Product Life Cycle Optimization Model for Closed Loop Supply Chain Network Design

We observe that between the competitors of technology products, companies such as HP and Xerox or Apple and Google, one competitor (HP and Apple) manages the reverse supply chain to extract value profitably, while the other competitor (Xerox and Google) uses a third-party reverse logistics company to simply recycle consumer returns. In this chapter, we show that, under a given set of supply chain levers, the OEM’s approach to supply chain network design can significantly impact the profitability in the reverse supply chain over the product lifecycle. We propose an integrated multi-period optimization model called the product life cycle optimization model (PLCOM) to design the closed loop supply chain (CLSC) for the OEMs. The PLCOM is a mixed-integer linear program that consists of a demand model based on the extended-Bass’s diffusion model and a pricing model based on a realistic customer willingness to pay (WTP). The PLCOM is applied to a realistic case study using Apple’s iPhone 7 for a product life cycle of 8 years. We show that an integrated approach to designing the supply chain network by the OEMs is more profitable compared to a sequential approach.