Benefits of Vendor-Managed Inventory for the Reverse Logistics Operations of Returnable Transport Items

Abstract

As closed-loop supply chains are gaining importance in many industries as key enablers of reduced waste and ecological footprint, new challenges arise in integrating forward and reverse logistic flows. We focus on a variation of the production routing problem with open routes and explore the benefits of vendor-managed inventory (VMI) policies forthe reverse logistics operations of returnable transport items. A stochastic two-stage program considering the considerable uncertainty of return flows is developed and solved using sample average approximation and relaxation-based bounds. We find that the benefits of VMI are not only linked to lower operational cost but also higher performancestability. Further, the strategic choice for which nodes to implement VMI in hybrid networks of partially VMI and non-VMI nodes can positively impact the network performance.

Keywords: Closed-Loop Supply Chains, network design, Returnable Transport Items, Reverse Logistics, Sample Average Approximation, Vendor-Managed Inventory