an integrated approach to evaluating the production system ... · an integrated approach to...

An integrated approach to evaluating the production system in closed-loop supply chains

Chong Li*

School of Management, Fuzhou University, 2 Xue Yuan Rd., University Town, Fuzhou 350108, China

(Received 12 March 2011; final version received 29 January 2013)

The increasing demands for environmental resource protection and sustainable development have been forcing enterprisesto put sustainable supply chain management on their agendas in recent years. At the same time, intense global competitionrequires organisations to adopt practices that enable them to provide high-quality products and services. In this paper, weconsider the problem of comprehensively evaluating the production system in closed-loop supply chains. We first proposean evaluation framework that consists of economic evaluation, product quality evaluation and ecological evaluation mod-ules. Based on mathematical probability theory and the dynamic characteristics of reverse supply chain logistics, we thenfocus on the evolution dynamics in the quality evaluation dimension, where the concept of product quality, which buildson the reliability and the time-utility value of a product, is proposed. The basic production evaluation model is thenextended to incorporate different sustainable procurement strategies, which take into consideration the trade-offs amongcost, environment and quality. An outline and corresponding flow chart of corporate procurement strategy optimisationare provided which allow the proposed evaluation model to be implemented in computer-aided decision-making, furtherproviding decision support for production system and supply chain management. Simulation and case studies are pre-sented to promote a better understanding of the model approach and its managerial implications. Results also suggest thatquality characteristics of components and sustainable procurement strategies are two important factors that determine thefinal production performance and should be paid special attention in closed-loop supply chain practice.

Keywords: production modelling; quality management; supply chain dynamics; sustainable manufacturing; strategyoptimisation

1. Introduction

Over the past decade, the growing number of corporate cases on sustainable procurement demonstrates the rapidly increas-ing importance of sustainable supply chain development and management. Companies are asked to extend their commit-ment to responsible business practices to their value chains, namely they should consider the environmental and socialproblems both in their production and in the entire supply chains. Governments have developed policies and programmesaimed at preserving resources and promoting sustainable development, such as policies and regulations for sewage in pro-duction and the ISO 14000 environmental management standards. In addition, increasing environmental awareness amongcustomers and concerns for companies’ social responsibility also force enterprises to rethink and restructure their businessmodels and to undertake more environmental responsibility in their pursuit of economic interests.

Topics in sustainable supply chains have emerged as research focuses both on environment and operation manage-ment (Walker, Di Sisto, and McBain 2008). Although there may be no significant increase in terms of short-term eco-nomic benefits, implementing sustainable development practices do lead to better social, economic and environmentaloutcomes in the long term. Numerous empirical and analytical investigations have verified that firms with superior envi-ronmental practices outperform others in their financial performance, and proactive sustainable management truly leadsto better business development and enhances the public image of corporations (Staniskis and Stasiskiene 2006; Giannettiet al. 2008). In addition, the growing demand for sustainable products, the increasing importance of corporations’ publicimage as well as government policy support all promote sustainable supply chain development (Geldermann, Treitz, andRentz 2007; Störmer 2008; Hall, Daneke, and Lenox 2010).

Having so many advantages and potential development benefits, sustainable supply chain development, nevertheless,faces problems and challenges in practice (Linton, Klassen, and Jayaraman 2007; Seuring and Muller 2008). Weighingthe short-term and long-term values and finding an appropriate balance between them are the most pressing challengesin enterprises’ sustainable development. Managers tend to create strategies that give priority to short-term incremental

*Email: [email protected]

International Journal of Production Research, 2013Vol. 51, No. 13, 4045–4069, http://dx.doi.org/10.1080/00207543.2013.774467

� 2013 Taylor & Francis

value, especially the short-term economic benefits, while failing to take into consideration the long-term environmentalimpact (Jansen 2003). This is not only related to companies’ attitudes toward sustainable development but it’s alsoaffected by the available sustainable purchasing tools and techniques which companies can use to identify and measurethe various economic, social and environmental impacts, to communicate and cooperate with others and to optimisetheir resource allocation (for detailed reviews, please refer to Kim and Narasimhan 2002; Gunasekaran and Ngai 2007;Jayaram, Vickery, and Droge 2008; Narasimhan, Kim, and Tan 2008; Tsai and Hung 2009).

As important elements in sustainable development, recycled and remanufactured components play a key role inclosed-loop supply chains. On the one hand, the product life cycle is extended with the reassembly and reuse ofproducts or components, and the product value is increased accordingly. On the other hand, the qualities and quantitiesof reused components directly affect the product quality in new production cycles, and thus influence the closed-loopsupply chain performance. High product quality not only enhances brand image and corporate reputation in customers’perception, but also brings better economic benefits and promotes enterprise development (González-Benito, Martínez-Lorente, and Dale 2003; Karim, Smith, and Halgamuge 2008; Kaynak and Hartley 2008). Quality management thusbecomes an essential strategic activity and needs to be properly integrated within the closed-loop supply chainmanagement.

Unlike that in traditional forward supply chains, product quality in closed-loop supply chains shows different charac-teristics, which mainly result from the special reverse logistics in chains. Qualities of repaired and reused components,such as those from cannibalisation, are usually lower than new components. How to improve the inconsistent productquality in closed-loop supply chains has emerged as a growing topic and receives increasing interest in sustainabilitystudies. Based on a qualitative case study, Soltani et al. (2011) point out that cooperation among supply chain membersis a key to quality improvement and competitive advantage. A research framework proposed by Angell and Klassen(1999) will help us to integrate the environmental issues into operation management. Van Wassenhove and Zikopoulos(2010) study the impact of quality overestimation of returned products on optimal procurement decisions and associatedprofit. Their study shows the importance and necessity of accurate quality classification in remanufacturing. Similarstudies can be found in González-Benito and Dale (2001), Zikopoulos and Tagaras (2007), Azadegan and Pai (2008)and Tsoulfas and Pappis (2008).

No matter if it is driven by economic interests or the requirements of national or local environmental protection lawsand policies, sustainable supply chain management is becoming a necessity in modern supply chains. Over the years, bothpractical and theoretical studies have been carried out by research workers, and they provide many useful insights. Forquantitative analysis, it is advisable to refer to a classification employed by Dekker et al. (2004), which provides a wideset of quantitative approaches and support for reverse logistics studies, such as the stochastic programming models usedin reverse logistics network design, the Multiple Integer Linear Programming (MILP) models for production planningand for economic and environmental performance evaluation and the game theory models for coordination analysis inclosed-loop supply chains. Another is provided by Akcali and Cetinkaya (2011). In their work, they provide a compre-hensive exposition of the current study on quantitative models for closed-loop supply chain systems, and further catego-rise these models into two groups – the deterministic problems and the stochastic problems – according to theirmodelling of demand and return processes. The existing research literature also brings us to the important issue of prod-uct quality in closed-loop supply chains (e.g. Guide 2000; Geyer and Jackson 2004; Das and Chowdhury 2012). As it ispointed out in a critical review of analytic research on product reuse economics in closed-loop supply chains, providedby Atasu, Guide, and Van (2008), the product life cycle is ignored by many studies. From this point of view, these studiescannot clearly show the important relationship between product sales, material recycling and the corresponding uncertain-ties in quantity, quality, timing of returns and so on. For instance, it is well known that ‘the uncertainty in the returnedproduct quality reduces the incentives to invest in used product collection, because the benefit from the investment willbe lower’ (Savaskan, Bhattacharya, and Van Wassenhove 2004, 241).

Although it is realised that financial management, quality management, environmental performance management andreverse logistics management are indispensable for closed-loop supply chain operations, most of the literature availabledoes not focus on the interrelationship among these topics. For instance, increasing the quantity of the recycled compo-nents or materials in production on the one hand improves environmental performance and, on the other hand, bringsnew challenges to quality management due to the more uncontrollable quality of recycled components. Reducing thenegative impact on product quality performance usually requires capital investment and thus affects financial perfor-mance. It is clear that without a clear understanding of the complex interaction relationship among these managementregimes, managers or supply chain participants can hardly develop effective management strategies for sustainabledevelopment. From this point of view, more theoretical explorations of these interrelationships and their influence onsustainable policy decision making are required. Having made this point, the aim of this paper is to propose a concep-tual framework of closed-loop supply chain evaluation, which consists of three sub-evaluation modules: the economic

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evaluation, the product quality evaluation and the ecological evaluation modules. The main contributions of this paperare threefold. First, based on the dynamic characteristics of reverse supply chain logistics, we apply the mathematicalprobability theory to propose an efficient method for describing the quality evaluation dynamics in closed-loop supplychains. Second, previous works are extended through incorporating different sustainable procurement strategies that takeinto consideration the trade-offs among cost, environment and quality in the dynamic evaluation model, and this makesmodel descriptions and scenario prediction more accurate. Finally, we provide an outline and brief descriptions of howthe dynamic evaluation framework presented in this paper may be applied to computer-aided decision making, and thisenhances the practicality of the proposed evaluation framework in corporate procurement strategy optimisation.

The rest of the paper is organised as follows: in Section 2, the basic production evaluation model of a closed-loopsupply chain is proposed, along with its three sub-evaluation modules in the economic, quality and ecological dimen-sions, respectively. Extended dynamic evaluation models which focus on closed-loop supply chain performance in sometypical sustainable procurement strategy scenarios are presented in Section 3. Section 4 provides a framework for inte-grating the proposed dynamic models into the simulation analysis process, which describes the application of the evalua-tion model in computer-aided corporate procurement decision making. The goal of the case study in Section 5 is toevaluate the feasibility of our method on a practical example. Finally, conclusions with future research directions arepresented in Section 6.

2. Basic production evaluation model in closed-loop supply chain

The distinctive feature of closed-loop supply chains is that they are designed and managed to explicitly consider activi-ties along both the forward and the reverse flow chains. Reverse logistics in closed-loop supply chains plays a centralrole in improving economic benefits, as well as in achieving the long-term environmental goals of sustainable develop-ment. It involves the processes of transporting used products back upstream for recycling, usually including repair, refur-bishing and reuse stages. The general structure of a closed-loop supply chain is shown in Figure 1. This structuredetermines the intricate interrelationship between the various performance characteristics, which consist mainly of cost-benefit performance, consumer satisfaction with products and services, and the source structure of product components(new or reused, recycled). In this section, these performance characteristics are classified into three evaluation dimen-sions: economic dimension, product quality dimension and ecological dimension, corresponding to the three sub-evalua-tion modules of the system evaluation framework, respectively. Due to the special material flow characteristics inclosed-loop logistics, in the following analysis, more attention is paid to the dynamic characteristics of product quality.

2.1 Economic evaluation

The economic evaluation is characterised by the construction of cost and profit in a closed-loop supply chain system, aswell as by the quantitative relationship between them. Parameters used in the evaluation model formulation aresummarised in the appendix. Let parameter I be the set of product components. We get:

• Production cost of the new component supplier:Pi2I

PSiQSPi

• Manufacturer costs

Recycling (R)

Supplier(S)

Manufacturer (P)

Disassembly,sorting,

inspection.(T)

Customer(C)

Distributer(D)

Disposal

Repair,refurbishment,

remanufacturing.

Reuse

New components Products Products

Used products

Discarded products

Reusable components

Waste

Reusable components

Figure 1. Closed-loop supply chain structure.

International Journal of Production Research 4047

Purchase cost of new components:Pi2I

CSiQSPi

Purchase cost of recycled components:Pi2I

CRiQRPi

Production cost:Pi2I

ðPpniQSPi þ PpriQRPiÞ þ PpcQPD

• Distribution costsInventory cost: PdvQPD

Transportation cost: PdtQPD

Fixed management cost: Pdc

• Consumer spending: CCQPD

• Collection centre costsProduct recovery cost: PtQCT

Inventory cost: PtvQCT

Transportation cost: PttQCT

Fixed management cost: Ptc

• Recycling centre costsComponent repair cost:

Pi2IðPrmiQRmi þ PruiQRuiÞ

Fixed management cost: Prc

In this paper, the index of economic performance is defined as the ratio of the net economic profit to the total systemrevenue:

EV1 ¼ CCQPD �Xi2I

PSiQSPi �Xi2I

ðCSiQSPi þ CRiQRPi þ PpniQSPi þ PpriQRPiÞ"

� PpcQPD � ðPdvQPD þ PdtQPD þ PdcÞ

� ðPtQCT þ PtvQCT þ PttQCT þ PtcÞ �Xi2I

ðPrmiQRmi þ PruiQRuiÞ � Prc

#�CCQPD ð1Þ

2.2 Product quality evaluation

As an important issue in manufacturing, product quality should be taken into account when evaluating the productionsystem. As discussed before, the special material flow logistics in closed-loop supply chains determines the specialdynamic features of product quality, which will no doubt affect the related quality evaluation results. In this section, wedescribe the dynamic characteristics of product quality, which is built on the concepts of product reliability and time-utility value, in the framework of a closed-loop supply chain.

We consider a simplified closed-loop supply chain shown in Figure 1. There is a supplier (S) providing newcomponents; a recycling centre (R) providing a variety of recycling services and recycled components; a manufac-turer (P); a collection centre (T); distributers (D); and customers (C). It is assumed that there is a fixed productioncycle in this system. Product life ends when either of the following two cases happens: the components that deter-mine the product features physically fail, or consumers replace products in use because of reasons such as thechanges in their preferences and the emergence of new technologies which better satisfy consumer demand. In thispaper, we define the out-of-date rate viðtÞ as the probability of still usable products discarded per unit time, anduse it in the description of the latter case. In addition, the failures of components occur independently in ourmodel. We assume that the same product or component has only one chance to be recycled before it completelyexits the closed-loop production system. For recycled components, there are two scenarios with respect to theirreliability: (1) if the collected component in a recycling centre is still good, it will be reused directly withoutrepair operations; (2) if it is bad, prior repair operations are performed, such as refurbishment, remanufacturing andso on, and then the repaired component will be reused in production. In the latter scenario, to show the differencebetween repaired components and new components, the failure rate of repaired component i will be ki times theoriginal rate kiðtÞ.

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The notation used in the rest of the paper is as follows:

kiðtÞ Failure rate of new component i at time t.ki Multiplier factor of failure rate when component i is repaired.viðtÞ Out-of-date rate of component i at time t.T Fixed production cycle.t Runtime in each production cycle.RinðtÞ Reliability function of new component i at time t.RimðtÞ Reliability function of repaired component i at time t.RiuðtÞ Reliability function of directly reused component i at time t.VinðtÞ Time-utility function of new component i at time t.VimðtÞ Time-utility function of repaired component i at time t.ViuðtÞ Time-utility function of directly reused component i at time t.EinðtÞ Usefulness function of new component i at time t.EimðtÞ Usefulness function of repaired component i at time t.EiuðtÞ Usefulness function of directly reused component i at time t.Pkin Probability that component i is new in the k-th production cycle.

Pkim Probability that component i is a repaired component in the k-th production cycle.

Pkiu Probability that component i is a directly reused component in the k-th production cycle.

ECki ðtÞ Quality function of component i with runtime t in the k-th production cycle.

EPkðtÞ Quality function of product with runtime t in the k-th production cycle.Wi Weight value indicates the importance of component i in product.a Proportion of end-life products collected for recycling.b Proportion of repairable products in repair processes.

In reliability literature, the bathtub curve is usually used to illustrate the failure rate over the entire product life(Wang, Hsu, and Liu 2002; Ryu and Chang 2005). As shown in Figure 2, a typical bathtub curve contains three regions:the initial failure period with decreasing failure rate, the useful life period with constant failure rate and the wearout per-iod with increasing failure rate.

According to the reliability theory, given the component failure rate kiðtÞ, the reliability function of a new compo-nent in its life cycle is:

RinðtÞ ¼ exp �Z t

0

kiðxÞdx� �

ð2Þ

Based on the model assumptions described above, the reliability functions of repaired and directly reused componentscan be expressed separately as:

RimðtÞ ¼ exp �Z t

0

kikiðxÞdx� �

ð3Þ

Time

Failu

re r

ate

Early failure preiod

Decreasing failure rate

Constant failure rate

Increasingfailure rate

Useful life period Wearout period

Figure 2. The bathtub curve of product failure rate.


RiuðtÞ ¼ exp �Z Tþt

0

kiðxÞdx� �

ð4Þ

In this paper, the time-utility function of a component is defined as the probability that a component will not be dis-carded for non-quality reasons, and its value is determined only by the total time of the component in the closed-loopsystem. We get:

VinðtÞ ¼ 1�Z t

0

viðxÞdx ð5Þ

VimðtÞ ¼ 1�Z Tþt

0

viðxÞdx ð6Þ

ViuðtÞ ¼ 1�Z Tþt

0

viðxÞdx ð7Þ

We assume that the reliability of components is statistically independent and shows the characteristics of series con-nection. From the product point of view, the service life of a product ends when either its components are broken or failto function effectively, or when the consumer turns to some new product with better performance and new features. Inshort, a product’s life ends when the product cannot service the needs of the customer anymore. Thus we can say thatthe reliability and time-utility of components play a similar role in determining the service life of a product. Here, weunify these two important component evaluation factors, in the form of a product, into the usefulness functions of com-ponents in the three above-described states respectively as:

EinðtÞ ¼ RinðtÞVinðtÞ ð8Þ

EimðtÞ ¼ RimðtÞVimðtÞ ð9Þ

EiuðtÞ ¼ RiuðtÞViuðtÞ ð10Þ

Then, we define the quality function of component i in the k-th production cycle as:

ECki ðtÞ ¼ Pk

inEinðtÞ þ PkimEimðtÞ þ Pk

iuEiuðtÞ ð11Þ

Finally, taking into consideration the importance of components in products, we define the quality function of a productas:

EPkðtÞ ¼ Pi2I

Wi � ECki ðtÞ ð12Þ

In this paper, the value of Equation (12) is defined as the product quality.There are two cases where component i is discarded at time t in the k-th production cycle: first, the product failure

results from the loss of quality in components other than component i. Second, the product failure results from qualityloss of component i. Applying the probability theory, the probabilities of the two scenarios can be separately describedas:

Pki1ðtÞ ¼ ECk

i ðtÞ � 1� Pj:j–i;j2I

ECkj ðtÞ

� �ð13Þ

Pki2ðtÞ ¼ 1� ECk

i ðtÞ ð14Þ

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As described above, the recycled components will experience different recycling processes according to their state inthe collection centre. Here, the probability that component i be repaired at the end of the k-th production cycle is deter-mined by:

PFkim ¼ a � b � Pk

in � Pki2ðTÞ ¼ a � b � Pk

in � ð1� ECki ðTÞÞ ð15Þ

Similarly, the probability that a component be directly reused can be described as:

PFkiu ¼ a � Pk

in � Pki1ðTÞ ¼ a � Pk

in � ECki ðTÞ � 1� P

j:j–i;j2IECk

j ðTÞ� �

ð16Þ

The above derivation implies that the concept of product quality is built on the concepts of product reliability andtime-utility value, and thus it can provide the comprehensive evaluation of the product. In addition, product quality istime-varying, not only with the production cycle k but also with the runtime t in each cycle, and thus the above modelsdescribe the dynamic characteristics of product quality in closed-loop supply chains. In this paper, we use the value ofaverage product quality in each production cycle to evaluate system quality performance:

EV2 ¼Z T

0

EPkðtÞ dt,

T ð17Þ

2.3 Ecological evaluation

Environmental image plays an increasingly important role in corporations’ public image. As an important indicator ofsustainable development, the proportion of recycled materials in a production process is used to evaluate the ecologicalperformance of production in closed-loop supply chains:

EV3 ¼Xi2I

QRPi

,Xi2I

ðQRPi þ QSPiÞ ð18Þ

2.4 Production evaluation model

In this paper, the proposed production evaluation model in a closed-loop supply chain is computed as a simple linearweighted average of the above three sub-evaluation modules:

EV ¼ EWe � EV1 þ EWq � EV2 þ EWg � EV3 ð19Þ

Parameters EWe, EWq and EWg in Equation (19) are the weights of economic, quality and ecological sub-evaluationmodules, respectively. Consisting of the three evaluation dimensions, this evaluation model can provide a comprehensiveevaluation of production in closed-loop supply chains.

3. Extended production evaluation models in different procurement policies

Procurement policies directly impact the quantity and quality of reused components, while low quality of recycled com-ponents will result in bad product quality and hinder the development of sustainable supply chains. On the other hand,costs in supply chain operation, especially recycled material costs, largely determine manufacturers’ procurement policydecision making (Fandela and Stammenb 2004; Field and Sroufe 2007; Tsai and Hung 2009). In addition, the improve-ment of recycled component quality generally requires more capital investment, which indicates the positive correlationbetween manufacturers’ spending on recycled components and the received component quality. Taking into considerationabove relationships and other unmentioned factors, there are always complex trade-offs among cost, environment andquality in procurement policy decision making. As a consequence, investigating the effect of procurement policies onclosed-loop supply chain performance will be helpful to both theoretical research and practical supply chain management.


In this paper, we focus on two important procurement policy factors, namely the selling price and quality of recycledcomponents, which directly affect the material flow and the cash flow in closed-loop supply chain logistics. According tothe relationship between the selling price and quality of a recycled component, models presented in this section are firstdivided into two categories: cost-independent and cost-dependent recycled component quality. The latter refers to therebeing a positive correlation between selling price and component quality. Further, we introduce three typical sustainableprocurement policies (in both cost-quality categories) into a closed-loop supply chain and investigate their effects on thevalue of sub-evaluation modules, especially the quality dimension, as well as the final system evaluation.

3.1 Product evaluation models with cost-independent recycled component quality

As mentioned above, recycled material costs not only determine the economic performance of a closed-loop supply chainbut also affect manufacturers’ procurement policy preferences, which are usually directly reflected in the proportionchanges of the recycled components used in production. In this section, given that the recycled component quality is setto be independent of its selling price, we show in Figure 3 the relationship between the relative cost changes of new com-ponent i (CSiðkÞ=CSi) and recycled component i (CRiðkÞ=CRi) and the proportion change of recycled component i used inproduction (Fip1). Fip1 can be viewed as a function of relative cost difference CSiðkÞ=CSi � CRiðkÞ=CRi. As shown inFigure 3, Fip1 is divided into three region types: the insensitive region (A), the sensitive region (B1; B2) and the saturatedregion (C1; C2). When the relative price volatilities of new components and recycled components are similar, manufac-turer may not change the proportions of these two components in production, this corresponding region A in Figure 3.When the relative cost changes increase to region B2, which means the price of new components increases faster than thatof recycled components, manufacturers might prefer to use more recycled components in production. On the contrary,they might reduce the use of recycled components if the price difference falls into the range of region B1. In the saturatedregion C1 and C2, the proportion of recycled components will tend to its lower and upper boundaries respectively.

3.1.1 Product evaluation model with recycle-preferent procurement policy

The recycle-preferent procurement policy represents priority being given to recycled materials in production: the manu-facturer first uses the repaired or recycled components from the recycling centre in each production cycle, and then theinsufficiency will be met by new components from a supplier. The procurement policy in this scenario can be describedby:

-1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Difference between price changes of new components and recycled components:CSi(k)/CSi-CRi(k)/CRi

Prop

ortio

n ch

ange

of r

ecyc

led

com

pone

nts:

Fip

1

C2

B1

C1

B2

A

Insensitive region

Saturated region

Sensitive region

-1.5 -1 -0.5 0 0.5 1 1.5-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

fitting curvestatistics point

Figure 3. The relationship between the relative component cost changes and the proportion changes of recycled components used inproduction.

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Pkþ1im ¼ PFk

im ¼ a � b � Pkin � ð1� ECk

i ðTÞÞ ð20Þ

Pkþ1iu ¼ PFk

iu ¼ a � Pkin � ECk

i ðTÞ � 1� Pj:j–i;j2I

ECkj ðTÞ

� �ð21Þ

Further, we can obtain the probability of new component i in production:

Pkþ1in ¼ 1� Pkþ1

im � Pkþ1iu ¼ 1� a � Pk

in bþ ð1� bÞ � ECki ðTÞ � P

j:j2IECk

j ðTÞ� �

ð22Þ

Ecological evaluation: Based on the above ratios, the amount of product components and the related material flows canbe determined. Furthermore, the amounts of recycled and new components used in production can be calculated. Substi-tuting them into Equation (18), we get the ecological performance evaluation of production in this procurement policyscenario.

Economic evaluation: The amount of product components and the related material flows obtained during the ecologicalevaluation process, combined with relevant cost data, can then be used in Equation (1) to calculate the value of supplychain performance in the economic dimension.

Product quality evaluation: Applying probabilities Equations (20)–(22) to Equations (11) and (12), we obtain the qualityvalues of components and products in the (k + 1)-th production cycle under the recycle-preferent procurement policy:

ECkþ1i ðtÞ ¼ EinðtÞ � a � b � Pk

in � ðEinðtÞ � EimðtÞÞ � a � Pkin � Pi2I EC

ki ðTÞ � ðEiuðtÞ � EinðtÞÞ

� a � Pkin � ECk

i ðTÞ � ðð1� bÞ � EinðtÞ þ b � EimðtÞ � EiuðtÞÞ ð23Þ

EPkþ1ðtÞ ¼ Pi2I

Wi � EinðtÞ�a � Pkin � ECk

i ðTÞ � ðð1� bÞ � EinðtÞ þ b � EimðtÞ � EiuðtÞÞ�

�a � b � Pkin � ðEinðtÞ � EimðtÞÞ � a � Pk

in � Pi2I ECki ðTÞ � ðEiuðtÞ � EinðtÞÞ� ð24Þ

We can see that the product quality is determined by component quality in the last operation cycle and is also influ-enced by the differences between component qualities in possible states. Improving component quality in the last pro-duction cycle or the usefulness values of new components can both bring a higher product quality. After calculating theproduct quality in a different period of investigation, substituting the obtained values into Equation (17), the value ofsystem quality performance in the recycle-preferent procurement policy scenario is obtained.

3.1.2 Product evaluation model with fixed proportion of new components

This procurement policy represents the proportion of new components used in each production cycle being fixed,denoted as r, if the prices of components remain unchanged (CSi and CRi). We assume that the recycling centre canalways meet the manufacturer’s needs. According to Figure 3, when the selling prices of new and recycled componentschange to CSiðkÞ and CRiðkÞ respectively at the beginning of production cycle k, the proportion of recycled componentsused in production will be ð1� rÞð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ. Thus the procurement policy in this scenario canbe described as:

Pkþ1in ¼ r � ððr � 1Þ � Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞ=r þ 1Þ ð25Þ

Pkþ1im ¼ ð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ � PFk

im=ðPFkim þ PFk

iuÞ¼ ð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ � b � ð1� ECk

i ðTÞÞ=

b � ð1� ECki ðTÞÞ þ ECk


ECkj ðTÞ

� �� ð26Þ


Pkþ1iu ¼ ð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ � PFk

iu=ðPFkim þ PFk

iuÞ

¼ ð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ � ECki ðTÞ � 1� P

j:j–i;j2IECk

j ðTÞ� ��



ECkj ðTÞ

� �� ð27Þ

Ecological and economic evaluations: Applying a similar analysis to that in Section 3.1.1, we can use the above-obtained ratios Equations (25)–(27) to calculate the value of ecological and economic performance easily. Here, for thebrevity of this paper, the solution process description is omitted (please refer to Section 3.1.1).

Product quality evaluations: Applying a similar analysis to that in Section 3.1.1, we can calculate the qualities of com-ponents and products under this procurement policy from the following formulas:

ECkþ1i ðtÞ ¼ r � ððr � 1Þ � Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞ=r þ 1Þ � EinðtÞ þ ð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ

��b � ð1� ECk

i ðTÞÞ�:EimðtÞ þ ECki ðTÞ � ð1� P

j:j–i;j2IECk

j ðTÞÞ � EiuðtÞ� �

�b � ð1� ECk

i ðTÞÞ þ ECki ðTÞ�:ð1� P

j:j–i;j2IECk

j ðTÞÞ�

ð28Þ

EPkþ1ðtÞ ¼ Pi2I

Wi ��r � ððr � 1Þ � Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞ=r þ 1Þ � EinðtÞþð1� rÞ � ð1þ Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞÞ

��b � ð1� ECk

i ðTÞÞ�EimðtÞ þ ECki ðTÞ � ð1� P

j:j–i;j2IECk

j ðTÞÞ � EiuðtÞ��

�b � ð1� ECk

i ðTÞÞ: þECki ðTÞ � ð1� P

j:j–i;j2IECk

j ðTÞÞ�

ð29Þ

Although the recycled component quality is set to be independent of its selling price, the change of a component’sselling price will indirectly affect the future product quality by the manufacturer’s adjustment of the recycled componentproportion in production. From the above derivation, we can see that the dynamic characteristic of product quality inthis scenario is determined by, on the one hand, both the usefulness values of new components, repaired componentsand directly reused components and, on the other, the trade-offs between cost and environment (represented by the pro-portion of recycled components used in production). Regarding the former, different component states have differentimpacts on the final product quality, which is mainly determined by the pre-set fixed proportion of new components inproduction. In this scenario, increasing the usefulness values of components in possible states can improve the productquality. Whereas regarding the latter, its impact on the final product quality is determined by the shape of the trade-offcurve. Finally, applying Equation (17), the result of production quality evaluation in the fixed proportion procurementpolicy scenario can be obtained.

3.1.3 Product evaluation model with a lower bound limit on new component proportion

In this scenario, the proportion of new components should not be less than a certain value (denoted as pp in this paper).Taking into consideration the impact of price change, the prerequisite of this fixed lower bound is the constant sellingprices of components. When selling prices change, similar to the analysis in Section 3.1.2, the dynamics of the propor-tion lower bound of new components at time k can be expressed as:

Pkþ1in ¼ pp � ððr � 1Þ � Fip1ðCSiðkÞ=CSi � CRiðkÞ=CRiÞ=r þ 1Þ ð30Þ

Because of this threshold parameter, there are two possible situations: if the total amount of available recycled com-ponents from the recycling centre is less than that corresponding to proportion ð1� Pkþ1

in Þ, they will all be reused in thenext production cycle and the insufficient part will then be met by new components from a supplier. On the contrary, ifthey exceed the limit, the real reused components will account for ð1� Pkþ1

in Þ the total components, while the new com-

ponents will account for Pkþ1in .

4054 C. Li

Ecological evaluation, economic evaluation and product quality evaluation: Careful analysis reveals that a closed-loopsupply chain in this lower bound limit procurement policy is, in fact, a combination of the first two scenarios. Fromdescriptions in the previous paragraph, it is clear that the first possible situation is a special case in the recycle-preferentscenario (see Section 3.1.1), while the second is a special case in the fixed-proportion scenario where r ¼ Pkþ1

in (see Sec-tion 3.1.2). Therefore, according to the context of the particular problem, we can directly apply models presented inSections 3.1.1 and 3.1.2 to obtain the values of the three sub-evaluations as well as the comprehensive assessment ofthe closed-loop supply chain system. For the sake of brevity, the evaluation process in this scenario will not be pre-sented (please refer to Sections 3.1.1 and 3.1.2).

3.2 Product evaluation models with cost-dependent recycled component quality

This section focuses on the scenario where recycled component quality is cost-dependent. In other words, there is apositive correlation between manufacturers’ spending on recycled components and the received component quality.Figure 4 presents a price-failure rate multiplier chart to illustrate this positive correlation. We can see from Figure 4 thatvalue of failure rate multiplier factor ki tends to decrease as the selling price of recycled components increases. At ahigh selling price, multiplier factor values are close to 1, which means the reliability of repaired components is close tothat of new components. The increased selling price of recycled components, on the one hand, might bring about thereduction of the proportion of recycled components used in production from an economic perspective. On the otherhand, from the perspective of improving product quality, it might encourage manufacturers to increase the use of recy-cled components. Thus, there is a trade-off between the cost and the quality, the result of which also affects the environ-mental performance of the manufacturer (represented by the proportion of recycled components used in production).Here, we employ Figure 5 to illustrate the relationship between these factors. In Figure 5, the curve above the horizontalline of Fip2 ¼ 0 indicates that the positive effects on the preference for recycled components from improved componentquality offset the negative effects from increased cost. On the contrary, the curve below line Fip2 ¼ 0 indicates the pref-erence of new components after the trade-off between the increased cost and the relatively weak quality improvement(denoted by the value changes of the failure rate multiplier factor at time k: kiðCRiðkÞÞ=kiðCRiÞ). It is clear that curvefunctions, kiðCRiðkÞÞ in Figure 4 and Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ in Figure 5, show the trade-offs among cost, quality andenvironment. Similar to Section 3.1, product evaluation model analysis will be carried out in three procurement policyscenarios.

1 1.5 2 2.5 3 3.5 40.5

1

1.5

2

2.5

3

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Selling price per unit of recycled component: CRi(k)

Mul

tiplie

r fac

tor o

f com

pone

nt fa

ilure

rate

: k i

k1k2k3k4k5

0 5 10 15 20 25 30 350

1

2

3

4

5

6

7

electric motor fitting curve: k1

control panel fitting curve: k2

heating tube fitting curve: k3

electric motor statistics pointcontrol panel statistics pointheating tube statistics point

Figure 4. The price-failure rate multiplier relationship chart.


3.2.1 Product evaluation model with recycle-preferent procurement policy

This procurement policy is the same as that in Section 3.1.1. Taking into consideration the interdependence betweenselling price and component quality described above, we rewrite the reliability function and corresponding usefulnessfunction of repaired component i at time t in the k-th production cycle as:

RkimðtÞ ¼ exp �

Z t

0

kiðCRiðkÞÞkiðxÞdx� �

ð31Þ

EkimðtÞ ¼ Rk

imðtÞVimðtÞ ð32ÞThen, the quality function of component i in the k-th production cycle is:

ECki ðtÞ ¼ Pk

inEinðtÞ þ PkimE

kimðtÞ þ Pk

iuEiuðtÞ ð33ÞApplying Equation (33) to Equation (24), we obtain the quality value of the product in the (k + 1)-th production cycleunder the recycle-preferent procurement policy with the cost-dependent recycled component quality.

Ecological and economic evaluations: Substituting the obtained component quality function Equation (33) into the pro-curement strategy model Equations (20) to (22), we get the quantities and corresponding proportions of components ineach production cycle. Applying a similar analysis as in Section 3.1.1, the values of ecological and economic perfor-mance can be easily obtained.

Product quality evaluation: Although the final product quality model shares the same form of that in Section 3.1.1,there are more complex internal dynamics in this scenario due to the cost-based dynamic quality of recycled compo-nents. The quality change of the recycled component not only affects the final product quality in the same productioncycle, but also affects product quality in future through the reverse logistics in closed-loop supply chains. After calculat-ing the product quality in a different investigation period, substituting the obtained values into Equation (17), the valueof product quality performance in the recycle-preferent procurement policy scenario is obtained.

3.2.2 Product evaluation model with fixed proportion of new components

Compared with the procurement policy analysed in Section 3.1.2, both the selling price changes and the correspondingquality changes of recycled components should be considered in the procurement decision making in this scenario.

-4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0-1

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Rate of component failure rate changes: k i(CRi(k))/ki(CRi)

Prop

ortio

n ch

ange

of r

ecyc

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com

pone

nts:

Fip

2

0 0.5 1 1.5 2 2.5 3-0.8

-0.6

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0

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1fitting curvestatistics point

Figure 5. The relationship between cost, quality and proportion of recycled components.

4056 C. Li

According to Figures 4 and 5, the selling price of recycled components at the beginning of the k-th production cycle(denoted by CRiðkÞ) brings new reliability dynamics of the repaired components – please see Equation (31) – and thecorresponding rate of failure rate multiplier factor changes kiðCRiðkÞÞ=kiðCRiÞ determines the proportion of changes ofrecycled components used in production, denoted by Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ. Thus, the procurement policy in thisscenario can be expressed as:

Pkþ1in ¼ r � ððr � 1Þ � Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ=r þ 1Þ ð34Þ

Pkþ1im ¼ ð1� rÞ � ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ � PFk

im=ðPFkim þ PFk

iuÞ

¼ ð1� rÞ � ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ � b � ð1� ECki ðTÞÞ b � ð1� ECk

i ðTÞÞ þ ECki ðTÞ � 1� P

j:j–i;j2IECk

j ðTÞ� ��

ð35Þ

Pkþ1iu ¼ ð1� rÞ � ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ � PFk

iu=ðPFkim þ PFk

iuÞ

¼ ð1� rÞ � ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ � ECki ðTÞ � 1� P

j:j–i;j2IECk

j ðTÞ� ��



ECkj ðTÞ

� �� ð36Þ

Ecological and economic evaluations: Substituting the obtained proportions of components into the basic economic andecological evaluation models Equations (1) and (18), we can get the values of evaluations in these dimensions,respectively.

Product quality evaluations: Substituting Equations (34)–(36) into component quality function, Equation (33), we thenobtain the quality of the components and of the product in this procurement policy scenario:

ECkþ1i ðtÞ ¼ r � ððr � 1Þ � Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ=r þ 1Þ � EinðtÞ þ ð1� rÞ

� ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ ��b � ð1� ECk

i ðTÞÞ � EimðtÞ þ ECki ðTÞ�: 1� P

j:j–i;j2IECk

j ðTÞ� �

� EiuðtÞ� �

�b � ð1� ECk

i ðTÞÞ þ ECki ðTÞ�: 1� P

j:j–i;j2IECk

j ðTÞ� ��

ð37Þ

EPkþ1ðtÞ ¼ Pi2I

Wi ��

r � ððr � 1Þ � Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ=r þ 1Þ � EinðtÞ þ ð1� rÞ�:ð1þ Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞÞ��b � ð1� ECk

i ðTÞÞ � EimðtÞ þ ECki ðTÞ� 1� P

j:j–i;j2IECk

j ðTÞ� �

� EiuðtÞ� �


i ðTÞ� : 1� Pj:j–i;j2I

ECkj ðTÞ

� �� ð38Þ

�

The above derivation shows that the final product quality is largely determined by the proportions of different typesof components used in production which, on the one hand, reflect the trade-offs between the recycled component priceand the component quality and, on the other hand, indicate manufacturers’ environmental performance in using recycledcomponents. The above analysis suggests that product quality dynamics in this procurement policy scenario can beviewed as the result of trade-offs among cost, environment and quality in a closed-loop supply chain. Based on theabove quality dynamics, we can easily get the result of product quality evaluation in this procurement strategy.

3.2.3 Product evaluation model with a lower bound limit on new component proportion

In this scenario, the lower bound of new component proportion in production is determined by the trade-offs betweenthe recycled component price and the corresponding component quality improvement. Similar to the analysis in Sec-tion 3.1.3, the proportion lower bound of new components in production cycle k can be expressed as follows, where ppis the initial lower bound:

Pkþ1in ¼ pp � ððr � 1Þ � Fip2ðkiðCRiðkÞÞ=kiðCRiÞÞ=r þ 1Þ ð39Þ


Further, we get the upper bound of recycled components used in production: ð1� Pkþ1in Þ. From a comparative analy-

sis of the former two strategy scenarios with this one, we conclude the following of their relationship:

Ecological evaluation, economic evaluation and product quality evaluation: In fact, this scenario can also be viewedas a combination of the scenarios in Sections 3.2.1 and 3.2.2. When evaluating supply chain performance on boundaryvalues, we can apply the evaluating process presented in Section 3.2.2; otherwise, apply the evaluating processpresented in Section 3.2.1. For the sake of brevity, we don’t describe their evaluation process in detail here.

3.3 Simulation and analysis

From the above analysis, we find that, on the one hand, the procurement strategy choice directly determines the usageamount of recycled components and plays a major role in the evaluation of closed-loop supply chain performance. Onthe other hand, there are complex internal relationships between the three sub-evaluation modules, in which the qualitydynamics of recycled components play a key role: in this inherent logic, recycled component quality directly influencesthe final product quality and the corresponding quality evaluation value and, at the same time, it indirectly affects sys-tem’s economic performance as well as the ecological performance by its influence on procurement policy or, more pre-cisely, on the amount of recycled components used in production. On the whole, the characteristics of the productsystem itself and the trade-offs among cost, environment and quality in procurement policy decision making togetherdetermine the dynamic performance characteristics of products in closed-loop supply chains. Thus we can say that theeconomic evaluation, the quality evaluation and the ecological evaluation are, in fact, inter-related, and do not just havethe simple superficial linear relationship shown in the production evaluation model. In this section, we present numericalexamples to illustrate the proposed production evaluation model and to gain more insight into the complex internal rela-tionships between closed-loop supply chain performances in different sub-evaluation dimensions. We carry out the com-putational experiment, with the help of MATLAB software, on a closed-loop supply chain system, depicted in Figure 1.

In this computational experiment, we set the following: the fixed production cycle T ¼ 6, a product consists of fiveindependent components, there are no recycled components in the initial system state. The selling price changes of com-ponents occur in the beginning of the seventh production cycle. To simplify model analysis, we assume that new com-ponents have constant failure rates. In addition, the exponential function is employed to describe the graduallyincreasing out-of-date rates of components. The values of failure rates and the generated out-of-date rates are reported inTable 1. Other parameter settings are summarised in the appendix.

This simulation is carried out in two scenarios with respect to the relationship between price and quality that has beendescribed in detail in Sections 3.1 and 3.2: recycled component quality is cost-independent and cost-dependent. In bothscenarios, to investigate the effect of procurement policy on supply chain performance, we calculate the value of produc-tion evaluation as well as its three sub-evaluations under the three types of procurement policies which are respectivelypresented in Sections 3.1 and 3.2, and further examine their dynamic characteristics in the presence of prices changes.

3.3.1 Simulation result of the cost-independent recycled component quality scenario

We set that the trade-offs between cost and environment (proportion of recycled component) satisfies the relationshipshown in Figure 3, and the component recycling proportion and repairability proportion are: a = 0.7, b = 0.9. Consider-ing the scenario where the recycled component quality is independent of its selling price, computer simulations arecarried out based on the three procurement policies described in Sections 3.1.1–3.1.3, respectively. The results arereported in Figure 6.

Sub-figures in Figure 6 show the evaluation results of production in a closed-loop supply chain under the recycle-preferent procurement policy, the fixed proportion of the new component procurement policy and the lower bound limit

Table 1. The value of parameters used in simulation.

Component Failure rate Out-of-date rate Weight valuei kiðtÞ viðtÞ Wi

1 0.090 0.29⁄1.15 exp (0.15⁄t-19.0)-0.0204 0.89292 0.080 0.33⁄1.20 exp (0.15⁄t-16.0)-0.0178 1.04173 0.092 0.28⁄1.30 exp (0.15⁄t-14.0)-0.0071 0.74404 0.086 0.31⁄1.20 exp (0.15⁄t-16.0)-0.0168 0.59525 0.095 0.20⁄1.52 exp (0.15⁄t-11.0)-0.0020 0.7440

4058 C. Li

procurement policy, respectively. Figure 6 reveals that, before the time point of price changes (Time ¼ 36), evaluationvalues of both production and its three sub-evaluation systems are stabilised after several operation steps: values in theeconomic dimension and the ecological dimension will increase and peak in the second production cycle, then decreaseand finally level off (the recycle-preferent procurement policy), or stabilise (the latter two policies) at higher values thantheir initial states; the same trend is also reflected in the overall evaluation of the production system, with smallerfluctuations compared to those of its sub-evaluation values. Although the dynamics in the quality evaluation dimensionshows the opposite trend, which decreases and levels off at a lower value (in all three procurement policies), it is clearthat the decreased values of quality evaluation do not have much impact on production evaluation. This may be due tothe relatively lower weight setting of product quality in system evaluation. These stationary states will remain untilthe component prices change in the seventh production cycle, where Time ¼ 36. It can be seen from the modeldescription in Section 3.1 that price changes (component prices increase to ½CSi� ¼ ½5:0; 4:3; 4:7; 3:5; 5:2�;½CRi� ¼ ½1:7; 1:4; 1:5; 1:5; 1:6�) in this simulation scenario will first directly affect the economic performance of the sup-ply chain, as reflected in the decrement of the economic sub-evaluation dynamics in the three sub-figures. Comparedwith the almost unchanged value in the recycle-preferent procurement policy, ecological evaluation values in the othertwo procurement policies show increments from 0.5 to 0.7 (the fixed proportion scenario), and 0.25 to 0.35 (the lowerbound limit scenario), respectively, and the largest ecological evaluation value occurs under the fixed proportion of newcomponent procurement policy with EV3 � 0:71. On the whole, comparing the three sub-figures in Figure 6, one cansee that, first, the fixed proportion of the new component procurement policy performs better than the other two policies,though its product quality evaluation is certainly the poorest of the three policies. Second, although the production sys-tem in the recycle-preferent procurement policy and the lower bound limit procurement policy share the similar finalevaluation values, their dynamics are quite different: process values under the first policy show large fluctuations duringthe initial stages, while those under the third policy are relatively stable.

economic evaluation quality evaluation ecological evaluation production evaluation

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Figure 6. Dynamic characteristics of production evaluation and its three sub-evaluations in different procurement policy scenarioswith cost-independent component quality.

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Figure 7. Dynamic characteristics of production evaluation and its three sub-evaluations in different procurement policy scenarioswith cost-dependent component quality.


3.3.2 Simulation results of the cost-dependent recycled component quality scenario

Simulation results of evaluation dynamics in the three procurement policies with cost-dependent recycled componentquality are shown in Figure 7. In these scenarios, the trade-offs among cost, quality and environment (proportion ofrecycled components used in production) is assumed to satisfy the relationships shown in Figures 4 and 5. It is clearthat simulation settings in this section and the previous section only differ in whether the price of recycled componentshas a direct impact on component quality. Similar to the analysis in the previous section, we first explore and comparesupply chain performance in different procurement policies and then compare them with those in the cost-independentscenario (Section 3.3.1).

On the one hand, the evaluation dynamics in Figure 7 show some similarity to those in Figure 6: the production sys-tem under the fixed proportion of the new component procurement policy receives the highest evaluation valueEV � 0:19, and the other two policies share similar final stable values both in the total evaluation dimension and thethree sub-evaluation dimensions. On the other hand, ecological evaluation values in both the recycle-preferent procure-ment policy and the lower bound limit procurement policy are significantly lower than those of the same policy in thecost-independent scenario (see Section 3.3.1) and this contributes most to the relative decline of the total productionevaluation. In the first procurement policy, the increased recycled component price implies better component quality,which in turn reduces the availability of recycled components in future production and thus directly affects ecologicalperformance. In the third procurement policy, the upper limit of recycled components in production is extended whenthe component price increases. However, the actual availability of recycled components is reduced due to the higherquality. This explains why the ecological evaluation in this scenario is lower than that in the cost-independent scenario.On the contrary, the ecological evaluation in the fixed proportion of the new component procurement policy increasessignificantly, which even counteracts the effects of the reduced quality evaluation value and brings the highest produc-tion evaluation value of all simulation scenarios.

Summing up the above comparison and analyses, it is clear that procurement strategies not only impact the total costin closed-loop supply chains, but also result in different product quality dynamics and consequently influence qualityevaluation, ecological evaluation and final production evaluation. Furthermore, the final stable value of production eval-uation that occurs in all scenarios can be viewed as a characteristic of closed-loop supply chain dynamics. The charac-teristics of the product system itself and the trade-offs among cost, environment and quality in procurement policydecision making together determine the final evaluations. The observed complex evaluation dynamics indicate thecomplex internal relationships between sub-evaluations, which also reflect the manufacturer’s trade-offs in production.

4. Corporate procurement strategy optimisation based on the production evaluation model

With intensified competition and the emergence of the diversification of customer demands, forecasting plays a moreimportant role than ever in today’s business management activities. More and more companies recognise theimportance of closed-loop supply chain management as a means of promoting their own development and meeting therequirements of the public. As described in the previous section, the choice of procurement policy not only directlyimpacts the economic performance of a supply chain system, but also indirectly affects its final product quality as wellas environmental performance. Being an indispensable part of closed-loop supply chain management, procurementpolicy decision making largely determines the success or failure of a company’s overall sustainable development strat-egy. Facing complex and dynamic social and economic environments, manufacturing companies usually have multipleprocurement strategies from which to choose. In reality, forecasting in procurement management is more often con-fronted with a manager’s subjective judgment than with accurate objective statistical data. The effective forecasting ofthe performance of a closed-loop supply chain under a certain procurement policy will be helpful for achievingsustainable development goals, which emphasise not only economic gains but also product quality improvement andecological environment protection. This section presents an outline and flow chart of corporate procurement strategyoptimisation, which allows the proposed production evaluation model in the previous section to be implemented incomputer-aided decision making, and further provides decision support for production systems and closed-loop supplychain management.

Taking into consideration the various influencing factors in the choice of procurement policy, Figure 8 illustrates theflow chart for the decision support simulation system of a closed-loop supply chain under different procurement policyscenarios. It provides a general framework of how the dynamic evaluation framework presented in this paper may beapplied to computer-aided decision making, and this enhances the practicality of the proposed evaluation framework incorporate procurement strategy optimisation. From this flow chart, we can see that the strategy optimisation process takesinto account the economic, the quality and the ecological values of production and, to some extent, the socio–economic

4060 C. Li

environmental factors. Thus it helps to provide comprehensive optimisation from multidimensional perspectives. The nextsection will show the application of this evaluation and optimisation process to an actual business case analysis.

5. Case study

5.1 Background of case company

The case study is conducted at a manufacturing company, with the alias name of JD, which produces soy milk machines– a popular small appliance for household use in China. JD Company offers not only the soy milk machines but alsoseveral other types of small household appliances, such as electric rice cookers, electric grilling machines and egg boil-ers, all of which are low-tech products. The soy milk machine is its main product and represents the vast majority ofthe company’s sales. The production of soy milk machines does not require too much technology and its key link liesin finding the appropriate components, especially regarding the key components, assembling and installing them toachieve the specific functions or features of the product, such as milling, mixing and boiling. From market data analysis,the product sales achievement of soy milk machines is better than that of other products, and it has a larger marketshare in the local market than similar products of other brands.

JD Company has been exploring its production mode for some time, and a certain amount of recycled componentshave been used in its soy milk machine production. Now the leaders of the company are exploring new development

Ecological evaluation

Product quality evaluation

Economic evaluation

Achieve the desired value?

No

Start

Corporate procurement strategy Production and operation data External economic and environmental dataAdjust strategy

Choose suitable dynamic evaluation model according to the nature of problem

Dynamic statistics of enterprises’ economic performance

Dynamic statistics of product quality performance

Composition of production, the type and usage amount of components


No Achieve the desired value?

No

The total production evaluation in closed-loop supply chain


No

Yes Yes Yes

Yes

Output the optimized procurement strategy;Provide decision support information;

Figure 8. Flow chart for procurement policy analysis and optimisation in closed-loop supply chain.


strategies, and the strategic centre of gravity lies in adjusting the pattern of its production structure, improvingproduction processes and optimising the procurement policy of raw materials and components. These measures areintended to focus on improving the ability of production research and development, with soy milk machines as its coreproduct, and on extending market reach in its strategic brand building. As part of its strategic research programme,establishing an appropriate evaluation system to guide strategy optimisation is what our research team is focused on.

A soy milk machine consists of three core components: the electric motor, the control panel and the heating tube.These core components largely determine the final product function and performance. The case study is based on thesethree components while ignoring the effects from other components. The quality and performance data associated withthese components are: from statistical reports, the component failure rates of the electric motor, control panel and heatingtube during the study period are k1 ¼ 0:007; k2 ¼ 0:004; k3 ¼ 0:002, respectively; from the consumer survey feedback,the out-of-date rates of components are reported in Figure 9. In addition, extracted from historical data and managerfeedback, the mutual-influence relationships that occur in the procurement process of components, such as those betweenpurchase quantity, price and quality, are shown in the sub-graphs of Figures 3–5. Other evaluation data, including thefinancial data (main business revenues and raw material costs), the production data (amounts and qualities of new andrecycled components used in production) and the weights of economic, quality and ecological sub-evaluation modules(taking into account both the results of market research surveys and experts’ opinions), are shown in the appendix. Then,applying the production evaluation model proposed in Section 3, we first analyse the performances of this product underdifferent scenarios and then explore how the weight of the ecological evaluation affects the evaluation results.

5.2 Evaluation results and analysis

An analysis of JD Company’s production management process shows that there is adequate supply of the related recy-cled components in the market, and whose quality depends on the supply prices. The problem faced by JD in its com-ponent procurement policy is the trade-off between price and quality. In other words, when component procurement isviewed as a decision problem (decision value – procurement quantity) with a single decision variable (the price or thequality, but not both), the relationship between them can be easily determined, as those shown in the sub-graphs ofFigures 3 and 5; but when it is required to consider both decision variables (price and quality) at the same time, thedecision is usually made by the manager’s subjective judgment. Thus the advantage of utilising existing marketinformation is lost. Here, our first endeavour is to find a compromise point (denoted as parameter q) where the companymakes its procurement decision that takes into account the impact of both price and quality. When we get the procure-ment quantities based on the change of price (subfigure in Figure 3) and the quality (subfigure in Figure 5), denoted by

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Figure 9. The out-of-date rates of the core components of soy milk machine.

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q1 and q2 respectively, the actual purchases will be q1 þ q � q2. To imitate the real economic environment, moderaterandom fluctuations are added to the new component prices. According to the nature of the problem, we choose themodels presented in Section 3.2.2 to carry out the analysis. The results are shown in Figures 10–13.

It is clear from Figures 10–13 that, on the one hand, the choice of recycled components has an obvious impact onproduct evaluation. To all the three core components, their evaluation values on the economic dimension decrease as theprices of the recycled components increase. On the contrary, with rare exceptions, evaluation values on both the qualityand ecological dimensions have the same trend as that of the price: the higher the recycled component price, the higherthe evaluation scores. On the other hand, even with the same price, different values of parameter q may bring quite dif-ferent evaluation values. Subfigures in Figure 10 imply that we can obtain the optimal production evaluation values (red

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Figure 10. The production evaluation results of JD’s flagship product.

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Figure 11. The economic evaluation results of JD’s flagship product.


area in these figures) by finding the appropriate value combination of the component price and parameter q. Forexample, the total production evaluation value from higher recycled component price and higher q value will be closeto that from lower price and lower q. The figures also present that, for the same component procurement problem,there is usually more than one optimum strategy. This provides more options for production managers to deal with thepossible changes of factors and thus improves the robustness of their procurement policy design.

Lastly, we explore the impact of environmental awareness among consumers on the optimisation of the company’sprocurement policy. Keeping the weight values of the economic evaluation and the quality evaluation, we first increasethe weight of the ecological evaluation and then decrease it. Results are shown in Figures 14 and 15, respectively.

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Figure 12. The product quality evaluation results of JD’s flagship product.

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Figure 13. The ecological evaluation results of JD’s flagship product.

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Comparing Figures 14 and 15 with Figure 13, it is apparent that an area of the optimal procurement strategy param-eters is affected by the values of ecological weight: when the ecological weight increases to EWg ¼ 0:8 (Figure 14), thered region of the optimum procurement parameters is concentrated in high-value areas. In contrast, the red optimumstrategy region moves to the low-value areas when the ecological weight reduces to EWg ¼ 0:2 (Figure 15). These char-acteristics imply that when ecological evaluation occupies a larger portion of the comprehensive evaluation, theincreased ecological evaluation will offset the impact of decreased economic and quality evaluations on the final produc-tion evaluation. Contrarily, when the importance of ecological evaluation in the total evaluation decreases, it is advisableto increase the economic values by choosing recycled components with lower prices, so as to compensate the loss fromthe declines of quality and ecological evaluations.

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Figure 15. The production evaluation results with low ecological weight.

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Figure 14. The production evaluation results with high ecological weight.


This case study, on the one hand, provides an example of how the evaluation models proposed in this paper are inte-grated into the company management’s decision making and, on the other hand, it shows the importance of investigatingthe complex internal relationship dynamics in closed-loop supply chain production, including their effects on manufac-turers’ procurement policies and on total production performance. This will provide useful insight for closed-loop supplychain management.

6. Conclusion

In this paper, we investigate the production evaluation problem in closed-loop supply chains, where the recycled andreused components play a key role in system performance. The proposed comprehensive evaluation framework consistsof economic evaluation, product quality evaluation and ecological evaluation modules. From the viewpoint of materialflow and cash flow, we describe the dynamic characteristics of a product in a closed-loop supply chain and further buildthe dynamic evaluation models of the product in several common procurement strategies, which take into considerationthe trade-offs among cost, environment and quality. An outline of how the proposed evaluation models are integratedinto the company’s computer-aided decision-making support system is also presented. Finally, simulation and a casestudy are provided to promote a better understanding of the evaluation model approach and its managerial implications.The results show that both the procurement strategy and the quality of recycled components have a great impact on theresult of the production evaluation. Special attention should be paid to the trade-offs between cost, product quality andenvironment in the optimisation of the recycled component procurement policy. On the one hand, these models enableus to study the endogenous dynamic mechanism of product quality in closed-loop supply chains. On the other hand,they provide a comprehensive quantitative method for evaluating and optimising production systems in sustainable sup-ply chains.

It is important to note that our model is open-ended. There are several avenues for future research, such as extendingthe proposed models to more complex reverse logistics, taking into consideration other complex sustainable procurementpolicies, and so on. These studies will improve our understanding of sustainable supply chains and will be helpful toboth theoretical research and practical operations management.

AcknowledgementsThe authors would like to thank the anonymous referees and editors for their valuable comments and suggestions on this paper.

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Appendix A

Table 2. Notation used in the production evaluation model and values in the simulation and case study.

Symbol Meaning Values in simulation Values in case study

PSi Production cost per unit of new component i PS1 ¼ 3:0 ignorePS2 ¼ 2:0PS3 ¼ 2:9PS4 ¼ 1:7PS5 ¼ 3:1

Ppni Unit production cost when using new component i inproduction

Ppn1 � Ppn5 ¼ 4:2 Ppn1 � Ppn3 ¼ 5

Ppri Unit production cost when using recycled componenti in production

Ppr1 � Ppr5 ¼ 5:5 Ppr1 � Ppr3 ¼ 5

Ppc Fixed production cost per unit of product 1.2 0.8Pdv Distribution inventory cost, per unit of product 0.5 1.2Pdt Distribution transportation cost, per unit of product 1.0 2.3Pdc Fixed cost in distribution 200 400Pt Recovery cost per unit of product 0.9 ignorePtv Inventory cost at product recovery centre, per unit of

product0.4 ignore

Ptt Transportation cost of product recovery, per unit ofproduct

0.6 ignore

Ptc Fixed cost of product recovery 60 ignorePrmi Repair cost per unit of bad component i at recycling

centrePrm1 � Prm5 ¼ 1:1 ignore

Prui Maintenance cost per unit of good component i atrecycling centre

Pru1 � Pru5 ¼ 0:2 ignore

Prc Fixed cost at recycling centre 85 ignoreCSi Selling price per unit of new component i CS1 ¼ 3:5

CS2 ¼ 2:8 CS1 ¼ 30��CS3 ¼ 3:3 CS2 ¼ 25��CS4 ¼ 2:0 CS3 ¼ 12��CS5 ¼ 3:8

CC Selling price per unit of product 75 150CRi Selling price per unit of recycled component i CR1 ¼ 1:5

CR2 ¼ 1:2 CR1 ¼ 24CR3 ¼ 1:5 CR2 ¼ 17CR4 ¼ 1:3 CR3 ¼ 10CR5 ¼ 1:6

QSPi Quantity of new component i from supplier tomanufacturer

QSP1 � QSP5: Undetermined⁄ To be optimised

QPD Quantity of products in one production cycle 200 600QRPi Quantity of recycled component i used in production QRP1 � QRP5: Undetermined⁄ To be optimisedQCT Quantity of recycled products in a production cycle Undetermined⁄ To be optimisedQRmi Quantity of repaired component i from recycling

centreQRm1 � QRm5 : Undetermined⁄ ignore

QRui Quantity of directly reusable component i fromrecycling centre

QRu1 � QRu5 : Undetermined⁄ ignore

EWe Evaluation weight of economic performance inproduction evaluation

0.3 1

EWq Evaluation weight of product quality in productionevaluation

0.6 1.5

EWg Evaluation weight of production ecologicalperformance in production evaluation

0.1 0.5

Notes: ⁄value is determined by specific procurement strategies in simulation.⁄⁄data from production records (price unit: yuan RMB).

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Table 3. Random new component price setting for the forecast period.

New component price Values⁄

Electric motor CS1 32.68 32.75 32.22 30.67 28.34 32.65 33.09 31.09 33.51 30.19 25.44Control panel CS2 22.81 25.79 25.80 24.15 26.53 26.98 25.27 24.99 24.82 24.59 26.17Heating tube CS3 13.79 12.69 11.42 13.02 13.15 11.61 12.68 12.89 11.03 11.72 12.08

Note: ⁄component prices change in the beginning of production cycle.


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