1 (y1 ) is the same as its initial fraction of
lost returnable containers (y0 1 ¼ 0:600, as is shown in bold), i.e.,
the buyer 1 will not invest to reduce the loss fraction of returnable
containers. When the demand of the buyer 2 (d2 ) increases from
100 to 1200, TC and Q is also increasing, y1 and y3 are decreasing.
When the demand of the buyer 2 is relatively low, y2 is the same
as y02 (0.500, as is shown in bold), i.e., the buyer 2 will not invest
to reduce the loss fraction of returnable containers. When the
demand of the buyer 3 (d2 ) increases from 100 to 1400, the change
trend of total cost and decision variables is similar to the previous
one. When the demand of the buyer 3 is relatively low, y3 is the
same as y0 3 (0.400, as is shown in bold), i.e., the buyer 3 will not
invest to reduce the loss fraction of returnable containers. np is
not affected by the changes in demand.
Taking d1 ¼ 100 as an example (other parameters remain
unchanged), the optimal solution is solved as shown in Table 6
(bold values represent the optimal solutions and the optimal total
100 X. Fan et al. / Measurement 143 (2019) 93–102

P 2 P
2
ð1Þ
cost). In the first round y1 is derived as 1:313, which is greater than
 N N
@TC IS Q ; np ; yj hs j¼1 dj yj hs j¼1 dj 1  yj
ð0Þ ð1Þ ð0Þ
y1 . Thus y1 equals y1 , i.e. 0:6. In the following computation, y1
ðkþ1Þ ¼ P 2 þ P 2
@Q N N
ðkÞ ðkþ1Þ ðkÞ 2np j¼1 dj 2 j¼1 dj
is still greater than y1 . Thus y1 ¼ y1
¼ y01 , i.e., the buyer 1 will
not invest to reduce the loss fraction of returnable containers. PN


j¼1 dj huj 1  yj d C P np þ C I
Fig. 3(a) illustrates that as fixed inspection cost C I increases, frac- þ PN  ðA:1Þ
2 j¼1 dj Q2
tion of lost returnable containers for the buyers y1 ; y2 and y3 also
increases. Fig. 3(b) illustrates that as C I increases, the quantity of Let Eq. (A.1) equal to 0, we derive the following equation.
returnable containers the buyer j receives each cycle Q 1 ; Q 2 and Q 3 vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
also increases. The curve of Q 3 is above the curve of Q 2 , and the curve
u
u
PN 3
u 2np C P np þ C I j¼1 dj
of Q 2 is above the curve of Q 1 . It is intuitive since the d1 < d2 < d3 .  u
Q ¼t P
 2 P P

Fig. 3(c) illustrates the variation of np with C I . Fig. 3(d) illustrates that hs np N N N
j¼1 dj 1  yj þ Hðyj Þ þ np j¼1 dj j¼1 dj huj 1  yj
as C I increases, the optimal total cost of the system also increases. It
shows the total cost of the system is sensitive to the fixed inspection ðA:2Þ
cost and is positively related to the fixed inspection cost. P 2
N
The effect of hs on yj and TC is very similar to that of C I , as are where Hðyj Þ ¼ hs j¼1 dj yj : Taking the first partial derivatives of


shown in Fig. 4(a) and (d). Fig. 4(b) illustrates that as hs increases, TC IS Q ; np ; yj with respect to Q, we derive in the following formula.
the quantity of returnable containers the buyer j receives each


cycle Q 1 ; Q 2 and Q 3 also decreases. The replenishment frequency @ 2 TC IS Q ; np ; yj 2d C P np þ C i
¼ >0 ðA:3Þ
of new returnable containers np is not sensitive to changes in the @Q 2 Q3
holding cost of the vendor hs . When the holding cost of the vendor

is relatively high, it is advised to reduce lot size of returnable con- Thus TC IS Q ; np ; yj is convex in Q for fixed np and yj and reaches
tainers shipped to the retailers each cycle and the investment in the global minimum value at Q ¼ Q  .
reducing the loss fraction can be reduced accordingly.
Appendix B. Proof of Lemma 2
5. Conclusions and future research

Taking the first partial derivatives of TC IS Q ; np ; yj with respect
This paper study the supply chain of returnable containers con- to yj , we derive in the following equation.
sisting of single manufacturer and multiple buyers. It’s assumed P  P

 N N

that the buyers can invest to reduce the loss fraction of returnable Qdj hs
@TC IS Q ; np ; yj j¼1 dj yj Qdj hs j¼1 dj 1  yj
containers. We study the impact of the investment of buyers on the ¼ 
@yj 2
d n2p d
2
performance of the supply chain. We develop inventory models in
two cases for the supply chain of returnable containers. First, we Qdj huj g
develop an inventory model for Case 1 assuming the buyers can    ci dj þ cp dj ðB:1Þ
2d dj yj
invest to reduce loss fraction of returnable containers. We present
an iterative procedure to optimize the total cost for Case 1. Second, Let Eq. (B.1) equal to 0, we derive the following equation.
we propose an inventory model for Case 2, where the buyers does
g
not invest. We prove the convexity of the problem and get the opti- yj ¼ 0 P  P  1
mal solution. Third, we compare the optimal total cost and optimal N N
dj ð1yj Þ
B Qdj hs
j¼1
dj y j Qdj hs
j¼1 Qd h C
solutions of Case 1 and Case 2 in the numerical experiments. The dj @ P 2  P 2  PjN u j  ci dj þ cp dj A
N N 2 d
j¼1 j
results indicate that the optimal total cost of Case 1 is lower than np d
j¼1 j
d
j¼1 j

that of Case 2. The quantity of returnable containers all the buyers

ðB:2Þ
receive each cycle in Case 1 is fewer than that in Case 2. Replenish-
ment frequency of new returnable containers is lower than that in We use the following equation to update the values of yj , where
Case 2. When the demand of the buyer is relatively low, the buyer k is initiated as 0 and updated as k þ 1 till yj reaches a stable value.
will not invest to reduce the loss fraction of returnable containers.
For future research, two extensions may be considered. First, we g
¼ 0 1
ðkþ1Þ
yj P  P  
assume constant return fraction. We may extend this assumption N ðkÞ N ðkÞ
BQdj hs dy
j¼1 j j
Qdj hs d
j¼1 j
1yj
Qdj hu j C
to the stochastic return fraction. Second, the coordination of the dj @ P 2  P 2  PN  ci dj þ cp dj A
N N 2 d
np d d j¼1 j
supply chain can be investigated in the future. j¼1 j j¼1 j

ðB:3Þ
Acknowledgement
Then a unique yj can be derived which minimizes the total cost


This research is partially supported by the National Natural function TC IS Q ; np ; yj for fixed np and given Q.
Science Foundation of China [NOs. 71620107002, 71771138,
71801225], Science Fund for Creative Research Groups of the Appendix C. Proof of Proposition 1
National Natural Science Foundation of China [NO. 71821001]
and Hubei Provincial Natural Science Foundation of China [NO. We temporarily relax the integer restriction on np . We take the
2018CFB160].

first and second partial derivatives of TC IS Q ; np ; yj with respect to
np in the following.
Appendix A. Proof of Lemma 1 P 2

 N

 @TC IS Q ; np ; yj dC P Qhs j¼1 dj yj
Taking the first partial derivatives of TC IS Q ; np ; yj with respect ¼  ðC:1Þ
@np Q 2
2d n2p
to Q, we derive in the following equation.
 X. Fan et al. / Measurement 143 (2019) 93–102 101

Fig. D.5. Flowchart of the solution procedure.

P 2
and
 N
P 2 2d np C P þ C I Qhs j¼1 dj y0j

 N
D2 ¼
@ 2 TC IS Q ; np ; yj hs Q j¼1 dj yj Q3 2
d n3p
¼ > 0: ðC:2Þ 0 P 2 10 P 2 1
@n2p 2
d n3p N N
B hs j¼1 dj y0j dcp CB hs j¼1 dj y0j dcp C

  @  2 A@  A
Therefore, TC IS Q ; np ; yj is convex in np for fixed Q and yj . As a 2
2d n2p Q 2
2d n2p Q2
result, the search for the optimal replenishment frequency of
new returnable containers np is reduced to find a local minimum. ðE:3Þ
Thereby, we get above theorem from Lemmas 1 and 2. TC NI
The partial derivatives of S ðQ ; np Þ with respect to np are
derived as follows:
Appendix D. Flowchart of the solution procedure P 2

 N
@TC NI
S Q ; np dcp Qhs j¼1 dj y0j
¼  ðE:4Þ
See Fig. D.5 @np Q 2
2d n2p

Appendix E. Proof of Proposition 2 The partial derivatives of TC NI

S ðQ ; np Þ with respect to Q are
derived as follows:


The Hessian matrix of TC NI
S Q ; np
P 2 P  2

 N N
2 3 @TC NI Q ; n h s dj y h s dj 1  y
P 2 S p
¼
j¼1 0j
þ
j¼1 0j

2 3 hs
N
dy @Q 2
2d np 2d
2
@ 2
TC NI @ 2 6
TC NI 2dðC I þC P np Þ j¼1 j 0 j
 Q2 7
dcp
S S
6  7 PN  
6 @Q 2 @Q @np 7 6 Q3 2d2 n2p 7

h ¼ 4 2 NI 5¼6 P 2 P 2 7 j¼1 dj huj 1  y0j d C P np þ C I
@ TC @ 2 TC NI 6 7 þ  ðE:5Þ
@np @Q
S S
4 hs
N
dy Qhs
N
dy 5
@n2p

j¼1 j 0 j dc
 Q 2p
j¼1 j 0 j 2d Q2
2d2 n2p d2 n3p pffiffiffiffiffiffiffiffiffi3
2C d n
ðE:1Þ Let Eq. (E.4) equals to 0, we derive Q ¼ pffiffiffiffiPpN p . Substituting
hs dy
j¼1 j 0 j

We can evaluate principal minors of the functions Hesse Matrix. the expression of Q into Eq. (E.3), D2 can be simplified as follows:
If the principal minors are all positive, the Hessian matrix is posi- P 4
2 N
tive definite. C I hs j¼1 dj y0j
D2 ¼ 4
>0 ðE:6Þ
2dðC I þ C P np Þ d C P n5p
D1 ¼ >0 ðE:2Þ
Q3 So the Hessian matrix is positive definite.
102 X. Fan et al. / Measurement 143 (2019) 93–102

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