An Economic Production Quantity inventory model with a circular economy indicator operating in two markets

¹ Faculty of Computing and Information Technology, Department of Mathematical and Data Science, Tunku Abdul Rahman University of Management and Technology, Kuala Lumpur Main Campus, Jalan Genting Kelang, Setapak, 53300 Kuala Lumpur, Malaysia
² Lee Kong Chian Faculty of Engineering and Science, Department of Mathematical and Actuarial Sciences, Tunku Abdul Rahman University, Sungai Long Campus, Jalan Sungai Long, Bandar Sungai Long, Cheras 43000, Kajang, Selangor, Malaysia

^* Corresponding author: sllee@tarc.edu.my

Abstract

A sustainable inventory system seeks to enhance production profits and minimize environmental impact. This study introduces an Economic Production Quantity (EPQ) model incorporating dual-market demand, recoverable items, external procurement, and variable item return rates, along with a circular economy indicator. Two scenarios are examined during the concurrent production and repair processes, and a model is devised to maximize the total profit per unit time (TPUT). In the first scenario, there is a sufficient or surplus quantity of moderate-quality return items available for repair. In the second scenario, there is an insufficient quantity of moderate-quality return items for repair, necessitating additional procurement from an external supplier. Items repaired from both scenarios will be marketed in the secondary market. Additionally, both scenarios involve the sale of repaired high-quality return items in the primary market. In the absence of a sufficient quantity of high-quality return items, new production items are anticipated to meet the remaining demand of the primary market. The proposed models are tested through numerical examples, and a numerical sensitivity analysis is conducted to explore how dual-market operations affect the total profit per unit time.