A product recovery inventory model with a circular economy indicator

Department of Mathematical and Actuarial Sciences, Lee Kong Chian Faculty of Engineering & Science, Universiti Tunku Abdul Rahman, Malaysia

^* Corresponding author: yeohg@utar.edu.my

Abstract

The circular economy concept has been proposed as a way to increase sustainability, where manufacturers reduce waste by keeping materials in circulation as much as possible through product recovery, and consumers support these manufacturers by buying from them. Hence, the aim of this paper is to demonstrate the advantage of investing in circular economy activities by proposing an Economic Production Quantity inventory model for a finished product in a circular economy, where the finished product can be manufactured from raw materials and remanufactured from used items. The variable level of circularity is indicated by an index between 0 and 1. Both the production quantity and the circularity level are taken as a decision variables. The proposed model also takes carbon emission costs into account. A solution procedure to find the optimal policy is presented and is illustrated with numerical examples. Our analysis showed that investing in circular economy activities is advantageous, even when it is more profitable to manufacture than it is to remanufacture.