Sustainable Manufacturing in a Closed-Loop Supply Chain

SUBMITTED to: Dr. Mohamed Abo-Khashaba

SUBMITTED BY: Ismail El-Sersy

May 2024
 Sustainable Manufacturing in a Closed-Loop Supply Chain

• Introduction:
- Exploring the decision strategy and profit distribution of a closed-loop supply chain (CLSC) with retail price and emission
reduction dependent demand
- Global challenges include resource shortages and environmental degradation.
- Focusing on emission reduction and remanufacturing as key strategies for sustainability.
- Sustainable manufacturing plays an important role in saving energy consumption and reducing environment pollution.
- Became the dominant tendency in a low-carbon and sustainable economy
- Increasing focus from countries and international organizations on sustainable practices.
- Carbon reduction in forward logistics and remanufacturing in reverse logistics can be carried out to achieve sustainable
manufacturing in a supply chain.
- The utilization of used products through saving the cost can make the profits be improved.
- Therefore, the firms in supply chain realize sustainable manufacturing not only by applying emission reduction strategy but
also by utilizing remanufacturing strategy.
 Sustainable Manufacturing in a Closed-Loop Supply Chain

literatures focusing on three issues related to the decision and coordination in

the closed-loop supply chain:
• Consumer’s preference:
• Differentiation of consumer’s preference on the new and remanufactured products is significant.
• Dividing the market into common consumer and environmental consumer
• Considering consumers’ different willingness to pay for the new and remanufactured products will
have a great impact on the decisions of manufacturer
• Multi-period decision in closed-loop supply chain:
• Focuses on the recycling and remanufacturing of products as joint recycling model has maximum
social profits
• Manufacturer relies on the quality when it has a stronger position and relies on the quantity when it
has a weaker position.
• when the cost of new and remanufactured products are quite different, double marginalization will
increase and operation performance of system would decrease
• Coordination Mechanism:
 Sustainable Manufacturing in a Closed-Loop Supply Chain

Key Variables:
• Retail price (p)
• wholesale price (w)
• emission reduction rate (e)
• recycling rate (τ).
Key Parameters:
• Market demand sensitivity (a, γ, δ)
• cost coefficients for emission reduction (k) a
• recycling (ω).
Demand and Cost Functions:
• Demand: Function of price and emission reduction rate.
• Costs: Include functions for emission reduction and the remanufacturing process.
 Sustainable Manufacturing in a Closed-Loop Supply Chain

• Methodology
Analytical Approach:
• Application of Stackelberg game theory to model interactions between the manufacturer (leader)
and the retailer (follower).

Scenarios Analyzed:
• Centralized Model:
Joint decision-making to maximize total profit.

• Decentralized Model:
• Independent decision-making aimed at maximizing individual profits.
 Sustainable Manufacturing in a Closed-Loop Supply Chain

Results and Analysis

- Model Comparison:

• Centralized model typically results in more efficient operation and better overall supply chain profit.

• Decentralized model shows inefficiencies due to independent decision-making.

- Impact of Consumer Preferences:

• Strong preferences for low-carbon and remanufactured products significantly affect market demand
and supply chain strategies.
 Sustainable Manufacturing in a Closed-Loop Supply Chain

Profit Distribution Mechanism

Nash Bargaining Solution:
• Proposed as a method to distribute profits fairly between the manufacturer and retailer.
• Adjustments in profit shares based on bargaining power demonstrate the flexibility and fairness of
the approach.
Conclusions:
• Coordinated decision-making enhances both economic and environmental performance of the
supply chain.
• Consumer preferences for sustainability have a crucial impact on supply chain dynamics.
Future Research Directions:
• Extend the model to include multiple manufacturers and retailers.
• Explore stochastic demand models to better reflect real-world uncertainty.